Isaac Esipisu
30 November 2004
interview
Nairobi — In the wake of the announcement by the Communication Commission of Kenya (CCK) that it was discontinuing the auction system for awarding licences, our writer ISAAC ESIPISU sought to find out from the managing director AccessKenya, JONATHAN SOMEN, what impact this would have on the ICT industry. Excerpts of the interview.
Players in the telecoms sector are thrilled by a recent statement that the CCK has scrapped the auction system in awarding licences, how was the system working before?
Previously, some licences that were available were auctioned to the highest bidder. Effectively the person who bid the most money won the licence. The direct result of this was to pay higher licence fees but reduce the amount of money operators had to spend on the infrastructure itself.
What is the experience in other developing economies?
In all economies, by having the licence fees by auction, less focus is on the technical solution but rather the financial bid for the licence. In addition, it takes away more investment from the actual project and increases the whole business cost. This will probably lead to higher rates to customers to ensure a suitable return on investments. This has increased the cost of investments, initial debts and cost of service as the investors try to recoup their costs as well as pushing higher the interest rates paid to the banks as the risk increases.
Why were players like you concerned?
Our concern was that the best technical solution would not win the licence but rather the deepest pockets. Someone who knew nothing about telecommunications could win a licence based on money but lack technical know-how to improve connectivity in Kenya.
Please can you elaborate on your answer.
This is common sense. Telecoms, is about making it easy for the players to enter the market and spend more money on their infrastructure. CCK has a framework to take a percentage of turnover from operators so the more incentives and the easier they make it for them to deploy their services, the better they will be off in the long run and so will the customers. However, the most glaring example of a failed auction are the RTOs (Regional Telephone Operators) where few of the winners have deployed networks due to ultimately what I suspect is flawed business plans due to the huge cost of the licences.
Does this amount to full liberalisation of the industry? Are there issues you would like to see CCK address?
We are heading rapidly to full liberalisation as most licence categories are now free for anyone to apply on a first-come-first-served basis. This is good news for the industry and Kenyans as a whole. The national fixed voice services and international voice remain with Telkom Kenya and need to be liberalised.
What are some of the sticking issues still unresolved?
The Second National Operator is the most political. Today, Telkom Kenya still has a monopoly on the fixed, national and international voice services despite having some competition from cellular operators. Full liberalisation also takes place when licences have been issued and today none of the alternative Internet Backbone Services licences has been issued.
Many analysts say the cost of telecommunication services will come down, is it too early to celebrate?
Competition will bring about service efficiency and improvement. Over time there is no doubt that there will be a reduction in pricing. Specifically, pricing for internet connectivity will not come down significantly by the opening up of the Internet Backbone sector. The high cost of connectivity today is because connectivity into and out of Kenya is provided using satellites. The biggest downward impact on costs will be when the submarine fibre optic cable reaches Kenya. It is important to also remember that the cost for the Internet Backbone Licence alone without any technology investment is Sh15 million. That is a significant amount of money just to get an international gateway and operators will need a suitable return on their investment, not just the equipment but the licence as well.
Why the big differential in prices?
It's a matter of demand and supply. A satellite costs probably $250 million (about Sh20 billion) to put up in the sky. It then has running costs and has a 10 year lifecycle. Once submarine fibre is put in place, it lasts much longer, has low maintenance costs and most importantly, it has enormous capacity. It is simply the law of supply and demand - there will be a very high supply which will almost certainly outstrip demand and hence it should reduce prices. This does presuppose that there will be some alternative suppliers to offer the capacity on the fibre to ensure no artificial pricing is maintained.
Major gains should be on efficiency and quality of service.
Other than pricing, what other benefits will the public enjoy?
As connectivity improves, people start to provide newer services that previously could not be provided as there are service levels that can now be met. As such, new products and innovations will start to appear in the marketplace similar to what happened when Public Data Network Operators were licensed.
Please elaborate on some of those services.
Specifically and most excitingly, Voice over IP is being considered and I believe CCK are working out the logistics of how VoIP can be provided and sold. I believe there will be a licence to provide these services. Currently intra-corporate voice within Kenya is allowed but a big advancement will be when VoIP will be allowed between different companies both locally and internationally. Specifically international VoIP will be of great benefit not just to corporates but also to individuals as it provides people with a low cost alternative for making calls.
Can you quantify the savings from this technology over conventional telephone calls?
Depending on the quality, the savings could be anything from 30 per cent to 75 per cent. There are very many different qualities for VoIP calls. However, it is a technology that the rest of the world has already embraced which has proved itself and this can only mean good news for Kenyans. We at AccessKenya are gearing up to ensure that when we are able to provide VoIP that we will do so straight away within the legal framework.
You were recently short-listed as one of the companies that will provide an alternative internet backbone and international gateway. What does it mean to an ISP such as you?
Our primary interest was to ensure that our customers have full redundancy on all parts of the service that they receive from us as well as being able to give customers the best cost / quality combination possible in the market today. We have offered all available redundancy to our clients today and the only remaining area was our international data connectivity. By being gazetted, we are ensuring that all avenues are explored and covered to ensure that our clients can get full redundancy all the way to the public internet and we can then in turn give them a guaranteed service through an SLA for their full service provision.
Under what registry does AccessKenya operate in the Kenyan market?
The registered company known as Communication Solutions Ltd trades under AccessKenya as that is our internet brand. There was some confusion recently as it was reported incorrectly that we were set to miss out on the backbone licence as our registered company name was not known.
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