Washington, DC — "Mauritius remains unique in its region in having identified ICT as a fifth pillar of its economy alongside sugar, textiles, tourism and financial services. However, it not only described a compelling vision but it went out and put it into practice. ... the need for cheaper bandwidth became an essential part of delivering this vision." - Russell Southwood
While Mauritius has a number of advantages not open to most other African countries - including a population that is well-educated and bilingual in English and French - their strategy does have significant lessons for a number of other countries that are considering making such a bid for building ICT into their development strategies. Taking advantage of cheaper bandwidth and available human resources, a number of African countries may able to complete not only in call center provision and other lower-end business process outsourcing projects, but also "moving up the value chain" to provide software programming and other higher-end services. Countries with potential in this regard include Ghana, Kenya, Senegal, and Rwanda, as well as South Africa.
This AfricaFocus Bulletin contains excerpts from a newly released case study on Mauritius written by Russell Southwood for the Association for Progressive Communications. Southwood is a leading analyst of the African ICT market and editor of the weekly Balancing Act News Update (http://www.balancingact-africa.com).
For previous AfricaFocus Bulletins on information and communication technology, including earlier reports from Balancing Act Africa, and a custom search of sites specialized in ICT in Africa, visit http://www.africafocus.org/ictexp.php
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The Case for "Open Access" in Africa: Mauritius case study
by Russell Southwood
Association for Progressive Communications (APC)
Commissioned by the Association for Progressive Communications (APC)
Conducted with support from the Social Science Research Council's (SSRC) 'Collaborative Grants in Media and Communications'.
Creative Commons Attribution-Noncommercial-Sharealike 3.0 Licence
[Russell Southwood is a leading analyst of the African ICT market.
He is a specialist of internet, telecommunications, and media developments on the continent.]
[excerpts only:full text available at
http://www.apc.org/en/pubs/research]
Introduction
This case study looks at the relationship between international bandwidth prices in Mauritius and the impact of its Cyber Island strategy. Whilst other countries along the SAT3/SAFE cable have struggled to find ways to address the high costs of monopoly international bandwidth on this cable, Mauritius has used a price determination to address the issue. Interestingly, once the process was announced, the incumbent Mauritius Telecom itself decided to lower prices ahead of the determination.
The example of Mauritius perhaps has lessons for other countries in Africa that want to find ways of changing the basis of their economies so that they can add "smart exports" alongside raw materials extraction, agriculture and tourism. Whilst it is always hard to draw direct causal links between bandwidth prices and wider changes in the economy, it is clear that Mauritius' call centre / Business Process Outsourcing (BPO) sector began to get significant growth in the years when the international bandwidth prices came down.
The nature of "smart exports" - where countries use brain-power to add value to basic tasks - may change in the coming period.
Although multinational companies have been driven to reduce their operating costs, they are also reflecting on the successes and failures of outsourcing. But there will also be new waves of outsourcing: for example, Lucas Films (responsible for the Star Wars movies) has set up a major new operation in Asia to do animation and specials effects. But whatever happens next, competitive international bandwidth will be essential to any country that wants to get this kind of work in the future.
Background
The process of liberalisation in Mauritius has in some ways been different from elsewhere in Africa. Mauritius Telecom's mobile subsidiary Cellplus launched in 1996 and was followed by Emtel which launched in 1998. Two years later in 2000 the Government privatised Mauritius Telecom by selling 40% to France Telecom for US$261 million.
Although other telco operators and ISPs have been licensed, most have remained small alongside Mauritius Telecoms' operations in these fields. However, unusually the regulator, the ICT Authority (ICTA) licensed a couple of VoIP service providers whose primary purpose was to offer cheaper international calling rates.
The telecoms sector in Mauritius currently has seven main companies: Mauritius Telecom (40% owned by France Telecom), MTML (Indian-owned Mahanagar Telephone Mauritius Ltd); Emtel (a joint venture between local owners, Currimjee Jeewanjee & Co Ltd and Millicom); NOMAD (owned by Dubai-based Galana); DCL (Data Communications Ltd), Outremar Telecom (French-owned) and Hotlink Co Ltd.
Of these, three have licences to offer mobile services (Emtel, Cellplus - recently rebranded as Orange - and MTML) and two have licences for fixed services, Mauritius Telecom and MTML. The latter offers a fixed wireless product to customers. At the end of 2007, there were 843,791 mobile subscribers and 361,319 fixed line subscribers. Unusually Mauritius Telecom is still adding fixed line customers. Cellplus has a 60% share and Emtel a 40% share of the mobile market. MTML's share is still currently negligible.
Although estimates vary, there seem to be about 50-60,000 Internet subscribers. Of these, Mauritius Telecom has 32,000 DSL subscribers and it has launched a Triple Play service offering television and Video downloads.
Emtel introduced High-Speed Downlink Packet Access (HSDPA), [a mobile technology with speeds of up to 1.8 mbps] in 2007 in some area and offers a USB modem for the service with packages costing as little as US$12 per month. These services are available in all the main locations on the island, including Cybercity. It also introduced data services in the same year through its own Wi-MAX network. Currently it runs a microwave backbone but by October 2008 will have built its own fibre backbone.
NOMAD was created after a local ISP called Network Plus was taken over by the current owners, African Digital Bridges Networks Ltd, which is in turn owned by Galana. DCL specialised in international Internet telephony (with its VoIP Easicall product) and on providing services to the BPO and call centre sector. Hotlink also offers international Internet telephony under the brand name of Yello International Call Carrier and has a partnership with an international wholesaler. Outremar Telecom is owned by a company of the same name in France that built its reputation on offering cheap international calls and is doing the same in Mauritius.
The combination of liberalisation and VoIP have considerably reduced international calling prices with even mobile rates falling to as little as 16 cents a minute for major destinations.
The ICT Act of 2001, it Amendment Act of 2002 and the Telecommunications Directive No 1 of 2008 are the key pieces of framing legislation for the sector. The first of these acts set up the regulator ICTA. Also in the same period, the Mauritius Government set up many of the enabling agencies that have played a part in the changes described below. These included the National Computer Board and the Board of Investment and other bodies covering among other things business parks (responsible for Cybercity), the Freeport and the export processing zone.
The Government realised that in a shifting global economy the economic significance of commodity exports like sugar would diminish in value and that Mauritius would have to carve itself a new vision to be part of this changing world. It wanted to move into the "smart" exports sector where people's brain work added value to basic tasks.
Mauritius remains unique in its region in having identified ICT as a fifth pillar of its economy alongside sugar, textiles, tourism and financial services. However, it not only described a compelling vision but it went out and put it into practice. As demonstrated later, the need for cheaper bandwidth became an essential part of delivering this vision. Mauritius was connected to the SAFE cable in 2000 just at the beginning of this process.
The vision had a number of strands: firstly, Mauritius wanted to attract call centres, business process outsourcing (BPO) and computer software programming; secondly, it wanted to take advantage of the bilingual capability of its citizens who speak both French and English; and thirdly, it wanted to attract computer assembly work.
Its Cybercity project was launched in Ebene, 15 kilometres south of the capital, in November 2001. The "anchor tenant" was a 12 storey double tower block to attract companies who could take advantage of a number of existing corporate incentives including low company taxes (15%), free repatriation of profits and exemption from customs duties and raw materials. To address ICT skills shortages it allowed international professionals to come and work with a new Green Card.
Mauritius also wanted to take advantage of its geographic location between Asia and Africa and make this an advantage companies would find attractive: the new SAFE cable gave it the means of communications to make this point a practical reality.
Although there was a considerable level of scepticism that the strategy would actually deliver change and fears that the Government-constructed double-tower in Ebene would become a "white elephant", the strategy has in the main been delivered.
Why and how Mauritius tackled the issue of fibre prices
With the Mauritian Government deeply committed to the idea of developing the country as a "cyber island", it made little or no sense if the price of the international private leased circuits was too high. For the price of the international fibre would be a significant obstacle to the overall goal of attracting more outsourcing jobs.
In early 2006, Mauritius Telecom was charging US$12,600 for an E1 [high-speed international circuit]: in other words, US$6,300 per mbps per month. US$6,300 per mbps per month. These high prices for international bandwidth became seen as one of the obstacles to developing the country's cyber-island strategy. As one of the major shareholders in Mauritius Telecom, the Government was in a position to take action on this issue. ...
In the event, the price determination gave an overall reduction of around 25%. The new price for an E1 was US$7,900 and there was a five tier volume discount with a 25% discount on the E1 price for over ten E1s and above. The latter was only likely to be of relevance to two to three customers on the island. The highest level of discount represented a 47% decrease on the original price ... Mauritius Telecom made a further 20% cut on these rates in November 2007.
Mauritius Telecom has issued a paper giving its response to accusations of over- charging and this worth quoting at some length to give an insight into their position. It points out that the shift from satellite only access for the island to fibre represented a drop in costs:
"The monthly rental of a 2mbps Full Circuit IPLC link from Mauritius to Paris, for example, was around US$39,000 on satellite medium in 2001, prior to the entry into operation of the SAFE cable. After the cable was put into service in 2002, this price was reduced to US$22,000, representing a reduction of 43.5%".
Furthermore it points out that in order to assist the bid to promote the BPO and call centre sector, it took the initiative of installing a POP in Paris in 2003. This allowed it to reduce tariffs to US$12,300, a further drop of 43%. The determination took this down to US$7,900 and it further reduced its tariff in September 2007 to US$6,300.
It went on to make a number of global comparisons some of which are valid and others of which are less so. It states that the cost of a 2mbps full circuit including backhaul and last mile from Morocco3 is US$11,375. Furthermore, it says that its US$6,300 compares favourably with US$6,110 from Bangalore to London for backhaul, restoration and last mile. The former is a monopoly provider on its international route and the latter (if distance-based charging has any meaning) is surely much cheaper than the Mauritius Telecom equivalent.
...
[An additional cable is one way that prices might be further reduced.] There are three potential international cable operators that might add a second cable to the island's connectivity: EASSy, Seacom and the NEPAD-sponsored Uhurunet. The latter has largely been overtaken by the existence of the two other cables.
The Government has taken the position that a second cable is desirable but that it is not in a position to fund any part of it, leaving the industry to work out how it will meet future demand.
The estimated cost of a second cable is put at US$25 million.
Lower prices have meant that Mauritius Telecom took up its option to upgrade its capacity on the SAFE cable in February 2007 but anticipating future demand, it would still like to add more additional capacity. Mauritius Telecom along with Orange Madagascar and their parent company France Telecom say they are investing in a second cable called Lion. It will connect Mauritius to Toamasina on Madagascar and from there onwards on to one of the new east coast cable systems and the companies involved claim that it will be completed by July 2009.
The regulator believes that the impact of a second cable not associated directly with the incumbent would be lower prices and its existence would provide a paradigm shift in the fundamentals of pricing. A number of operators also said privately that they would prefer an independent second cable would not speak publicly for fear of upsetting their existing relationship with Mauritius Telecom. Inevitably, Mauritius Telecom will match the price offered by others and perhaps anticipating competition it has instituted a loyalty scheme that rewards customers with one month's free rental after 24 and 36 months.
...
The impact of lower fibre prices
Lower fibre prices have meant increased traffic volumes. Two sets of price reductions - one caused by the regulator's determination and the other made by Mauritius Telecom itself - have since July 2006 have almost halved prices from their 2003 levels.
In 2006, Mauritius Telecom was using 440 mbps of international bandwidth and after the price cuts this figure rose to 1,603 mbps in 2007 ... Mauritius Telecom has begun the switch from a "high price, low volume" strategy to one of "low price, high volume".
In 2003 the call centre/BPO sector on the most optimistic estimates employed around 2,000 people. The more honest at that point would admit that the island was struggling to find a foothold in this brave new world and was scrabbling around for low-value telemarketing work.
In 2008, the more pessimistic estimates indicate that this figure has at least doubled from five years ago. It is now attracting a much broader range of work including being the Help Desk function for Orange serving France and several other countries.
Now the ambition as Pratima Sewpal of the Mauritius Board of Investment puts it is for the sector to "move up the value chain".
It has now targeted things like high-end finance work, architectural design and hospitality.
More ambitiously, the next phase involves pitching the island as a place to put data centres for business continuity and disaster recover. The one drawback is that with only one fibre optic cable, there is no redundancy if the cable is broken. The Mauritius Board of Investment says it has an investor that would come to the island if that issue be overcome.
The other targeted sector is to develop the media and entertainment sectors but this needs more bandwidth for the activities envisaged that include production; animation and games, and production studios.
With the reduction in fibre prices, the cost of connectivity has moved from first to second place for most in the call centre/BPO sector. The biggest challenge is the quality and quantity of available human resources, something the Government hopes to address through the setting up of the Human Resource Development Council and empowerment programmes that address the unemployed.
According to Francois de Grivel, Chair, OTAM7, the association of call centre and BPO providers:"The number one challenge now is human resources. Local people are bi-lingual in French and English.
The market is largely European focused on France, UK and Germany with a small amount of work from the USA, particularly telemarketing. Costs have to be lower than for European companies which generally seem to be between 8-12 euros per hour".
"People work hard but the turnover of people is quite high, somewhere between 15-35%. It's difficult to retain people. We recruit staff from people who have done Higher School Certificate and they are trained on-site in the company but there is still a skills problem".
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OTAM is involved in creating an ICT Academy with the Government to train people. Students would do their Higher School Certificate and then come to the Academy, where they would be offered vocationally focused courses. It wants a public-private partnership with the University of Technology of Mauritius that would also offer training to people in Reunion and Madagascar. It would be Government funded but much more oriented to the private sector.
But beyond the challenge of getting enough of the right people, the cost of bandwidth has become the second most important issue.
Benchmark countries for BPO/call centres in Mauritius on the French speaking side are North Africa, Senegal and probably in future Madagascar. On the English-speaking side they are India, China, Kenya and Uganda in future. Interestingly, South Africa is not seen as a competitor because its bandwidth costs are higher. ...
According to Grivel:"We are negotiating with the Government and Mauritius Telecom to get a better rate (on the fibre). There is also the question of security of communications as there is no redundancy on the route. If there is down-time on the SAFE cable, we have to go to satellite and that is not very satisfactory. There is also the issue of the high inter-communication costs between Mauritius Telecom and private service providers. Latter want prices that are not so high and we are also negotiating on these costs".
There have been cable breaks, most notably during the Tsunami.
So why are bandwidth prices not lowered further?:"ICTA can't take decisions independently of Government and there is pressure from Government not to liberalise too quickly. The Government is protecting the incumbent. You have to open the market to newcomers and the competition will be very strong". However, Mauritius Telecom has another decrease planned for the end of 2008 and a further decrease in Q3 2009. The latter it believes will double bandwidth demand.
The main complaint beyond price that was voiced both by the telecoms industry and the call centre/BPO sector was that the fibre access was sometimes slow and that this factor was acting as a damper on further expansion. The call centre/BPO sector is a major bandwidth customer: for example, one of the larger operations is buying 1.5 mbps for voice and 2 mbps for data.
One of the largest local companies is Rogers Outsourcing which started as Rogers.com in 2001. In 2005 it formed a joint venture with a large insurance company to create Axa Assistance. It covers the full range of services: inbound calls, telemarketing, BPO, IT Help Desk - levels 1 and 2 and does all this in three different languages.
It employs 306 different people and is currently recruiting for new business that it has acquired that will take the staff complement up to 400-420. The ambition is to run a company that probably will not exceed 500 employees. The manpower pool in Mauritius is too small to support a larger staff than this and it is possible at this level to be profitable. It offers clients a fully transparent service so that everything that goes on in the company's offices can be seen online by the client and they have real time access, again something that requires reliable bandwidth.
But for all the successes, there's still some was to go. Three years after the Mauritius Government launched its first online services, the National Computer Board reckons that a large part of the population remains reluctant to use the online application forms put in place by the administration. The organisation argues that this slow adoption is partly due to the fact that only 24% of the 350,0000 Mauritian household have computers.
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