Lesley Stones
9 January 2009
Johannesburg — AT LEAST four out of 10 undersea telecoms cables supposed to be heading for Africa will probably never materialise, according to analysts from AfricaNext Investment Research.
The market is awash with projects designed to capitalise on Africa's lack of wholesale bandwidth, which creates attractive investment opportunities as the demand for capacity is strong and the profit margins are good.
But plans for 10 submarine cables, half a dozen cross-country cables and at least three more satellites add up to "at least five projects too many", AfricaNext says in a new report.
Some projects will disappear as they struggle to raise funds in the current economic climate. Most vulnerable are those that have not yet finalised their funding, do not have major service providers among their shareholders, and those that are primarily government-led ambitions.
AfricaNext questions the viability of the Uhurunet cable being led by SA's government and Nepad. It also doubts the prospects for a project backed by Telkom, MTN, Vodacom and Neotel to supercede the existing Sat-3 west coast cable, and says the outlook for the Kenyan government's TEAMS cable is unclear.
Doubts about Uhurunet are nothing new. Last year local research house BMI-TechKnowledge said the ambitious $1,4bn project was unlikely to materialise, and would probably be doomed by inter-governmental bickering. Uhurunet was "very much still at the conceptual stage", BMI-T research director Brian Neilson said, and was dependent on many governments, which equalled many politicians. Their near-impossible dream is to lay a cable around the entire continent and on to the Middle East, India, the UK and the US by early 2010.
AfricaNext also says the number of planned cables is self-defeating, as each project reduces the viability of the next. For providers of long-haul bandwidth a monopoly is nirvana, a duopoly is attractive, three is a crowd and four could be disastrous, its report says.
Its analysts also look at the prospects facing Africa's numerous telecoms operators, and conclude that the ability to raise, generate and preserve cash will determine which survive, which struggle and which disappear.
Subscriber growth last year was solid, but things will get tighter this year . The average revenue and profit margin per minute is dropping, and capex requirements are high. "This is still a good fundamentals business -- for first-tier players -- but it is getting increasingly brutal at the edges," they say.
Africa's mobile assets are overvalued, especially for new licences or viable existing operators where the limited supply has driven prices up. With capex requirements high and profit margins tightening, investors will look to pull out of third- or fourth-tier operators, and this may be the last opportunity to do so profitably, before the bad apples get exposed.
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