The stage is set for a fresh standoff in the internet market following the latest announcement by the East African Submarine System (EASSy) that it intends to officially launch operations in June.
The development promises to rekindle debate on internet pricing which had eased in recent weeks following admissions by key stake holders that Kenyans should not expect the price of communication to drop significantly until at least December 2010.
"Those players have been saying they are keen to recoup their investments but the main issue is that they are locked in long term and expensive contracts with other cable and satellite operators that prohibit them from reducing prices. We see our entry as the catalyst that will force them to reconsider their pricing structure. Prices will fall starting June," said John Sihra, the chairman of West Indian Cable Company (WIOCC), the investment vehicle for EASSy.
EASSy is set to be the third international fibre link to arrive in the country, following the landing of Seacom and the East African Marines System (TEAMs) mid this year.
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Internet consumers widely expected that the highly anticipated arrival of the fibre cables would lead to drop in the price of communication by up to 10 times, but have since had to come to terms with the reality of market forces which have seen prices for end-users drop by just fraction, and in some cases, remain the same.
WIOCC intends to leverage its unique pricing model and contract model to attract more customers who it says will pay less than what is on offer in the market.
Unlike the other two undersea fibre projects, EASSy is built using a developmental rather than commercial model, a factor that its backers say place it in prime position to extend internet services to Kenyans at a lower price.
"Our contracts are available in smaller capacities and for shorter time periods--this is the difference that will break the current market status quo, resulting in lower prices as smaller players take on the large groups represented now," said Chris Wood, WIOCC CEO.
Industry insiders say while prices on both Seacom and TEAMS are pegged to long term, 20 year contracts, EASSy's pricing model will feature short term leases that offer the smaller internet service provider cheaper options than those currently in the market.
Figures obtained by Business Daily show that a customer willing to purchase an STM1 -- an indicator of the capacity sold on a fibre cable --would pay around $4 million on competing cables while they would get the same capacity for up to $2 million on EASSy.
"This discrepancy is the reason consumers are still paying alot of money for their communication. They are basically paying for idle capacity right now. Also, some players want to get returns in months rather than over a 10 or 15 year period," said an industry source who refused to be named due to his interests in a competing enterprise.
In the last six months, a cross-section of consumer interest groups and the government through the Ministry of Information and Communication have lobbied players to reduce prices to extend the reach of internet services. "In our experience, having three players in a market creates the right conditions for fair competition,' said Joseph Sloan of IFC.
EASSy has secured a $70 million loan from the International Finance Corporation (IFC) which will be repaid over an eight year period.
It is expected to make landfall on Kenyan shores early next month.
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