Sunday, 9 March 2008

What Submarine Fibre costs

Pretty soon I will be the Submarine fibre blogger if my posts continue the way they do. However I found a very interesting quote throught the ITU's/Strategic Policy Unit Blog. They link to an article in Business Daily Africa, which shows the costs of running the TEAMs project (wiki entry), to run fibre to the east of Africa. Those joining in the project expect an Internal Rate of Return of 32.71 per cent with a pay back of 2.4 years. Not a bad return for a fibre that's supposed to last 25 years. Current prices of connectivity are $5000 dollar per month (satellite only I believe) and the government hopes to go to $500/month in a couple of years. Though UUNET says this can't be achieved.

Another similar project is Eassy, to which TEAMS is a reaction. The Kenyan government seems to have gotten fed up with Telekom South Africa. According to the news I read Telekom South Africa is not being cooperative as it wants to keep prices high. From what I heard here and there Telekom South Africa is one of the leading reasons why Africa has such expensive bandwidth. It's the major network in the region and it lays down the rules, one of them being that prices need to be high and competition is not allowed.

“We have structured the pricing in such a way that even after factoring in the cost of onward connectivity the highest an operator may charge is $700. Anyone who will be charging consumers more than that in the first year of operation will just be serving the cause of greed,” he said.

Dr Ndemo said the cost of connectivity was expected to continue dropping gradually in the subsequent years as the demand for the bandwidth picks up.

“The reason we are working on these figures is that we do not plan to make money from the pipes but only from the services rendered and by taxing the jobs that will be created,” said Dr Ndemo.

The Kenya government has a 40 per cent stake in the project with Dubai’s Etisalat holding 15 per cent. A 45 per cent stake has been reserved for private telecommunication companies.

Shareholders will have access to large amounts of capacity with a 13 STM1 (Synchronous Transport Module ) — basic rate of transmission of fibre optic network — for a minimum of five per cent equity investment.

Capacity will be allocated at cost with TEAMs investors paying $400,000 per STM1 per year. This translates to $2580.645 per megabit per year up to Fujairah and $ 215.00 megabit per month.

TEAMs shareholders are expected to operate on an Internal Rate of Return of 32.71 per cent with a pay back of 2.4 years.

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