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Building a Business Case for Rural Broadband
William Stucke FWTF III, July 2015
Midrand, South Africa
Agenda
• A li?le History • Submarine Fibre • Rural Broadband • FTTH
• The Double Challenge • Why the Incumbents won’t succeed • Why they don’t want anyone else to try • Where to from here? • A new paradigm
A little History • AfrISPA formed in 2001 • Published Richard Bell’s “The Halfway ProposiNon”
• Africa was paying the outside world some $450m a year to communicate with Africa
• Three soluNons: • Create local IXPs so that local traffic can be exchanged locally • Reduce the cost of internaNonal connecNvity • Grow traffic volumes so that internaNonal operators will peer with us in Africa
Some Successes • AfrISPA helped grow the number of IXPS in Africa from 5 to 22, in 20 countries
IXPs in Africa 2001
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IXPs in Africa 2002
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IXPs in Africa 2006
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IXPs in Africa 2011
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IXPs in Africa 2015
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Some Successes • AfrISPA helped grow the number of IXPS in Africa from 5 to 22, in 20 countries
• Preached the message of price elasNcity for internaNonal connecNvity at every opportunity
• Several countries, like Ghana, negoNated significant price reducNons on SAT-‐3
• By 2007, new submarine fibre to Africa was being talked about in public
• Despite SA Government interference (EASSy was delayed by two years), SEACOM arrived in 2009.
• MulNple cables now land in RSA
The Effects
• SEACOM led to an immediate reducNon in bandwidth costs for a typical ISP of 35%
• Telkom was forced to reduce prices to compete • In 2009, Local Transit cost ~R10,000 / Mbps / month • In 2014, Local Transit cost <R1,000 / Mbps / month • ADSL users went from a typical R85 / GB to as li?le as R9 / GB • Mobile users started to benefit from lower data charges. • Google, YouTube, Akamai and others now delivering content locally
Rural Broadband
• In 2007 / 2008, I was involved in a speculaNve venture to provide voice and Internet access on a naNonal basis.
• We designed a 19,000 km naNonal backbone fibre network, serving every town > 10,000 populaNon. Provision was made to break out at every li?le dorp along the way
• Network used a mixture of fibre, copper and wireless • We had a viable business model for remote municipaliNes like Capricorn in Limpopo Province
• The Altech Decision of November 2008 changed the world, and removed the opportunity
Some sample numbers
• Monthly package prices from R120 – POTS • Monthly package prices from R260 -‐ Voice & Data • IRR = 18% • Payback = 13 months • PosiNve cashflow by year 5 • CumulaNve PosiNve cashflow by year 10
• And this is all before SEACOM arrived and costs dropped
FTTH
• In 2009, I took part in a panel discussion where I claimed that FTTH could be achieved with:
• R10,000 capital cost per customer >> R350 / month rental (ADSL was R450 / month at the Nme)
• Proper fully symmetrical Ethernet, not PON or GPON • Open Access network • Some assumpNons and shortcuts
• Sparked some debate • The failure of LLU (also mostly my fault) means that ISPs were not able to make the build or buy decision, as Telkom wasn’t offering an alternaNve to building your own
FTTH Today • Some two dozen operators rolling out FTTH in an ever-‐increasing list of suburbs.
• Telkom “welcomes the compeNNon”, having lost the opportunity to get a return on investment on their 70,000 km of Copper and an ever-‐decreasing proporNon of 8,000,000 lines in use
• Suburbs, not villages or rural areas • Fibre has a high iniNal capital cost, and a negligible operaNng cost • More importantly, it has almost infinite capacity. • Cost per ADSL user of adding 1 Mbps DEDICATED capacity from the DSLAM to the core network is …
• R10 / month • Just add another lambda
Underserved Areas
• ICASA (aver waiNng forever for a definiNon from USAASA) published a list of underserved areas in 2011
• It ranks every municipality from least served to most served, using several measures
• But. Underserved areas can be much smaller than a municipality • I live in Chartwell North Estates, the top half of Chartwell AH. • I’m in a one property underserved area!
Double Challenge • The reason that so many underserved areas are so challenging to serve – and therefore remain underserved -‐ is that they tend to suffer from a double whammy: -‐
• Low populaNon density • Low income per head
• Which means that the total revenue obtainable by an operator is very small.
• Which means that it’s hard to jusNfy investment • They also typically suffer from a myriad of other hindrances, such as high unemployment, low educaNonal levels and generally poor or no infrastructure
• BUT, these are the people who vote our government in every year!
Why the Incumbents won’t succeed
• By “incumbents” I mean those of the eleven previously advantaged licensees before January 2009 who provide connecNvity to the masses: Vodacom, MTN, Cell C, Telkom, Neotel and iBurst.
• Their business model is predicated on two things: -‐ • Highly capital intensive, with the investment in each base staNon measured in the millions
• High returns on investment – the MNOs in parNcular have reluctantly got used to their EBITDA dropping from 65% to 30%, but have no idea how to run a business with a margin of under 10%
• So, spending millions and geyng peanuts in return isn’t a viable proposiNon for them.
Why they don’t want anyone else to try • This is a more complex quesNon • It may be the background explanaNon for Government’s ongoing obstrucNon of the release of high demand spectrum over the last decade.
• Public comments by both local MNOs & GSMA have been of the “give us the spectrum” variety
• IniNal strong anNpathy to a wholesale open access network has more recently become grudgingly accepNng
• ConNnued strong pressure against any new entrants • The market is changing. Change is frightening • Voice is legacy • Margins are falling.
Where to from here?
• LTE doesn’t do voice. • VoLTE is another word for VoIP – and is a kludge • MNOs used to make almost all their money from voice • Now it’s “legacy” • There’s this strange assumpNon that the Digital Dividend and other High Demand Spectrum will be used for Mobile – as in GSM-‐type applicaNons with a cellphone in the consumer’s hand
• And of course the MNOs are the only ones who know how to do it • I don’t believe this
The New Model • DATA. It’s all about data • Vodacom’s Annual Report, released last week, says that smartphone usage is increasing and feature phone usage is dropping. Impressive figures in both cases
• More importantly, it quotes an increase in ARPU of 11% in going from 2G to 3G and 13% from 3G to 4G
• The 700 & 800 MHz bands have good coverage characterisNcs, which makes it cheaper to provide connecNvity in sparsely populated rural areas with larger cells
• But they don’t lend themselves to small devices that fit in your pocket • Meaningful connecNvity will require fixed devices in the home or office, providing local mobile connecNvity by Wi-‐Fi
A New Paradigm
• This is a completely different paradigm, and one that tradiNonal MNOs are ill-‐equipped to manage
• But it’s right up the street for WAPA members • Small GSM cells in villages, cosNng < R50,000 capital each • Fixed wireless in every rural home and office, using Wi-‐Fi for short distance mobility and TVWS for longer distances on the farm or through walls
What do we need to achieve this?
• An enabling environment • High Demand Spectrum made available • DTT migraNon completed
What High Demand Spectrum could be assigned?
• 310 MHz NaNonally • 28 MHz x 50 Districts
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Freq FDD/TDD DL ULAvail BW MHz
Package 1
Reserved
Package 2
Reserved
Package 3
Reserved
Package 4 Wholesale Only -‐ Open
Package 5 Open
Package 6 Open
Package 7 Open
Package 8 Open
No Package Yet
700 MHz FDD 758-‐788 703-‐733 2 x 30 MHz* 2x10 MHz 2x10 MHz 2x10 MHz700 MHz TDD 1 x 25 MHz 25800 MHz FDD 791-‐821 832-‐862 2 x 30 MHz 2x10 MHz 2x10 MHz 2x10 MHz800 MHz TDD 1 x 11 MHz 112.1 GHz TDD 1 x 5 MHz 52.3 GHz TDD 1 x 100 MHz 1 x 20 MHz 1002.6 GHz FDD 2620-‐2690 2500-‐2570 2 x 70 MHz 2x20 MHz 2x20 MHz 2x10 MHz 2x20 MHz2.6 GHz TDD 1 x 50 MHz 1 x 30 MHz 203.5 GHz
Total FDD Bandwidth 130 260 20 30 20 30 10 10 10Total TDD Bandwidth 150 191 30 161
2010-‐20152300-‐2400
2570-‐2620
733 -‐ 758
822 -‐ 831
What do we need to achieve this?
• An enabling environment • High Demand Spectrum made available • DTT migraNon completed • Rapid Deployment Policy published • Rapid Deployment RegulaNons draved and finalised • TVWS & Dynamic Spectrum Assignment framework in place • More spectrum allocated to Licence-‐Exempt use • Investors with balls
