In what might be termed a return to a telecommunications market monopoly, several governments in sub-Saharan Africa have proposed the establishment of single wholesale networks (SWN) for 4G services, writes Francis Hook, director, digitalfrontiers.
Operators feel network competition should be allowed for 4G services.
At the outset, the initial premise behind proposing SWNs were concerns about the scarcity of spectrum in the digital dividend bands; more recently, discussions have been underpinned by concerns by government about existing players' abilities to ensure rural coverage as well as the delivery of affordable services. Further, it has been suggested that under open access principles, SWNs would allow all market players, irrespective of their market share or financial capability, to offer 4G services on a competitive basis.
Most of the SWN proposals envisage either a public-private partnership model or the formation of a consortium comprising existing operators and infrastructure providers.
So far, Kenya, SA and Rwanda are among the countries that have proposed SWNs, with Rwanda being the only one to launch (in late 2014) Olleh Networks Rwanda, a joint venture between the government of Rwanda and Korea Telecom.
And while many may be looking at Rwanda as a sort of test bed, it is too early to tell how well this model is working and whether it will attain the ambitions it set out to achieve. Reports from operators in January 2015 showed the market response - three months after the network was launched - was poor, with uptake of less than 2 000 connections among all the retail providers. The tepid response has been attributed to high pricing of services and devices, prompting a review in April 2015 that saw bundle prices more than halved. It remains to be seen whether this measure will have any impact on uptake.
Aside from affordability and demand, Rwanda does not offer comparable geographic and demographic characteristics that can be easily duplicated by other African countries, since these two attributes have great bearing on capital expenditure and return on investment.
Meanwhile, despite reeling under existing market pressures (including declining ARPUs, market saturation, low uptake of 3G, pressure from regulators on QOS, lack of clarity on spectrum issues that affect planning) that impact their investment abilities, operators feel network competition should be allowed for 4G services. To allay concerns around network accessibility and affordability, operators have expressed willingness to collaborate on infrastructure investment and sharing, which in many countries is already encouraged by regulators to ensure greater coverage and reduced duplication of costs.
On the line
In as much as SWNs may clearly offer certain benefits - to operators, governments and consumers - the viability and success of an SWN may ultimately hinge on various factors, including:
Current levels of competition and operator market shares: SWNs may be more viable in markets where the difference in market share among existing operators is not considerable. Where there is a dominant player with more than 50% share of the market, such a player will either exert further dominance (thus cancelling out the objective of equal access) or be disinclined to accede to an SWN arrangement (as an investor) as it would likely result in them ceding ground to other players.
Current 3G uptake and cost: Current levels of 3G usage, as well as cost of 3G devices and services, can serve as a good precursor for the demand for 4G services and whether nationwide 4G coverage is commercially viable. If we set aside the objective of rural coverage for a moment, and instead view current 3G uptake, this can lend greatly to determining whether there is indeed appetite in urban areas of 4G services - and which uptake can be used to finance or subsidise costs of gradually rolling out 4G to rural areas.
As it stands, given current levels of 3G adoption (which is around 20% of subscribers in sub-Saharan Africa), coupled with the pressures of stagnating ARPUs, some operators seem to be indifferent to discussions on 4G services and simply view it as a niche market. In such an environment, proponents of an SWN, whether as a consortium or a government-led venture, will be hard pressed to gain support from these indifferent market players, which will be more inclined to focus on expanding coverage of 3G services.
On the issue of cost, the response to the launch of 4G services in Rwanda confirms affordability is a key factor in uptake. However, the intervention - halving the prices of 4G services - seems counterintuitive, since it means that now 4G services cost almost the same as (or less than) 3G services. This takes away any motivation for operators, who already offer 3G, to promote 4G services which compete on price with their current 3G offerings. This is further compounded by the cost and availability of 4G devices. Invariably, consumers are most likely to remain content to use 3G services for a while.
Thus, in markets where 3G is offered, and where 3G devices are more available and affordable, investors in 4G SWNs will need to bide their time and brace themselves for a long drawn-out return on investment.
Geographic area, population density and income: What may work in Rwanda may not necessarily work in SA or Kenya, owing to the huge differences in land area and population density, affecting total roll-out costs vis-`a-vis the returns that can be expected. Another good comparison would be Botswana, which is about 12 times the land area of Rwanda but about one-third the population size. Botswana also provides a further example. In considering how to shore up coverage of 2G services and cognisant of the country's population density and the challenges it presents in terms of investment and returns, the government relaxed roll-out obligations to allow operators and subscribers to roam nationally on the different networks to ensure greater coverage.
Rural coverage and better relevance of existing technologies: Various studies suggest broadband and smartphones are not the ultimate solution to address various digital inclusion objectives in rural and low income areas. Such studies rightly recognise the reality that the needs of poor, low income and rural subscribers can better be addressed using simple services like SMS or USSD, because such are determined by the devices they can afford (and understand how to operate). Naturally, Kenya's m-Pesa remains a sterling example of basic technology having a huge impact.
So, where the ambition behind SWN includes the benefits of providing rural coverage (eg, enabling enterprises to grow and making rural areas equally viable for investors who rely on good connectivity, access to education content, deploying healthcare solutions, digital inclusion, etc) a clear plan needs to be laid out to indicate what exactly the interventions are that will require broadband speeds and whether some can be attained by using existing technologies (ie, if 4G networks do not cover rural areas, can such objectives still be met using 2G and 3G services?)
Further, do current income levels and literacy really allow for the optimal use of broadband technologies?
Innovation and delivery of government services: Admittedly, there are those who believe: "Let us build it - and they will come and find a way to use it." In as much as this type of thinking has worked before, given the huge investments needed in an SWN, there has to be a plan that allows innovation to nurture usage. Such plans should include capacity building and pilots (in education, healthcare, agriculture), among others.
Governments can also be key drivers of uptake, by virtue of offering various services to citizens and the level of maturity of overall government ICT systems, as well as commitment to leverage technology to deliver services and ensure transparency.
Overall, the issue of establishing SWNs merits further dialogue among different stakeholders and will also call for unique approaches by different countries. Otherwise, there is a real risk that SWNs may reverse the gains made from liberalisation and herald a return to monopolies and the gradual atrophy of existing operators.
About Francis Hook
Hook is an independent ICT researcher and consultant with more than 18 years' experience in the ICT market in Sub-Saharan Africa. He has served as the GSM Association's director for Africa, as well as regional manager, East Africa for International Data Corporation. He has a background in journalism and has been published in various local, regional, and international magazines and newspapers. He is also a speaker at numerous ICT events across the region.
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