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Fundamental changes needed on the Internet
Happy IPv6 day!
The last five years have witnessed unprecedented changes on the whole idea of what the Internet is all about. Initially it was viewed as a vast library of information and was even once dubbed as the ‘information super highway’ where people would search for information. This has since begun to change as the Internet is now evolving from the static and indexed system it once was to a more intelligent system that can ‘learn’ a users preferences and accordingly serve relevant information to them or by the use of the social web where vast ecosystems of interlinked relationships work towards the provision of information to the user without the user having necessarily searched for it. Today we learn of world events through automatic twitter updates that ‘pop’ up on our PCs and mobile devices, we learn of our friends events through picture uploads on Facebook. The opportunities for further development of the internet are vast and limited only by our imagination.
With all this change happening on the Internet, there still exists one problem: We still pay to access the internet. This is one area that has remained fundamentally the same since the birth of the Internet. It is true there is no comparison between the cost of internet access now to what it was 10 years ago, but we never the less still pay (I remember paying KSh 10 per minute in 1998 in a cyber cafe in Nairobi). On the other hand, we do not pay for other forms of information and entertainment access such as radio and TV and to view billboards, they are all free.
Why is the internet not free while it possesses the same basics with the Radio, TV and billboards? They all utilize infrastructure (be it radio transmitters, billboard masts and tarpaulins, wireless spectrum, real estate etc). In the case of radio or TV all the end-user needs to buy is the receiver set and start enjoying the services, no contracts, obligations or money to be paid to anyone unless its pay TV such as DStv. This is not true when it comes to accessing the internet.
I believe the problem lies in the way the internet was originally organized. On one side was the person who needed to access information and on the other side was the person who had the information. In between them was the ISP acting as a conduit through which the exchange of information could happen. The catch was the ISP charged both these people to enable them communicate. “Well there is nothing wrong with this approach, the ISP is a commercial venture and needs to make money” you might say. That is true but this is the very reason why radio users don’t pay for radio while internet users still pay, we also don’t pay to be called on phone, the person who wishes to call me (therefore pass information to me ) pays for the call……. but we still pay for internet. The scenario on the radio field is the same, on one side the seeker of information (the listener) and on the other side the owner of the information or entertainment and in between them the radio station. But in this case the radio station charges the owner of the information only and let the listener enjoy the services for free if he buys a receiver that is capable of tuning to the station. “Well, what the listener would have been charged is taken care of by adverts on radio” you might say again. However the Internet is full of adverts too, in fact sometimes more than those on radio for the same quantity information transfer/exchanged.
Internet access should be free
Last year in May we saw Facebook launch Facebook zero (0.facebook.com). this service grants free access to users on the internet who access the Facebook website via their mobile devices. What Facebook did is that it negotiated with several mobile providers to zero rate access to Facebook website and therefore not bill the customer and instead the ISP sends the bill to Facebook. Effectively the user had free internet access to the Facebook website. This service was recently launched by some local mobile operators where users had unlimited access to Facebook and could also tweet for free even when they had no airtime or valid data bundles loaded on their phones.
Now, if ISPs shifted their focus from billing the consumer to the provider of information as is the example above, then what will happen is that ISPs will still recover their cost of doing business and turn a guaranteed profit.
This business model has worked very well on the Internet content provision sector where companies such as google, yahoo!, Hotmail, facebook and Wikipedia offer their services for free to the public and instead make money from adverts or public goodwill donations (in the case of Wikipedia). Users do not pay to own a yahoo email account or to use the google search engine.
With the advent of cloud computing, hosting content has become dirt cheap and the costs once related to infrastructure and data center investments are now much lower, the penetration of the internet also means there is a bigger audience for internet adverts and these companies now make more money per advert than before. So we have a case where content providers are making more margins over time while ISPs margins continue to decline. Its time ISPs took a piece of the content providers pie by making them pay for access to their information by the public. This is because the content providers make more money if more people visit, they should therefore spend money to attract people to their content by subsidizing or totally paying for their cost of connection.
For this to happen, the billing models for ISPs must also change, billing by pipe speed is no longer sustainable and majority of ISPs are now moving towards volume based billing where a user purchases data volume bundles where the higher the data bundle the higher the pipe speed. So if a user has a bundle and all he does is visit sites that have zero rated their access such as Facebook zero, then his bundle remains intact. What this will do is that it will stir competition among content providers because users will now be accessing the free websites, if my ISP is charging me to access yahoo while Gmail is free (because Google is paying the cost on my behalf) what will make me visit the yahoo page ever again? then this will mean yahoo stands to lose advert revenues (because few people visit it now) and will also be forced to offer free access to its pages by paying the ISP on behalf of the end-user. The same will happen to big content providers who are in competition such as news websites and social networks.
The recent declaration by ITU that makes broadband Internet access a basic human right in addition to food, shelter and water will not be achieved in the current commercial nature of the internet. Governments now have to start factoring in access infrastructure set-up costs in their budgets the same way they budget for roads and access to clean water .
So at the end of the day, Internet access will be free to end users just as it is free to use the road networks, as content providers will now be paying for access and the governments for access infrastructure.
O3B and Google tag team: Rural Africa’s redemption?
O3B networks is a nextgen company founded by Greg Wyler in 2007. O3B is an acronym for the Other 3 Billion denoting the 3 billion people in the world who still lack reliable means of communication.
O3B has a plan to launch Medium Earth Orbit (MEO) satellite constellation to offer low latency fiber quality broadband connection to regions in the world without much terrestrial infrastructure such as Africa, South Asia and the Pacific. O3b has a strong financial backing by big guns such as by SES World Skies, Google, HSBC, Liberty Global, Allen and Company, Northbridge Venture Partners, Development Bank of Southern Africa, Sofina and Satya Capital.
Their plan is to launch a constellation of 8 satellites into medium orbit by 2013 and offer connectivity to mobile operators and internet service providers. They will be a wholesaler and will only sale bulk capacity to providers of video, data and voice and not directly to end users.
O3B believes that the MEO satellites will offer lower latency (and therefore higher throughput) to most undeserved markets where fiber capacity has not and will never reach in a long time. To see how low latency is related to higher throughput see this tutorial here.
The O3B idea is a great one and deserves all the support it can get so as to make it a success.
Déjà vu.
A while back several investors financially backed the Iridium project. This project was to offer mobile voice communication via 66 Low Earth Orbit (LEO) satellites from anywhere on earth. However the project was a failure even before it started and was bogged down with project delays, design problems and poor marketing. Iridium estimated that it would easily get about 600,000 customers to break even and that the market for their service would be massive. At the end it only attracted 22,000 customers hence failing to even break even. With calls costing about $7 per minute and the handsets costing about $3000, the project was doomed from day one.
The Iridium project failed not because the concept did not work, It did. The failure was due to the managers of this firm underestimating the impact the GSM technology would have on the voice market. It is GSM technology that killed Iridium as it offered very cheap calls from small cheap handsets that could be used even in a building or car (as opposed to iridium sets that could only be used outside in open space).
Many a pundit have expressed fears that the O3B project will also join the likes of iridium in the not so envious club of spectacular project failures. I would however like to differ with the critics of O3B who have predicted its failure based on the failure of previous projects such as iridium and teledesic. This is because O3B is being implemented at the right time in history. This is because broadband internet and voice are now a mass market products unlike when Iridium was being implemented. When teledesic and iridium were being launched, broadband and voice were niche markets and very expensive for the average person. When iridium was launching, mobile communication was classified as a luxury and data transmission was only done by big corporations such as banks and oil companies. Today, things are very different and i think this is what makes the O3B different.
Last mile challenge.
On of the biggest problems in African telecoms is the availability of a reliable and extensive last mile. Africa has never been attractive to investors wishing to invest in last mile because of two factors:
- The African rural population density is very low meaning that traditional last mile access technologies such as wimax will not return on investment and therefore not commercially viable.
- The African continent is massive. The African land mass is equal to USA, India, China, Europe and many other countries put together. The image below says it all. Click it for a bigger and clearer version of the image
- True size of Africa
As a proponent of the enhancement of African rural communications, I believe the O3B project will help bridge the existing gap in the rural and city populations of Africa by overcoming the last mile commercial viability challenge and leveraging on the satellite footprint to offer cost-effective coverage to nearly every spot on the continent. This means that everyone in Africa will have instant lower latency access to the Internet. According to O3B, they will avail fiber quality satellite connections that will offer lower latency of 190ms (due to MEO satellites), high-capacity links at a low price of about $500 per Mbps. This is very competitive by any standards in developing countries. This capacity can then be distributed via methods such as 3G, LTE, Wimax, WI-Fi etc.
Apart from providing the rural population with broadband internet, the O3B satellites will also provide cellular operators with the much-needed GSM trunking services at a lower cost and therefore enable faster deployment of mobile networks in rural Africa.The cost of network expansion to rural Africa will therefore drastically reduce and this will speed up connectivity and spur development. To see how connectivity aids development in rural Africa, download the Commonwealth rural connectivity report here.
The Google dimension
Many people were surprised when Google decided to back the O3B project. People failed to see the interest Google (which to many is just a search engine) had on provisioning of affordable connectivity in developing countries. I believe the backing from Google was the game changer. On their blog, Google say their mission is to “organize the world’s information and make it universally accessible and useful.” Well, Google has succeeded in organizing the world’s information and O3B will help it make it universally accessible. Google believes that by funding such projects, it will extend its reach to the whole world and increase its market for Google phones, OS’s such as Android and Chrome OS, cloud services, advertising and search engine. Google’s backing for open source software development will also mean that cost barriers to ICT implementation will be eliminated for the other 3 Billion people in the world.
I therefore believe that the Google backed O3B project has come at the right time in history and will play a much bigger role in bridging the digital divide in Africa than fiber optics whose extended coverage is less than 20% of the continent. The participation of Google in this project will also reduce the cost barrier to adoption of ICTs in the developing world such as Africa.
Free lunch ending for ISP customers
Last week, the Canadian government passed a law that forces all Internet service providers (ISPs) to bill their consumers by metering their downloaded/uploaded traffic volumes from 31st March(see article here). This means that a user will now pay the ISP not based on the size of pipe he has bought from them but on the amount of traffic downloaded and uploaded, this is the same approach used by electricity and water companies where a user pays for quantity of electricity or water used.
For a very long time ISPs the world over have been billing their customers based on size of Internet pipe a consumer purchases. There is something very flawed with this approach. The unit of billing is not a valid and quantifiable measure of consumption of service. With this way of doing things, it would mean if the ISPs ran water services, they would be billing you for the diameter of the water pipe that comes to your house rather than the amount of water you consume. If they ran electricity supply, they would also bill you based on the thickness (hence resistance) of the cables dropping into your house from the electricity pole. That’s just plain flawed.
How did they end up here?
The first question that anyone might ask is why did ISPs start billing consumers using this model? And why have they stuck with it?
The answer is historical. Before the Internet was born, Telco’s provided voice services only to consumers. These Telco’s had an extensive terrestrial hybrid network that had the widest reach (with the last mile being mostly copper pairs). The technology at the time was based on circuit switched networks collectively known as Public Switched Telephone Networks (PSTNs) that dedicated 64Kbps per voice circuit ( per phone conversation) because this was the minimum bandwidth required for speech encoding with minimal distortion. The PSTN networks were therefore offering 64Kbps at the copper endpoints.
When ISPs started to offer the Internet to the public, they did not own their own networks on which to take the service to the consumers. Because PSTNs were extensive in their reach, ISPs leased PSTN lines to deliver Internet services to the end users. The PSTNs needed to deploy billing mechanisms to bill for the leased voice lines (now converted to data lines) and the only way they could quantify what they has leased out was in terms of 64Kbps channels. Because for each 64Kbps channel occupied by the ISP, the Telco cannot use it for voice communications.
Sadly, the ISPs and mobile broadband operators were too lazy to come up with their billing models and simply passed on the same model used on them by the Telco’s to their consumers. The ISP consumers were now paying for Internet services based on how many voice lines they have converted to data lines and not how much data was passing through these lines.
At the onset, this approach seems to have worked well because ISPs became very profitable businesses. Their growth was phenomenal and nothing could stop it. The strain on the network loading was passed on to the Telco’s by the ISPs who didn’t own these networks anyway. The fact that most of these telco’s were government owned incumbents and profitability was not high up on their list of priorities, meant that the telco’s effectively absorbed some ISP related costs in their ignorance and inefficient business practices. This all changed when ISPs started to build and run their own networks from the core to the last mile. The ISPs started feeling the strain that multimedia such as gaming, audio/video streaming and peer to peer networks were putting on the networks. The advent of full movie and TV streaming services such as netflix and hulu has also made things worse for ISPs. Attempts to slow down bandwidth hungry traffic such as peer to peer, has been met with hue and cry and some users even encrypted of this type of traffic to avoid detection and eventual throttling by the ISP.
Current statistics show that 20% of the users on the Internet consume 80% of the resources (classic Paretto) This therefore means that 80% of Internet users do not get what they pay for thanks to the 20% who are hogging up Internet resources such as bandwidth (especially last mile frequencies on wireless platforms such as Wimax and 3G), server CPU time, network equipment CPU time etc etc. At the end of the day, Internet users are becoming a frustrated lot as resources that were once in abundance are now becoming scarce resources. This negatively impacts and ISPs bottom line.
This has had the effect of commoditizing these scarce resources with last mile frequencies now being auctioned for millions of dollars (Kenya’s CCK auctioned 3G frequencies to Safaricom for 20Million USD) and peering agreements becoming more expensive. This has put a strain on ISPs margins as costs escalate and they have no option than to re-look at their business models especially how they bill for their services. The days when a user bought a pipe and used it with abandon are coming to an end as ISP will now bill based on GBs used so as to remain profitable and offer an acceptable level of service across all users.
So what?
The effect of this approach in the market will be varied depending on the level in which an ISP plays in. Smaller ISPs who are basically re-sellers for bigger ISPs do not own networks (and therefore the scarce resources) and the metered billing approach will be a big blow to them because of their business models that ride on an effect called ‘network loading’. Smaller ISPs have fewer customers who are connected at all times and they can therefore over-sell bandwidth they have bought from the bigger operators more efficiently than the bigger operators can. This over-sell means the small ISPs can squeeze out more $ from say 1Mbps pipe than a bigger ISP because they can have higher over-sell ratios because of their lower network loading factor. Smaller ISPs will therefore be opposing usage based billing more than big ISPs.
This therefore means should many countries go the Canadian way, smaller ISPs will have to merge or go under. Bigger ISPs will also return to profitability.
Some people have argued that the metered usage approach is counter innovation and development saying that the rapid development of the Internet was brought about partly because of non-usage based billing. Services such as online learning and cloud computing will be affected by a metered Internet, they add. What the proponents of this line of thought don’t seem to see is the ISP is a for-profit business and not a charity organization. If a cloud computing service provider wants to offer their services via an ISP network to its end users, it should step in and subsidize consumer costs of connecting to their service and not let the consumer foot the entire connectivity bill to access the cloud while the cloud service provider pays close to nothing to avail his services on the ISPs network. If an online learning resource (say TED.com) wants users to benefit from its vast bank of educational videos for ‘free’ they should not let the consumer foot the entire bill of accessing the videos, they should chip in by offering subsidized access to TED.com videos.
ISPs should therefore also develop models of how they will make providers of services such as hulu, netflix and other pay for access of their services over their networks. They should not only focus on billing the end user while these providers get away with it. This will ensure that metered services remain relatively cheap to the end users as ISPs will also be making some money from these content providers.
A paradigm shift on how ISPs conduct their business is therefore needed if they are to survive in the market place. This means ISPs will have no option than to adopt metered billing (billing by volume) and expire unused subscribed volume bundles after a specified time period to spur activity and revenue flow. Otherwise, they will find it difficult to make money from offering “unlimited” Internet services.
Why is Internet access still expensive in Africa?
Early 2009, the African continent was heavy with expectation as several fiber optic submarine cables landed on its shores. This it was hoped would avail copious amounts of bandwidth to the continent and reduce its dependency on the existing satellite based connectivity to the Internet.
This development was also accompanied by sweeping changes in the telecoms sector in Africa such as:
- Market liberalization and the end of dependency on the incumbent operator for international connectivity.
- ISPs and NSPs offering ‘smart’ pipes instead of the more traditional ‘dumb’ pipes hence moving up the IT value chain.
- The Rapid increase of the value of broadband connectivity to businesses and individuals in the world. corporates wanted bigger and faster pipes to do business and cut costs while individuals wanted to access the media rich content on the internet such as streaming videos and social networks.
- Deeper penetration of the mobile wireless network into Africa that carried with it mobile data services
The above happenings could not be sustained over the existing satellite bandwidth which was limited in quantity and speed and hence the need to deploy submarine cables.
Industry analysts predicted a massive drop of up to 90% in connectivity costs as consumers migrated to the undersea cables. The Kenyan and South African blogosphere was awash with predictions and expectation of cheaper broadband in these two countries. However, this was not to be as ISPs were slow to adjust prices downwards and gave various reasons as to why they could not do this. some of the reasons are:
- The cost of providing broadband connectivity is made up of many other costs and not entirely on the cost of international backbone connectivity.
- The submarine cable utilization was low and the economies of scale could not come into play to lead to a reduction in pricing.
- They needed to first recoup their investment in the new submarine connectivity systems before the end user can enjoy lower pricing.
- etc etc
What they did instead was to offer more bandwidth for the old price. This ensured that they sustained positive cash flows.
This did not go down well with most consumers who felt cheated by the ISPs. The fact of the matter is that prices did indeed drop by a considerable margin even though this drop wasn’t what was promised or envisaged.
I am however of the opinion that as consumers, we are ignorant of the fact that the ISPs made promises to us based on US and EU pricing models which are totally not applicable in Africa. Whereas a user in the US pays an average of $3.33 per Mbps and a user in Japan pays $0.27 per Mbps, His counterpart in Nigeria will pay $2,400 and in Kenya will pay $700 for the same capacity. The question that arises is why this big difference in pricing?
The answer lies in historical factors of infrastructure development in Africa and the issue of local content.
History of Infrastructure
The years between 1995 and 2001 witnessed an intense investment in ICTs in the United States and Europe characterized by many start-ups and massive capital investment in Internet infrastructure based on speculation of an impending IT explosion. These companies had envisioned a huge market for high speed broadband internet.
In their investment quest, many of these businesses dismissed standard and proven business models, focusing on increasing market share at the expense of the bottom line and a mad rush at acquiring other companies leading to many of them failing spectacularly.
The technology-heavy NASDAQ Composite index peaked at 5,048 in March 2000, reflecting the high point of the dot-com bubble.
This period before the burst saw the laying of hundreds of thousands of kilometers of fiber optic cables both on land and under sea as companies invested based on pure speculation not on strategic market research information. When the envisaged market failed to materialize, these companies could not get a return on their investments or be profitable and went burst culminating in what is known today as the dotcom bubble burst. Some of the casualties include WorldCom, Tyco, global crossing, Adelphia communications and many more.
When these companies went bankrupt, their massive investment in national and international fiber optic networks lay underutilized and was bought for throw away prices by new investors such Comcast and Sprint. So low were the prices that some cable was bought for 60 US cents per Gbps per kilometer in 2002 compared to the 37 US dollars per Gbps per kilometer the Seacom cable is costing to build in 2009.
Because of the heavy investment in the cables connecting Africa, the operators have no option but offer prices to the consumers that will ensure profitability to the investors because any attempt to emulate their American counterparts will lead to failure to break even or even make a profit.
Local content
I believe one of the key differentiating factors between African Internet and the US or EU version is the aspect of local content. By local content i do not mean content such as regional news, websites in local languages and the likes, I mean content hosted locally within the African continents local loop network.
The fact that nearly all Internet content is hosted outside Africa, means that we are fully dependent on international backhaul to access this content. A user in Atlanta Georgia does not need to cross the US shores to get cnn.com because CNN hosts its content in Atlanta (and many other cities in the US) so to him, its a local connection. A user in the UK will traverse few local loops within the UK to access sky.com and will therefore not need international capacity. The same US and UK users will do few hops to access a verio.net hosting server (where nation.co.ke is hosted) The concept of what the ‘Internet’ is in the US or UK is totally different from what it is in Nairobi because a user still has to leave the continent to access nation.co.ke hosted at Verio.net servers. It is therefore more expensive for the African user to access the Internet because he always has to traverse international links that are private commercial ventures.
However, if we work on development of local content by hosting content within the continent of Africa, we can drastically cut the dependence on international capacity. If for example the nation.co.ke website was hosted somewhere in Nairobi, we would not need international fiber capacity to access it. Now take this and apply to majority of the websites we visit (facebook, CNN, soccernet etc) If we had good hosting and cache services locally, only cache updates would need to utilize the international capacity as all African traffic will remain within Africa. A good example is a user in the UK accessing cnn.com (a US website), they do not need to leave the UK because cnn.com is cached in London. The same is not true for the African user.
There is therefore a need for a paradigm shift in the efforts being put to make African broadband Internet cheaper. I believe it does not lie in the laying of more submarine cables from Africa to Europe and US. The solution lies in the provision of reliable data centers within Africa in which content can be hosted cutting down the cost of Internet access drastically.
Just to prove that international capacity is not the solution, the combined internet traffic traversing the trans-Atlantic cables between the US and Europe accounts for less than 30% of the total traffic on these cables with the rest being business data (VPNs etc) and voice traffic. All this is because to the US and EU, the Internet is a local network.
We need to make the Internet local in Africa.
Dumb pipes vs Smart pipes: Hope for Kenyan ISPs
A dumb pipe is a pipe on an operators network that is used to simply transfer bits to and from a customer to the Internet. The use of the term “dumb” refers to the inability of the operator to restrict services and applications to its own portal and primarily just provide simple bandwidth and network speed.
On the other hand a smart pipe refers to an operator’s network which leverages existing or unique service capabilities as well as the operator’s own customer relationships to provide value above and beyond that of just data connectivity. The use of the term “smart” refers to the operator’s ability to add value for additional (and often unique) types of services and content beyond just simple bandwidth and network speed.
An example of a smart pipe is a link from an ISP that provides Quality of service on mission critical applications such as VoIP and Business traffic while throttling recreational traffic such as peer to peer traffic or gaming. An example of a dumb pipe is a link from your ISP that you use to make ‘free’ skype calls or download torrents over the internet to the detriment of critical business transactions.
With the ongoing price wars and erosion of revenues being experienced by ISPs in Kenya, the need to maintain healthy margins is now a critical issue for all the ISPs. The first thing that comes to mind in such a situation is the reduction of cost of doing business such as international bandwidth costs, human resources and process inefficiency costs. Indeed some ISPs have already announced intention to cut costs such as here.
I however feel there is one more trick up the sleeves of ISPs that they can employ to dramatically improve their margins and revenues. This is by adopting their networks to offer smart pipes as opposed to plain old bandwidth pipes to the internet. By offering smart pipes, ISPs will preserve the value of their pipes while enabling new business models and generating new flows of revenue.
Many ISPs in the country still offer broadband connectivity in a ‘utility company’ fashion where they just run the infrastructure without providing any ‘richness’ to the services they offer. This has not only led to poor customer experience and eventual customer flight, but also alienated the greater ISP world farther from the mainstream IT by failing to expose their network capabilities to the larger enterprise IT community through service delivery frame works and web services.
Other players who a while back were considered as harmless are now encroaching the ISP turf by offering value added services on the ISPs infrastructure. The Kenyan ISP has refused to move its products/services higher the value-chain. A case in point is Skype or google which enables users to make ‘free’ voice calls over the internet, i say ‘free’ because its free to the end user but it costs the ISP offering the end user the pipe through which these free calls are made. The EULA for Skype actually make a user agree to making his PC a skype super node further making the ISP bare the cost of other persons who are not customers to the ISP to make ‘free’ calls.
I know some of you maybe asking “How does it cost the ISP?, after all the customer is paying for the pipe”. The free calls cost the ISP because of the different way in which an ISP is billed for internet and how it bills its customers.
To explain this, let us separate the fact that ISPs pay for International connectivity capacity (fat pipes via fiber or satellite) and also for the Internet connectivity through these pipes, These are two separate costs. The cost for leasing these ‘fat pipes’ is constant irrespective of usage whereas the cost of the internet connection is billed on usage (i.e. 95th percentile of transferred data). So here is an ISP billing the customer for a flat rate monthly fee for a specific capacity of pipe to the internet. However, the ISP is not being billed a flat fee for the wholesale internet connectivity it is purchasing from higher tier carriers. This means that any variation in cost of providing connectivity will not be absorbed by the end user but by the ISP. When the ISP absorbs this cost, its free to the user. This is why ISPs such as Safaricom and iWayAfrica consider volume of data transferred as a critical determinant of how the customer should pay for their services. They do not do it purely on speed/capacity of the pipe.
Ok,back to the discussion…..
The ISPs have an opportunity of a life time to offer smart pipes that add value to their offering effectively making them ‘value’ pipes. Also, in the ever increasing world of convergence and cloud computing, the ISPs have a critical role to play as other players in the ICT sector are doing. With many end user application developers now offering SaaS, its time ISPs started offering NaaS (Network as a service) which will help them offer virtualized bandwith services on common infrastructure. This will drive down the cost of building and maintaining individual networks (as a write this, Lang’ata road is full of trenches as ISPs try to outdo each other in building their networks). The offering of NaaS and value added services and QoS to customers will have the effect of lowering operating costs and at the same time increasing the value derived by the consumer of the ISPs services leading to customer loyalty and increased revenue streams.
If ISPs share infrastructure and keep their costs in check, they will now focus on offering better service to their customers as opposed to being in the business of building networks. I agree that there is plenty of value in offering network services, but there is also value in ISPs functioning as aggregators of content and as exposures of Web and business services through the smart pipes. However as Adan Pope, CTO/CSO of Telcordia, once said “The term ‘pipe’ alone puts ISPs in the position of being in the job of conveyance while others provide value,” he said. And that’s just wrong. There is need to take advantage of the unique position ISPs find themselves in and make money. If they don’t then someone else will as was the case in the mobile industry where Apple is now providing services to iPhone users that should have been provided by the telcos had they been smart enough. We are also seeing Nokia taking the same route with their ovi store albeit with some collaboration with mobile operators. Google, Skype, nymgo, dropbox and many others are now offering ‘value’ over ISP pipes as ISPs keep on complaining about diminishing returns on investment and customer churn.
Network Neutrality: The African perspective
Wikipedia defines Network neutrality (also net neutrality, Internet neutrality) as a principle proposed for user access networks participating in the Internet that advocates no restrictions by Internet service providers (ISP’s) and governments on content, sites, platforms, the kinds of equipment that may be attached, and the modes of communication.
Tim Bernes Lee who invented the Internet says this of net neutrality:
If I pay to connect to the Net with a certain quality of service, and you pay to connect with that or greater quality of service, then we can communicate at that level.
This therefore means that if I pay my local Kenyan ISP to connect to the Internet at say 4Mbps and another user in the USA also does the same, both of us should therefore enjoy equal access to all content on the Internet without hindrance of any kind. If i host a website that is accessible via my 4Mbps line to the internet and the user in the US also hosts his own website then the quality of access of both websites should be equal, neither mine or his should be slower.
Those against net neutrality say that if i want my website to be accessed better and faster, i need to pay more money to my ISP to do that, failure to which traffic to my website via my 4Mbps link will be treated with bias with respect to those who have paid.
All this brouhaha about net neutrality came from large traffic carriers such as sprint, level3, BT, Verizon etc who argued that companies such as Facebook, yahoo and Google are using their infrastructure to make money while they get a raw deal. This led to an ISP such as Verizon partnering with Google and Verizon agreeing to give Google traffic more priority over their network than say traffic from yahoo. This means that if your ISP is Verizon or peers to Verizon then your experience when accessing yahoo will be different from when accessing Google. This effectively creates a ‘private Internet’.
Where is the danger in this? you may ask. In the joint statement by google and Verizon where they try to deny that they want to privatize the Internet, (available here), somewhere in between the many lines of legal mumbo-jumbo, they say:
“This means that for the first time, wireline broadband providers would not be able to discriminate against or prioritize lawful Internet content, applications or services in a way that causes harm to users or competition.”
This effectively creates a loophole for throttling unlawful content on the internet. This is because they do not have the mandate to define what is lawful and wha is unlawful. The organizations or governments operationalizing this have a free hand to define lawfulness of content. MySpace traffic will now be deemed unlawful by say Facebook friendly ISP….. get the trend?
If for example Saudi Arabia decides all Christian websites are unlawful then Saudi ISPs can throttle access to these websites in Saudi Arabia. If the US government decides a website such as Wikileaks is unlawful, they can go ahead and instruct all American ISPs (translated most ISPs in the world) to throttle traffic to Wikileaks because ….. wait for it… it’s coming……… they do not pay the ISP to carry its traffic. Internet censorship will have found a back door to the world! This would also mean that if Facebook pays level3 to prioritize its traffic, it kills off competition from MySpace because MySpace experience on a level3 network would be poor.
The network owners have argued that Network Neutrality is unnecessary because there is sufficient competition in the broadband market to deter bad behavior. They argue that if Verizon degraded access to a site or discriminated against the use of one service in favor of another, they would anger customers who would move to another network operator in the area.
Consumers must have robust competition and multiple choices for this theory to work. But such competition or choice does not exist in Africa, and it isn’t likely to exist in the foreseeable future. This is because most ISPs in the continent end up connecting to the same backbone cable to the internet that peers to the same big provider in US and EU 
. There is insufficient competition between different technologies and ISPs to produce any kind of deterrent should one operator block our access to the free-flowing Internet. This leaves the African user in a very bad situation.
What does this mean to African Internet content and users?
Africa is a net content importer, this means that majority (over 99%) of all Internet content viewed in Africa comes from outside Africa. This was occasioned by the fact that our local backbone infrastructure was and continues to be poor to effectively host content locally. lack of local content, bandwidth scarcity and unreliable power supply have made the continent a net consumer of traffic rather than a generator. The situation is so bad that even our local media houses who produce close to 100% local news have to host their websites and portals in the US or Europe. African ISPs peer to European or American Tier 2 ISP networks who eventually peer to tier 1 ISPs such as Verizon and sprint who are adversely mentioned in deals with companies such as Google on preferential traffic treatment.
Africa recently joined the rest of the world on the internet by laying high-capacity submarine fiber optic cables. This is not only expected to provide faster access to foreign content, but is also aimed at availing African content to the world and Africa in general. The lack of IXP’s means that the African user still accesses most of the local content via the internet in Europe or the US. With the lack of net neutrality, Africa-originated traffic will not be treated equally on the internet playing field as say traffic from Google or Microsoft. This is because the latter will be paying millions of dollars to have their traffic receive preferential treatment from the large data carriers. This, coupled with the fact that the continent produces slightly less than 2% of the total world traffic, will mean African content will be nearly invisible on the Internet.
The result of this is stiffed growth of local content and general development of the continent. With the legacy telecoms systems also turning into the ubiquitous IP on which the Internet is based, African telecoms traffic (primarily voice) to the world will also be disadvantaged shutting off the continent from the world once more.
Sadly, the continents industry players have been very silent on the matter. There has not been a single conference/meeting of minds on the continent to discuss/advocate net neutrality. Only the South African government has tried to discuss it but not from the general perspective of throttling non-paying traffic from providers but from the consumer perspective.
This silence makes me get the feeling that the absence of net neutrality will be good for despotic African governments who will ride on the wave and ban access to information that will pose a threat to their rule and hold on power. I hope i am wrong.
African ISPs/ content developers and consumers need to speak out for net neutrality. Local NGOs that are very vocal on issues such as human rights should also come out and advocate for a neutral internet because thanks to it, they were able to communicate to the world when governments curtailed their freedom of speech. NGOs in America are doing it such as here, here, here and here.
Here in Kenya we are so busy laying infrastructure (fiber, 3G, LTE etc) and talking politics that we forget the fundamental threat to the very cause of the telecoms revolution in the country. Let us do all we can to protect the public Internet from going private.
Nigeria Information and Collaboration Conference 2010
Last week I presented a paper on the state of broadband in Africa at the 2010 Nigeria IT collaboration conference with emphasis on the fact that even with the arrival of fiber optic cables, VSAT still has a major role to play in Africa in the longer term. I also presented on the need for development and hosting of local content within Africa. Here is another blog link with excepts: http://itrealms.blogspot.com/2010/09/vsat-remains-cheapest-accessible.html
Don’t write off Satellite yet.
{This is an article I wrote in April 2009}
The landing of the submarine fiber optic cables on the shores of the east African coast brings to close the notoriety of
the eastern African seaboard being the longest stretch of coastline in the world (7000 km) without a single submarine fiber optic cable landing on it.
Industry analysts are predicting a massive reduction in international bandwidth charges because bandwidth delivered via submarine fiber optic cables is cheaper compared to the same bandwidth via satellite systems. However, I am of the school of thought that thinks that we should not expect the massive reduction in costs with the arrival of the cables in east Africa. I base my arguments on the fact that the historical underlying factors that led to the insanely low prices in the US and Europe are not present in Africa to warrant such a reduction. My other basis is that international bandwidth costs are just one of the costs passed on to the consumer and not the only determinant factor of cost of connectivity in Africa.
The dotcom bubble
The years between 1995 and 2001 witnessed an intense investment in ICTs in the United States and Europe characterized by many start-ups and massive capital investment in Internet infrastructure based on speculation of an impending IT explosion. These companies had envisioned a huge market for high speed broadband internet.
In their investment quest, many of these businesses dismissed standard and proven business models, focusing on increasing market share at the expense of the bottom line and a mad rush at acquiring other companies leading to many of them failing spectacularly.
This period before the burst saw the laying of hundreds of thousands of kilometers of fiber optic cables both on land and under sea as companies invested based on pure speculation not on strategic market research information. When the envisaged market failed to materialize, these companies could not get a return on their investments or be
profitable and went burst culminating in what is known today as the dotcom bubble burst. Some of the casualties include WorldCom, Tyco, global crossing, Adelphia communications and many more.
When these companies went bankrupt, their massive investment in national and international fiber optic networks lay underutilized and was bought for throw away prices by new investors such Comcast and Sprint. So low were the prices that some cable was bought for 60 US cents per Gbps per kilometer in 2002 compared to the 37 US dollars per Gbps per kilometer the Seacom cable is costing to build in 2009.
Because of the heavy investment in the cables connecting Africa, the operators have no option but offer prices to the consumers that will ensure profitability to the investors because any attempt to emulate their American counterparts will lead to failure to break even or even make a profit.
The numbers
According to Gerry Butters, the former head of Lucent’s Optical Networking Group at Bell Labs, Moore’s law holds true with fiber optics. The amount of data coming out of an optical fiber is doubling every nine months due to improvement in modulation techniques. Thus, excluding the transmission equipment upgrades, the cost of transmitting a bit over an optical network decreases by half every nine months. This is indeed very good news for operators and consumers alike as this effectively brings down the cost of using an optical fiber connection for data transmission.
Over the past decade alone, the cost of moving bits over fiber has dropped so dramatically that if the automobile industry could match it, you could buy a BMW for just a dollar or two.
The downside to this is that operators must pass this reduction in transmission costs to customers. This has the effect of lowering the average revenue per user (ARPU) and the operator must increase his customer base fast enough to break even or be substantially profitable.
To attain a substantial internet penetration in Africa via fiber optic cables, a massive capital investment in backbone and last mile solutions is needed because of the sheer area to be covered, the African continent is larger than the USA, Europe, Australia and Oceania put together but with a much smaller market for internet services due to the low literacy levels and poverty. (Only 30% of Africans can read and write and more than 50% of them live on less than a dollar a day, this is effectively the total market for internet services in Africa). Some critics might ask then how mobile phone services have managed to capture such a large market share within a short time, what they have to realize is that the literacy levels needed to use a mobile phone are not as high as that of using the internet and the cost of ownership of a computer is not comparable to that of a mobile phone.
The problem for the operators seeking a large market share is that there is no mass market in Africa to justify the massive investment and the lower costs they wish to charge. Just to put everything into perspective, in the fourth quarter of 2008, Comcast grew its customer base by an additional 331,000 new customers while AOL time Warner grew by 241,000 more internet users and 200,000 phone users in the same period. These two operators have a wide market reach all over US and are not constrained by political boundaries and licensing regimes as their counterparts in Africa whose operating licenses are within countries and not all over Africa. It is very hard to get those growth numbers across Africa let alone within one country.
As of March 2009, Africa had a total fifty four million users online out of which the top ten internet user countries contributed 45 million users.
Eight of the top ten countries have access to submarine fiber optic connections; the two that do not have this connection and still rely on satellite are Kenya and Zimbabwe that share a nearly equal internet penetration percentage to countries with undersea fiber connections. This shows that the demand for internet in Africa is more consumer needs driven than price driven. Irrespective of the price, penetration numbers will remain fairly
constant. A good example is America with very low prices (25$ per Mbps) and a penetration of 74.4% against a demand of 15.7% as of March 2009, if the price determined the penetration, we would expect a demand closer to the penetration rates.
The reliability factor
It is estimated that by 2011, there shall be four undersea cables covering the West African coast and three cables on the east African coast. As of march 2009, there are 34 cables landing on European coast lines and 22 cables on the South American coast line. This is the amount of cable they need to provide the reliability they achieve of 99.5%, it will be very hard to achieve this reliability on three cables covering an area larger than Europe.
Also worth noting is that most ISPs pass their traffic over several redundant cables that land on different exchange points to increase network availability, the African scenario of passing traffic on one or two cables calls into question the reliability of the supposedly fast and reliable fiber optic links to the world.
According to the Network reliability and Interoperability council of America, fiber optic cable dig ups and cable cuts contribute to 58% of the reported failure on the world. In a country like the US where local government regulations on excavations and dig ups are well obeyed, they still suffer cable cuts due to improper dig ups and excavations, one
wonders what will happen in African cities where such laws do not even exist or are flouted with impunity.
In contrast satellite links offer very high reliability, reach and uptime compared to fiber optic links explaining why major US and European companies such as Chevron, Camelot, Volkswagen, Mobil, AIG, Citicorp, Pizza hut and Wal-mart rely on satellite connectivity for their business operations.
Conclusion
The arrival of the undersea cables in Africa is a welcome move to connecting Africa to the world. However, analysts fail to notice that the environment in which African ISPs operate in is difficult due to political, historical and economic reasons. The low prices being promised by operators will not sustain them because of a lack of readily available
mass market needed for such ventures. The incidents that preceded the dotcom bubble seem to be repeating themselves in Africa with predictably the same outcome of burnt fingers and bankruptcy.
When the undersea cable arrived in Nigeria in 2005, the government wrote off VSAT and satellite operators in haste declaring them irrelevant to the country’s economy, today any VSAT or satellite operator with presence in Nigeria is doing booming business as the hopes that the fiber cable would bring prices down and improve penetration failed.
A reduction in connectivity fees does not automatically translate into more customers and quality service. In 2001 Kenya witnesses a similar scenario when cybercafés started charging one shilling a minute to surf the net down from 10 shillings, many a analyst hailed it as a new dawn of affordable internet to the masses, the result of this is that many
cybercafés struggled to stay afloat, many closed shop and those that did not, ended up offering very poor services.
The investment models in the US and Europe are very different from what is happening in Africa, this is especially true for the metro fiber circuits. In Africa/Kenya, its is the operators laying cable all around the city, the US and European approach is that the local government/municipal lays the cables and leases it to the operators hence bringing down
the cost of operation and maintenance of the cables. The submarine cable is also laid by open consortia as opposed to closed consortia in most Africa cable projects. This does not give every operator a fairly equal chance to own the cable.
The incorrect hype being peddled around by ISPs that the arrival of the fiber optic cable will herald a new era in telecommunications should be treated with caution as this is not the first time such a development was seen as a panacea only for it to fail. Satellite still has a place especially in Africa.
(c) Tom Makau
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