General Technology

Voice is About to Become the New User Interface and a Global Equalizer

Posted on by Tom Makau

In November 2014, Amazon released the first smart speaker that had a digital assistant named Alexa. For those not familiar with what this is, its simply a cloud-connected smart speaker that a user can issue voice based commands to do simple things like play music, seek weather, traffic, and news updates and also control other smart devices in the home. All this is done by initiating a conversation with the smart speaker by uttering a ‘wake’ word before the command such as ‘Alexa how is the weather today?’ and Alexa would respond with the weather update, here the word ‘Alexa’ is the wake word and the minute it hears this, it actively listens for the next words and decodes what you are saying by use of cloud-based speech recognition systems. As of mid 2019, Amazon estimates that 30% of American and European homes have a smart speaker, up from 22% a year ago. This is about 100 million Alexa devices in the market.
Not to be be left behind, in 2016, Google also released a virtual assistant called Google Assistant and was initially available on select smart speakers but in 2019 made it available in over 1 Billion android phones in the world (talk about scale!). Other virtual assistant flavors include Apple’s Siri that’s available in all iPhones, Microsoft Cortana in Windows 10 and Samsung’s Bixby.

With these assistants available in smart speakers and phones, a user is able to interact with a computing device such as phone or personal computer to access information and carry out tasks that would have traditionally required them to use an input device such as a touch screen, mouse or keyboard. For example, instead of unlocking my phone screen and opening Google maps to check traffic conditions to say Galleria Mall, all I need to do now is say to my phone ‘Hey Google, traffic to Galleria Mall?’ and the assistant would answer back with the results like ‘There is moderate traffic to Galleria mall, from where you are, it should take you 7 minutes to get there’. I can also initiate a phone call by simply saying ‘Hey google, call Thomas Sankara’ and the assistant will search for his number in my phone book and initiate the call without me touching the phone. On the appliances and electronics side, I will no longer need to look for the TV remote and change channels and I can instead simply say ‘TV, change channel to BBC news’ and its done. This is so good in many ways because:

  1. Its much faster and involves fewer steps to get the same results if not better
  2. It is more natural and intuitive than current interfaces that often need some training/skill or even literacy to use
  3. I can do all this while my hands and eyes are occupied doing something else. For example if I’m driving, I can still get to use maps and make calls without looking at or touching the phone. another example if I could ask the TV to change channels while I’m busy preparing a sandwich.

Other than accessing information from the internet as per the above examples, voice based assistants can also be used to control smart devices and appliances (explains Samsung’s foray with bixby) schedule/cancel meetings and open apps in the phone, all by using voice commands.

Why is this a big deal?
With the recent advances in Artificial Intelligence and Machine learning, Speech recognition systems have become pretty accurate in deciphering words in human speech. With speech being a highly variable input because everyone has a unique voice and accent and variable surrounding noises, it was initially difficult to get computing systems to understand human speech, but with AI and Machine learning advances in the last 5 years, this is now possible. Google assistant and Alexa can now decipher English speech and accent by Lemaiyan from Narok or Billy Ray Cyrus from Texas with near equal accuracy for both inputs.

The biggest leverage that voice has is that AI systems that power these digital assistants are now being trained in various languages and dialects. As of mid 2019, Amazon’s Alexa supports seven overall languages: English, French, German, Italian, Japanese, Portuguese (Brazilian), and Spanish. Google Assistant on the other hand currently supports sixty overall languages including Swahili, Telugu, Gujarati, Zulu, Mandarin and many more.
With the addition of more languages currently ongoing, a voice based interaction with the Internet through mobile phones and smart speakers means that people who were previously locked out of the benefits of the Internet because they could not read and write would all over sudden be able to access the limitless opportunities that being connected presents to them in the comfort of their local language. It will soon be possible for everyone in the world to search for information on the internet, interact with a mobile phone or computer apps, home appliances and electronics by simply speaking to it using the local language. This will be the most significant step in bridging the digital divide since the liberalization of telecommunications in the 1990’s and can be leveraged to create a more equal society. The multiplier effect of this is mind boggling if you think about it. A farmer in Eldoret will be able to seek markets for his produce or even operate a herbicide spraying drone by issuing voice commands in his local language, A mother in rural Sri Lanka will be able to seek nutritional information for her child by speaking the local language to her phone’s digital assistant, set reminders for hospital visits or school meetings without the need for her to know how to read and write in English. A non Greek speaker will also be able to participate in conversations taking place in Greek seamlessly by using the assistant to translate the conversations back and forth.

The popularity of voice based interaction is also growing with the touch screen slowly taking a backseat as the main user interface to the treasure trove that is the Internet and modern appliances and electronics. The below stats sampled from developed countries lend to the fact that voice based user interface to technology and the services it provides is on a hockey stick trajectory in adoption (source):

  1. 40% of adults use voice search on a daily basis (Forbes)
  2. 52% of people use voice search while driving (Social Media Today)
  3. 65% of consumers ages 25-49 years old talk to their voice-enabled devices daily (PwC)
  4. On average, more men than women use voice search at least once per month (Social Media Today)
  5. A study conducted by Uberall found that 21% of respondents were using voice search on a weekly basis (Search Engine Watch)
  6. Close to 50% of people are now researching products using voice search (Social Media Today)
  7. The number of voice search increased by 35x from 2008 to 2016 (Kleiner Perkins)
  8. A HubSpot survey found that 74% of respondents had used voice search within the last month (HubSpot)
  9. Mobile voice search on Google is now translated in over 60 languages (Wikipedia)

With the main mode of interaction with the online world being voice based, the rise of voice based services will also be on the rise. Organizations are today deploying chatbots and voicebots to answer customer queries, take orders and fulfill them. For example, in the USA, its now possible to order pizza from Pizza hut by simply saying ‘Alexa, order pizza hut’ and it will provide the menu options. If you instead say ‘Alexa reorder pizza hut’, then it proceeds to re-order what you ordered last time. This improves the efficiency of service delivery as these bots are available 24/7 at nearly zero marginal cost per additional customer unlike hiring humans to do the work. These systems are also very well versed in the specific details and operations of the company and know were each bit of information is in the organization. A chatbot does not need to put the customer on hold to confirm something from sales or finance department, it has access to all this information and can serve the customer in real-time.

Social media will also move from the current text and multimedia based platforms such as Facebook to voice based personas or avatars. Instead of curating an abstract Facebook wall with posts and status updates, people will curate voice avatars that will be continuously trained to learn information about us and even speak on our behalf (in our exact voice even). For example, a person can train his avatar to respond to questions on social media on their behalf. If my Avatar has access to my calendar and I have allowed it to respond to people (or specific people) about my schedule and itinerary for the day, then another avatar/user can ask it where the other user is or what they will be doing at 3PM today and get and answer. My avatar can also represent me in online meetings and take note of what was discussed and what my take aways or action points from the meeting are, and share this with me at the end of the day. The blurring of the line between social media and real-life will also happen as this avatar can also take on responsibilities in real life. For example. Instead of the HR manager sending a mail to staff inviting them for a physical meeting to brief them on the new staff medical cover, the manager can instead invite all staff avatars to the meeting and leave me to do more productive activities during the meeting time, a win-win for everyone. The avatars being AI based systems, will also be more efficient in recalling information and analysis better than a human and can be used to carry out repetitive tasks or work on my behalf and I get paid. The avatar efficiency and closeness to my offline behavior and character will be a function of how much information I allow it to learn about me. The more I let it learn about me (how I speak, my moods, my social life, my work life, my plans for the day etc), the closer it will be to resembling me as I am in real-life. Mix this with all the information that is on the Internet and you have yourself a virtual worker who can work on my behalf and also interact with others online while I sleep or go fishing in Murang’a. This is the idea behind Microsoft Cortana, create a digital assistant for the workplace that can learn about you and assist you in your work in the office to schedule and remind me of meetings, look for information in the company ERP systems, respond to emails, read reports and take action, etc.

Conclusion
Despite all these possibilities, the issue of privacy and security is at the forefront as the major road block to voice based user interface adoption. For example, is your smart speaker or google assistant on your phone constantly listening to your conversations that are outside the wake word? Can hackers eavesdrop into your intimate or personal one-on-one talk with others in the room?
The truth is there will be no escape to voice adoption as it presents the most natural way for most humans to use and control technology and also allow technology to talk back to us with feedback or results in a way we understand. With the coming hyper-connected world and IoT devices, the current user interfaces such as touch screens will be unable to make us efficiently interact with technology. There is therefore a need for the developers of these systems to put in place measures that will build trust in these systems and instill confidence that the systems are not being abused or used to intrude into our private spaces, thoughts and speech.

The other fear is the cybersecurity aspect. There was a story last year where hackers used AI speech generation systems to imitate the voice of a company CEO on phone and stole a large amount of money. (Read about it here or a local version of the same here). This presents a new threat by voice based systems to the cyberspace and this needs to be dealt with in the design and implementation of these systems.

Finally, web based systems and apps are these days being designed with the ‘mobile first’ philosophy, this is about to change into Voice first, Watch this space.

0
Broadband and Internet

Facebook, Google, Amazon and Microsoft Are About to Eat Telco’s Lunch

Posted on by Tom Makau

There have been recent developments in the Internet backbone and last mile space that should get every Telco CEO worried. These developments are about to throw into disarray well thought out and tested business models on the bandwidth provision front.

In the last few years, there has been increased activity by Facebook, Microsoft, Amazon and Google on the telco infrastructure front.

According to TeleGeography, the international capacity deployed by these companies rose 14-fold between 2012 to 2016 and continues to grow. For example:

  • A coalition of investors led by Google is funding the new Monet cable linking Florida and Brazil, and in February 2018 announced it was backing three projects set to come online in 2019.
  • In April 2019 Google completed the “Curie” project, its first private intercontinental cable, connecting Chile to Los Angeles. It also announced last year the Dunant transatlantic submarine cable project connecting Europe and the US to be lit in 2021.
  • Facebook and Microsoft both funded construction of the Marea cable connecting Virginia and Spain, which was completed in September 2018.
  • Amazon is one of the key investors in the Hawaiki Submarine Cable, which will connect Australia to the U.S. West Coast via New Zealand and Hawaii.

Closer home, Google recently announced its building a cable from Europe to Capetown in South Africa that will land in several West African countries. Named after the Nigerian slavery abolitionist and author Olaudah Equiano, who was kidnapped as an 11-year-old and sold into slavery in the 1750s, the cable will have 20 times the current capacity provided by all existing cables on the same route. Facebook too, in partnership with some local operators is finalizing plans to lay its cable (aptly named Simba) which is expected to land in most African countries in the East and West coast of Africa.
Other than undersea cable investments, these players who were traditionally in the OTT or cloud services space, are also laying or testing last mile infrastructure. Google is operating a fiber optic metro network in Uganda and is in advanced stages of testing their high altitude baloon- based (Google loon) wireless transmitters that will beam LTE signals over large areas of the continent. Unlike ground based wireless transmitters on masts that cover a small area, a single loon can cover the area the size of Nairobi county. Once tests are complete, end users can access the service using a Google issued SIM card or a cheap roof top receiver. Hot on the heels of this is Elon Musk’s Starlink Low Earth Orbit satellites that will offer high speed broadband at 25ms latency to the entire earths surface and oceans. As of November 2019, SpaceX has deployed 122 Starlink satellites. They plan to deploy 60 more per launch, at a rate of one launch every two weeks beginning in November 2019. In total, nearly 12,000 satellites will be deployed by the mid-2020s, with a possible later extension to 42,000. Facebook is also trialing free access in a different way; by partnering with mobile service providers to offer free Facebook or discounted WhatsApp data bundles access on their networks, Its free because Facebook has paid fees for the access to the mobile operator.

What is happening here is that slowly, OTT and cloud services providers are getting vertically integrated, owning the data center, undersea cable and last mile to the end user. Soon, if all goes to plan, Google will be able to serve you a video on YouTube from a data center it owns, via undersea cables it also owns through their LTE SIM card in your Android phone. This cuts off all traditional players in the Internet broadband space. With eSIM cards soon becoming the norm, traditional mobile operators will find it hard to compete. Googles own Pixel2 supports eSIM. A Phone will by default have an internet connection free for life.

This vertical integration has been taken a step further by Facebook where not only are they about to own the entire distribution chain for internet access, they are also manufacturing their own network hardware and servers. Facebook wrote faster switching software algorithms and made them open source while at it. Its now possible to build network switches that are way faster than what you can get off the shelf. Some are commercializing this already. On another front, Google announced that they are getting into banking services to offer bank accounts and credit cards.

Other than connectivity, these players are also investing in data centers and POPs in Africa and many other parts of the world, Amazon today announced that it will have presence in Kenya early next year. These will be inter-connected via these providers owned networks, cutting off many existing commercial undersea cable operators. Until Trumps recent trade War with China, Facebook in conjunction with Huawei were planning on building a massive data center in Kenya with other inland countries to follow. These operators will start by leasing data center space from existing data centers but will with time build their own spaces because they will need to even manage the data center operations end-to-end to be more efficient in their every expanding operations. This is a massive opportunity for Konza Technopolis or even Naivasha county offering Data centers land acreage near the geothermal power plants.

What is about to happen is these players, will now offer free internet access and voice calls directly to end users in addition to financial services. Most of the world outside china is already using WhatsApp (which is owned by Facebook) to send messages and call. Many don’t use the call or video feature because it costs data to use them. Users will now be able to access services such as YouTube, Facebook, WhatsApp video and voice calls, Twitter, Microsoft Skype/Teams and Amazon Web Services for free, to many that constitutes the entire Internet. Broadband pricing and poor speeds have been one of the biggest impediments to the likes of Google, Facebook, Netflix and Amazon. If they offer this free and cut off players who charge a fee, they will increase the number of customers drastically. Investing in these projects is deliberate and is expected to yield profits for these players. This is what Elon Musk’s SpaceX and Starlink project is all about, making re-usable rockets that can launch as many satellites to orbit as possible and at low cost. He can lease his network to the likes of Amazon or Netflix or even Google to deliver content directly to end users. Currently, I am paying $9.9 for Netflix and paying a Telco about $40 for Internet access. Netflix can charge me $11 and give me ‘free’ Internet access to Netflix. In this arrangement, Telcos are impeding content providers access to markets and the faster they are eliminated by the content providers, the better their fortunes will be.

The ease with which these operators are doing this is worrying and connectivity providers need to reinvent themselves because they will soon be cut off from the internet content distribution chain. Another worry is the locking out of content providers who cannot match the investment the likes of Google are making in connectivity services. The issue of Net Neutrality crops up. For example, will Google lease their network to competing service providers? If yes, will their traffic be treated equal to Googles in google-owned cables? How will smaller players and innovators compete in a space where the big players control/own even the operating system that your device runs on?

3
Broadband and Internet

What Needs to be Done to Stem the Frequent Fiber Optic Cable Cuts in Kenya?

Posted on by Tom Makau

Kenya’s broadband penetration and growth has been nothing but spectacular and has been fueled by capital intensive investment in mobile and fixed infrastructure by private sector players. The local regulatory environment has also in many ways aided this. According to the regulator Communication Authority of Kenya, as at 30th June 2019, the number of broadband subscriptions stood at 49.9 million with 99.9 percent being on mobile data. This was an increase of 21.4 percent since 30th June 2018. During the fourth quarter of the 2018/19 Financial Year, the number of broadband subscriptions stood at 22.2 million up from 21.9 million subscriptions reported during the third quarter. Broadband subscriptions accounted for 44.5 percent of the total data/Internet subscriptions.

This growth indicates that broadband connectivity is fast becoming a must have for many individuals and businesses to access digital services such as e-commerce, cloud services, social media, infotainment and conduct business communications. Reliability of the broadband connectivity therefore becomes important because any downtime has a direct impact on peoples livelihoods and their economic and personal well being. At the heart of broadband connectivity are fiber optic cables that are buried underground that aggregate and transport data being consumed by end users on both mobile and fixed connections. these cables are often found buried close or next to other underground infrastructure such as piped water, sewerage and underground power lines.

In countries where physical planning is taken seriously, underground infrastructure planning is centralized and owned by the local governments. These governments, incorporate into their physical planning, underground paths and conduits to carry power, fiber optic, gas and water pipes. They also maintain an up to date map of the paths taken by these conduits and which service provider is leasing which segment. This information is often publicly available or accessible to registered providers. The authorities also manage and supervise any works done by a provider in the conduits. For example when a provider is conducting repairs or extending their services. This supervision is necessary to ensure that a provider does not deliberately or inadvertently interfere with other providers infrastructure and services.

Here in Kenya, the story is different. Local authorities such as county governments and government bodies such as Kenya National Highways Authority (KeNHA) or the Kenya Urban Roads Authority (KURA) issue way leaves to underground infrastructure owners to allow them lay their infrastructure mostly on road sides and under pedestrian pavements. Each service provider then has to excavate, lay their own conduits and pipes, and backfill. There is no sharing of centrally managed conduits that should ideally be owned and managed by the authorities and leased to the providers as a small fee.
This approach would work very well if the way leave issuers managed the access of this infrastructure by the providers for the purposes of repair and service extension. As you would imagine, there is very little management and enforcement of access guidelines and every provider seems to work independently and can access their underground infrastructure at will as long as they have a way leave issued after paying the required fees. The result is the providers take little caution when excavating to extend or repair their infrastructure leading to interference of other providers plant. The providers also end up not doing a good job or restoring places they have dug up back to their previous condition as stipulated because of little or no supervision or consequences for non conformity.

According to statistics by fiber optic cable providers, second to power outages, cable cuts due to negligence and poor planning accounts for 26% of all downtime experienced in the country with power issues contributing a massive 38% of all downtime. These are grim statistics in a country that boasts faster average internet speed than the USA.
There have been efforts by the regulator and other sector bodies and lobby groups to reduce this through a ‘dig once’ policy or infrastructure sharing. It was believed that by making providers share infrastructure such as underground cables, they would pay more attention to any works being done to avoid damage to competitors cable because it also carries their traffic. This hasn’t worked well because there has been little uptake of this by the providers. Even if they had complied to this directive and share infrastructure, majority of the cuts are not by the fiber optic providers or their contractors but by other entities such as water and sewerage companies, road contractors and private developers. There is not a single day that passes in Nairobi and other major towns without a fiber cable cut that is caused by the water companies, road builders or developers doing works near roadside way leaves such as putting up a new petrol station.

What can be done to end this?
With the current way leave owners simply collecting revenues by charging each provider separate way leave fees and not putting in place measures to ensure the safely of the fiber plants, providers and contractors are on their own. They simply obtain the way leave and start work without caution or informing other underground tenants at the work area of the impending works. The result is damage to communication cables and other services leading to downtime in some cases, depending on the location of the cut. A recent example is when on 27th Sept 2019, The Nairobi Water and Sewerage company (NWSC) dug up a sewerage line on Mombasa road near the East Africa Data Center (EADC) and in the process ended up cutting over 200 fiber optic cores belonging to Telkom Kenya, Airtel, Safaricom, Liquid Telecom and others that carry traffic to the data center and towards Mombasa and to the Internet. This led to slow Internet experience for users of services such as Facebook, YouTube, Netflix and other services because the EADC hosts the Content Delivery network servers for local caching. The EADC also hosts many other services for organizations that were also impacted by this. There are several redundant paths to the EADC and this particular cut being close to the premises meant that the route diversity was reduced. Being carrier neutral, almost all internet providers connect to the EADC via multiple paths and reducing the number of available paths due to such a cut leads to slow services or total downtime for providers who were only dependent on the Mombasa road route. This borders economic sabotage and hefty fines should be applied to punish such negligence.

About 3 months ago, the ICT Authority of Kenya issued a notice to all fiber optic infrastructure providers to share with them an updated map of their existing and planned fiber optic cable routes in Kenya. The Authority also said that upon submission of the maps, any provider wishing to extend their networks needed their prior approval to do that. This has not been well received by the operators because:

  • There is no existing legal framework that mandates the ICT authority to ask for this information from providers and to ask them to seek their approval for network extension.
  • The authority’s requirement to seek their approval is also not well defined in the law and there is fear that this exercise is just a revenue collection avenue for the body.
  • The Authority owns the National Optical Fiber Backbone (NOFB) and leases capacity to customers in a commercial arrangement. This effectively makes the Authority a direct competitor to the private sector operators which it wants to now manage with this new directive.
  • Providers already pay way leaves to local governments and bodies such as KeNHA and KURA. It also takes an average of 35 days to get way leave approval from them. The authority should instead be working with way leave permit issuers on how to lower this from 35 days to less than a week, as opposed to making the process more difficult than it currently is. Some counties have even refused operators way leaves on frivolous grounds such as saying they recently paved the town with red cabro as if the providers have refused to re-pave the sections they work on at their cost.

The authority’s intentions were to centralize the management of fiber optic routes and offer a one stop map portal and resources. These are good intentions and are welcome, but they are not well anchored in law and many believe this mandate falls under the regulator; Communication authority of Kenya and not the ICT authority. There is also a feel that, considering that already the providers are already paying levies to other bodies, the addition of another approval and levy step will only go to make broadband access more expensive and slow down the rapid growth being witnessed.

There is need for the formation of a multi-stakeholder body that is in charge of issuing way leaves, maintaining an interactive map of cable routes with indications of ongoing or planned works and a process behind it to ensure cooperation in their activities. This body can be funded from the universal service fund (USF) so as to not turn it into a revenue generator with no substantial benefit to the stake holders as is the case now. The benefits of broadband access to the government and citizens far outweigh the measly fees being levied by these bodies and i believe its time the law is amended to outlaw them. Counties stand to benefit more if they provided a conducive environment for operators to extend their networks. They can find other ways of benefiting from this through beneficial partnerships with providers as opposed to levies and taxes. A good example is Nakuru county that has partnered with Liquid telecom to roll our public Wi-Fi hot spots for the county residents. A bad example is a county I won’t name that even asks branded provider vehicles to pay a branding license/permit for driving around their county in branded vehicles yet they were going there to conduct activities that benefit the county residents. County governments need to look at the bigger picture and create a suitable environment and not just be blinded by revenue prospects through levies and fees charged.


0
Business and Technology, General Technology

My Thoughts on The US-China Trade Wars’ Effect on US Tech Dominance

Posted on by Tom Makau

The arrest of Huawei’s CFO, Meng Wanzhou in Vancouver in December 2018 at the request of the US brought to fore the ongoing trade war between the US and China which is mostly instigated by US president Donald Trump. The arrest came after the U.S. Department of Justice accused Meng (she’s also the daughter of Huawei CEO Ren Zhengfei ) for allowing SkyCom (a Huawei subsidiary), to do business in Iran, violating U.S. sanctions against the country and misleading American financial institutions in the process. This action attracts a jail term of over 30 years in the US.
Hot on the heels of her arrest were concerns that the perceived close ties Huawei has with the Chinese communist government, would allow the Chinese state to spy on any country that runs Huawei telecom equipment especially the upcoming 5G network. It is alleged by the US that Huawei has ‘backdoors’ to all their hardware that can allow unhindered entry into any network and conduct espionage or even shut down the equipment. The US has therefore banned all US telecom operators from using Huawei equipment in their networks especially in 5G deployment.

Why 5G and not 4G?
Unlike 4G which was backward compatible with older 3G and 2G technologies, 5G is the first generation of mobile technology that is not backward compatible. This means that to roll out 5G, a totally new network is needed compared to previously where an upgrade from 3G to 4G was mostly done by upgrading the software of several network components and adding few more components. 5G therefore means building an entirely new network from scratch for mobile operators.
Another factor is that 5G is designed to power the next generation of connected devices and enhance the adoption of IoT worldwide. What this means is that in the near future, vehicles, furniture, and factory machinery will all be connected; surgeries, remote robot operations and many of today’s manual activities will be done by machines that will be connected via the 5G network. In a global economy that is increasingly dependent on connectivity to derive any economic and technical efficiencies, the desire to have full control of the 5G network is obvious. Take a scenario where the entire US transport, agriculture and manufacturing sectors runs on 5G network equipment that Chinese government has a direct access through backdoors created by Huawei for the Chinese state. This is what Trump fears. Indeed he is somewhat justified to habour these fears, but the question is whether they are valid fears. I will not delve into the politics of it but will instead look at the possible scenario of the effect of America’s actions towards Huawei and the industry dynamics.

Trade Wars and Cybersecurity
With the escalating Trade war between US and China, Donald Trump last week declared a national emergency on cybersecurity. Trump signed an executive order declaring a national emergency relating to securing the US cybersecurity supply chain. Under the order’s provisions, the U.S. government will be able to ban any technologies that could be deemed a national security threat. The order, “Securing the Information and Communications Technology and Supply Chain,” opened the door for the US government to classify companies like Huawei as a national security threat and ban the company’s technology from the US and also forbade US companies from trading with Huawei unless they have special permission/license from the government.

This order has resulted in companies such as Intel, Qualcomm and Alphabet (Google’s parent company) stopping the supply to Chinese firms of components that use American technology. One of the most notable announcement was by Alphabet stopping Huawei from accessing the licensed Android Operating System that it uses for its smart phones. With Huawei being the largest telecom equipment manufacturer and 2nd largest smartphone manufacturer in the world (Samsung being the leader and Apple being number 3), this ban will have far reaching effects on Huawei’s business plans. However, if the rumors are true, Huawei has been anticipating this day and already have an in-house developed mobile OS that is believed will takeover from Android OS. They have also been stockpiling chips and components that can last them 3 more months as they seek alternatives.

In their 2011 book “That Used to be Us: How America Fell Behind in the World It Invented and How We Can Come Back”, Thomas Friedman and Michael Mandelbaum list the major problems the US faces today and possible solutions. These problems are: globalization, the revolution in information technology, the nation’s chronic deficits, and its pattern of energy consumption. They also go ahead and state that to reclaim their position, the US must approach this revival with ‘war-like’ conviction. Something Trump seems to be doing to the letter.

US Tech Dominance is Waning
There are several events that have shown that the US is losing its dominance in technology space and is doing all it can to try protect that privilege.
Early in 2018, the US banned ZTE, a Chinese mobile equipment manufacturer from sourcing electronic parts from US suppliers, the reason for the ban again was the flouting of the Iran sanctions by supplying Iran with telecom equipment. The ban resulted in ZTE seeking alternative suppliers and also led to more investment in the chip manufacturing sector in China. A month before, Trump vetoed the proposed takeover of the US based microchip manufacturer Qualcomm by Broadcom, (a US founded firm but domiciled in Singapore) due to the ownership structure. FYI, Qualcomm holds several key patents on 3G and 4G which are one of its biggest revenue streams. all 3G and 4G phones purchased globally pay a royalty fee to Qualcomm for using its patents.
With the upcoming massive uptake of 5G and the rollout of a connected global economy, the US fears that Broadcom’s takeover of Qualcomm would make the US lose control of the 5G technology space. With Huawei having developed their own 5G microchip and the global market for 5G chipsets in smartphones expected to grow at a compound annual rate of 75 per cent between 2019 and 2024, The US is fearful that the cheaper and better Huawei 5G chips will erode Qualcomm’s revenues and dominance.

The recent settlement between Apple and Qualcomm inadvertently put Huawei as a top contender for the 5G chip market. This is because when Apple agreed to pay Qualcomm the disputed royalties for Apples’ use of Qualcomm patents, they also agreed to now use Qualcomm chips in all their subsequent 5G phones. Since 2016, Apple has been using Intel chips as the court battle raged, this gave Intel an opportunity to finally ride the mobile wave crest it nearly missed some years ago. However, the shock announcement by Intel that its pulling out of 5G chip research and development hours after Apple and Qualcomm settled their dispute placed Huawei as a possible major 5G chip supplier. All this time, Huawei has been developing 5G chips for its own internal consumption (used on Huawei equipment only), but with Intel pulling out, Qualcomm’s obsession with high royalty fees and Huawei offering the same technology (if not better) for much lower cost than Qualcomm and devoid of royalties, means that Huawei can easily start supplying their 5G chips to third parties such as Nokia, Ericsson, Samsung and others. This prospect of a global economy running on Chinese supplied 5G chips is what is scaring Trump. All the ‘national security’ talk is but an excuse to defend these seemingly drastic measures the US is taking against China as they head full-steam towards tech dominance. On the Internet front, the US is also feeling the heat of the decreasing dependency on US internet infrastructure to power the global internet. China has effectively managed to create a separate internet for its citizens whose size cannot be ignored. For example, WeChat has 1.04 Billion active users in China (Compared to WhatsApp’s 1.5 Billion globally), Weibo, China’s version of twitter, has over 462 Million monthly active users (Twitter has 260 Million), E-commerce site Alibaba has been growing at an annual rate of 58%, despite its revenues being far behind Amazon ($178B vs $40B), Alibaba’s net profit is comparable to Amazon. If this growth is sustained (and all signs show it will), Alibaba will surpass Amazon in sales within 5 years. China also has all odds stacked in their favour because:

  • China has over 830Million internet users (That’s more than twice the entire US population)
  • China plus its Asian neighbors account for 49% of the global internet users, closely followed by Europe with 16.8% of global internet users.
  • China’s 830Million internet users account for 20% of all users globally, followed by India’s 500Million users.
  • 98% of all Chinese access the web via a mobile device, compared to 73% in the USA.

The above few examples show that China has been successful in creating its version of the web that is somehow independent of western resources.

Russia’s National Internet Plans

With the announcement by Russia that a law is now in place to create what they call a ‘national internet’, Russian aims to be in full control of how Russian internet traffic is routed. Among other measures, it dictates the creation of the infrastructure to ensure the smooth operation of the Russian internet in the case of Russian telecom operators’ failure to connect to foreign root servers.

This seemingly drastic move was necessitated by the aggressive nature of the U.S. National Cybersecurity Strategy adopted in 2018 under Trump. To give a background as to why Putin signed the bill into law, It would be worthy noting that the US currently controls the top level root servers that help all internet users worldwide to convert human friendly domain names (such as http://www.tommakau.com) to computer friendly address names, see the list here. This effectively means if the US decided to block certain countries from accessing the root servers, they will have effectively blocked them from accessing much of the internet and world wide web. The US also has legal right over all dot com, dot org, and dot net domain names (including this blog) and can take down any website it so wishes because they are all legally US websites. “Under these conditions, protective measures are necessary for ensuring the long term and stable functioning of the internet in Russia.” Said Vladimir Putin when signing the bill.

What Next?

These recent events indicate one thing; The world is detaching itself from over-dependence on US technology and infrastructure. This has got the US into panic mode. With the future becoming highly connected, technology will be at the fore front of human advancement and the US fears it might not be the world leader it has been in the past, like oil today; whoever has control of technology in future will control the world. To cloth this fear in ‘national security’ is callous for Trump to say the least, this is not about national security but about commercial dominance. The outcomes of such drastic moves cut both ways and will end up harming the US more than helping it. What I am sure is that China will emerge victorious if today’s statement by the Huawei CEO is anything to go by. In the last 8Hrs, the US has offered a 3-month ‘stay of execution’ for the Huawei ban because of the number of US citizens who own Huawei phones and operators who are heavily dependent on Huawei gear. This is to enable them transition to other phones and network equipment.

Locally, the US-China trade war might have major ramifications especially if the ban extends to other Chinese telecom gear and handset manufacturers. Tecno, infinix and iTel command a 34% market share of all smartphones. All these three brands are made by one company and this extends the risk further based on the market share by this one company should it also face the ban. It is also worth noting that large sections of Kenya’s mobile network runs on Huawei gear (including the base stations serving State house). The short term effect of this ban will be increased operating costs by local mobile operators as they seeks alternatives from European suppliers whose equipment and deployment cost is more expensive. The long term effect is that these Chinese companies will adapt to not depending on US tech and come up with their own technology and processes to manufacture even cheaper telecom equipment; couple this with the ambitious Belt and Road Initiative by Xi Jinping and the US will have forever lost its dominant position on the world stage.

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Broadband and Internet

East Africa: The Race to The Terabit Backbone

Posted on by Tom Makau

In the last few months, two major operators in Kenya announced their plans to upgrade their traffic backbones. Safaricom announced it’s partnership with Huawei to upgrade its Mombasa-Nairobi backbone to 400Gbps while Liquid Telecom announced its partnership with Nokia to upgrade its East African backbone to an initial capacity of 500Gbps using OTN/DWDM technique. This as you would imagine is a massive upgrade from the current capacities.

With the increase in the use of Internet and mobile phone use in Kenya and the greater East African region, these backbones will ensure that the region does not suffer from bandwidth constraints due to lack of capacity to carry the traffic. Also, to enhance the user experience, Internet giants such as Facebook and Alphabet (parent company to YouTube) have set up powerful cache servers within the country. These cache servers store most popular content locally in Nairobi at the Africa Data Center in Nairobi and iColo in Mombasa. How these work is for example is when a person watches a YouTube video and shares the video link with others in Kenya, the next person won’t get the video from the YouTube servers in the US or Europe, but will get the video from a server in Nairobi where a copy will be temporarily stored. What this means is that the video will load faster with no buffering and also ease up capacity on the international backbone that would have been used to access the video by everyone to whom the video was shared. Same case for Facebook videos and photos. With the increase in smart phone adoption and multimedia content sharing on social media such as WhatsApp and the fact that over 70% of East African internet traffic is social media and video streaming, the amount of traffic is bound to increase exponentially if the region starts to use broadband and cloud more productively and not just for recreation, these backbone upgrades are therefore happening at the right time.

Fiber-Optic Upgrades 101

Other than the high capacity they provide, the other main advantage of using fiber optic cables for data transport is that once the optical glass core is buried in the ground, any upgrade of capacity does not necessarily need additional cores buried (unless better cores with much less losses per km come to market or the existing core is extensively damaged). The upgrade only needs to happen at the end point equipment.

Fiber optics use light to carry information, in the early days, a single color of light (a.k.a wave length) was used to carry traffic. However, with the advancements in physics, it became possible to use several colors of light (several wave lengths) to carry traffic in a single glass core; a technique known as DWDM. All advancement in optical transport is simply based on how many color shades or hues that a fiber network equipment can detect. Just like in the 5G arena, there has been a silent war between European and Chinese OEM’s on whose equipment can detect more hues (more wavelengths). The more hues the equipment can detect at the same power levels, the more data can be carried on that channel.

5G and Multimedia Traffic

With the approval by the 3GPP of the 5G-NR standards, it is expected that 5G networks will deliver speeds of up to 20Gbps (in lab conditions), real world speeds will hover around 1Gbps which is still high by today’s metrics. With the increase in consumption of multimedia and streaming content, the demand for even bigger data backbone pipes will continue on an upward trend. Just to give an example, in mid 2017 Liquid upgraded their EA backbones from 10Gbps to 100Gbps and less than two years later to 500G because of the demand. In the next 3 years or so, Liquid’s 500G and Safaricom’s 400G won’t be sufficient. There will therefore be the need to scale up to the Terabit space. This will allow the operators meet capacity demand in the region for both data and voice traffic. This is especially critical at a time when many Internet companies are setting up Content Delivery Networks (CDNs) and cloud presence in Kenya. Facebook is already in Mombasa, Google in Nairobi and Mombasa, Netflix and Akamai in Nairobi and many others. Microsoft is finalizing the setting up an Azure Stack in Nairobi as Amazon Web Services (AWS) announced that they are setting up local cloud presence in Africa with an availability zone in Nairobi and South Africa. These locally based cloud points of presence will enable cloud service providers offer lower latency to end users across Sub-Saharan Africa and will enable more Africans to leverage advanced technologies such as Artificial Intelligence, Machine Learning, Internet of Things (IoT), mobile services, and more to drive innovation. With the current broadband use not being productive use; with most traffic being recreational and social media, the availing of low latency cloud services from within the continent will drive up our efficiencies and help the region to develop.

Government’s Role

I happen to have attended the National Broadband Strategy II (NBS II) stakeholders consultations and review of the proposed strategy. There seemed to be a shift from the strategic direction of NBS I which mainly focused on creating an enabling environment for private investors to roll out broadband networks in the country. In the proposed NBS II that covers the period 2018-2023, government seems focused on using tax payers money to roll out broadband. This to me is not the way to go as previous government investment in similar projects such as the National Optic Fiber Backbone (NOFB) haven’t been well executed and currently stands at 12%. The percentage completion of the other projects under NBS I such as digitization of core government registries where several registries have been digitized was not documented. For some other projects, there was no indication whether they were undertaken or not; an example is the development of county management information system. All these projects were allocated KES 250B under NBS I. The NOFBI’s current performance and availability is far below the closest competitors offering. The government should leave telecom infrastructure development space to capable private sector hands. Government can aid the private sector with incentives and tax breaks on equipment and other costs associated with broadband roll-out and creating a level playing field through proper policy and sector regulation.

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Business and Technology

Every Organization Should Have an ICT Policy

Posted on by Tom Makau

An acquaintance of mine told me a story of how he continued to receive a salary from an employer 4 months after he left the organization complete with statutory deductions including HELB loan repayments. We have also heard of incidents where an employee is fired and he ends up ‘locking’ up ICT systems by changing passwords or refusing to share the passwords, sometimes leading to loss of business or information. Worse, some organizations have slowly bled to death due to frequent flouting of ICT policies leading to loss of money and customers. In fact, most fraud incidents today involve the improper use of ICT systems because of the lack of or poor policy implementation. Think IFMIS/NYS.

On the surface, these staff exit related examples might seem like the failure by the HR or IT department in ensuring proper exit of an employee or the proper use of ICT resources. But deeper, they point to a more critical and dangerous state of affairs: The lack of or the failure to adhere to ICT policy best practices.

What is an ICT Policy Document?

The Oxford English Dictionary defines policy as “A course of action, adopted and pursued by a government, party,ruler, statesman, etc.; any course of action adopted as advantageous or expedient.” Adding ICT to it, the definition can be thus: an ICT policy is a roadmap with specific actions and best practices towards the adoption, use, maintenance and value extraction at reasonable cost from ICT resources. Every action taken in the organization that uses or impacts ICTs must be guided by this policy.

As you can see above, without an ICT policy, there will be no roadmap on how and why an organization should adopt ICTs. At the bare minimum, an ICT policy document for an organization should include the below:

  1. Scope and objectives of the policy document: This defines the reason why the document exists, it’s target audience and what the document covers.
  2. Technology adoption roadmap: This gives a clear definition of where the organization is and where it wants to go in the short and long term as far as ICT is concerned. For example; is the organization moving from an in-house data center to the cloud? it must be in the ICT policy. Is the organization trying to change the ICT department from being a cost center into a revenue generator? It must be in the ICT policy.
  3. ICT best practices in relation to the organizations objectives: These define the do’s and don’t’s for the organization as a whole (and not the individual ICT user in that organization). For example; is the organization outsourcing its sensitive data analysis to a third party? This must be specified in the ICT policy. Is the organization allowing personal devices such as phones (BYOD) to connect to the office WiFi? This must be specified in the ICT policy.
  4. Precautions and disciplinary measures: This section details the rights and obligations of ICT users with punitive or damage preventive measures for failure to follow the laid down ICT policies by a member of staff. The severity of the punishment should commensurate with the risk or exposure the company suffers as a result of the failure to follow the laid down processes.

Checks and Balances

A policy document is just that; a document. It has to be operationalized through the implementation of systems, processes and a mindset change to ensure its success. Many organizations have well written but poorly implemented ICT policies. This poor implementation is often as a result of failure to interpret the policy into well understood rules and regulations. A policy begets regulation, which in turn begets directives. A directive like “No member of staff shall copy into a portable disk, any document, software or multimedia that belongs to the organization…” should have stemmed from a regulation that bans the use of portable drives in the work environment. This regulation should have stemmed from the policy that states “The organization, shall treat all the organization information with utmost care, protecting it from unauthorized access or modification both in storage and in transit”.
But what happens if all the above exist and members of staff still carry around USB drives containing the organization’s data? This is where checks and balances come in. the CIO can go a step further and disable all USB ports from accepting portable drives. He can also go ahead and have the system send an alert to the relevant IT team should anyone attempt to connect a portable drive to a company computing resource.

Future Proofing ICT Policies

A good ICT policy document should be future proof and technology or vendor agnostic. This is to say that it should desist from mentioning vendors or particular technologies. These details should be in the subsequent documents that emanate from the ICT policy document. These include but are not limited to:

  1. The ICT resources user guide. This is what many confuse for an ICT policy, Its more of regulations than policy. This gives details of how the organizations ICT resources are used with best practices. This is the document that entails regulations such as social media use in the office, BYOD rules, Email etiquette etc. It also specified specific do’s and don’t’s when using the organizations ICT resources.
  2. The Technology adoption plan: This is the short and long term plan of how various new technologies will be adopted and integrated into the existing systems. It gives solid reasons and timelines for this, showing the entire ICT use lifecycle. Technology adoption should not just be for the sake of it or because there is a newer, shinier technology in the market. Technology adoption should take into consideration the competitive advantage the organization is going to earn from the adoption and capex and opex availability.

In Summary

With ICT becoming an integral part of doing business today and the digital transformation that enables it, it’s very critical that CIOs are in control of the direction and pace of ICT adoption in the organization. This control cannot happen without a policy in place. The CIO can adopt the best ICT systems with good intentions to help the organization, but without an ICT policy, these systems will serve as a conduit for fraud, information assets and eventual revenue loss to the organization. If your organization does not have an ICT policy in place, Its time to have one.



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Internet of things

The IoT is About to Take Off in Kenya

Posted on by Tom Makau

The recent news that Liquid Telecom has partnered with Sigfox Networks to to build and operate a nationwide Internet of Things (IoT) network should have received more prime time airplay than it deserved. The low cost, low energy consumption, long range IoT network will cover up to 85% of the Kenyan population. The introduction of a Sigfox “Low Power Wide Area Network” (LPWAN) is the first in the region, allowing users to use IoT technology wherever they are and positioning the country to apply cost-effective local solutions using IoT. This if you ask me, is a significant leapfrog opportunity for the country to show Africa and the world once more, who is the technology adoption leader.

The internet is full of articles of how the IoT adoption will be bigger than the mobile’s. The Internet is about to come out the screens we have used to interacting with, into the real world. The Internet is going to soon cease being virtual and become part of the world we live in. However, there has been little discussion of how the IoT will be adopted in Kenya.

Why “Low Power Wide Area Network” (LPWAN)?

The IoT will involve the connection of billions of sensors. These sensors will sense our surroundings, feed this data into computing systems that will most likely be in the cloud. I say most likely because IoT is bound to decentralize computing with what is known as fog computing. One of the shortcomings of the current mobile era is the high power consumption of mobile computing devices and networks. Their algorithms and architecture is optimized for speed and not power efficiency. If we were to embrace IoT and use the existing mobile networks, it would lead to sensors consuming a lot of power. This would limit applications, conditions and environments in which they can be deployed. With Low Power Wide Area Networks or LPWANs, the network is optimized for power efficiency and not speed. This means that IoT sensors that connect to LPWAN consumes much less power. To give an example, there now exist IoT sensors that can go for 10 years on a single battery charge thanks to their ability to use very low power in transmitting data. Industry estimates that there will be about 24 billion IoT devices on Earth by 2020. That’s approximately four devices for every human being on the planet.

The IoT Adoption Waves in Kenya?

The Liquid LPWAN presents an opportunity for Kenya to embrace the IoT. The question in everyone’s mind however is: What real life application for IoT is there in Kenya? Based on my prediction, there will be two adoption waves.
The IoT early adopters who make up the first wave, will be manufacturing and logistics companies who will have realized early enough the efficiencies the IoT will bring into their operations. For example, one of the biggest challenges faced by keg beer manufacturers is the loss of the aluminum kegs. It is estimated that over 15% of the kegs are lost and never return to the depot, with each keg costing about KES 30,000 to manufacture, they are losing money. With IoT sensors with GPS and tracking capabilities, the brewers can not only keep track of their kegs throughout the supply chain but also monitor the freshness of their contents.
Another low hanging fruit is in the logistics sector. App developers can come up with new applications that leverage IoT sensors and networks, for example, to track the delivery routes and frequency of various parcels and use this data to come up with better, more efficient routing, or efficiently track in real-time the movement of goods. Utility companies such as Kenya Power can add value to their customers by incorporating IoT smart meters that will enable consumers track power consumption in real-time and give them more control over their usage patterns.

The second wave of adoption will bring IoT into homes and personal spaces. This will see the rise in smart homes, embedded health devices and personal tracking systems. This is the wave that will cause an IoT adoption explosion whose outcome is mass adoption, massive drop in IoT device prices and unprecedented innovation around the IoT similar to what we witnessed in the mobile telephony adoption.

The benefits of the IoT adoption will be immense, consider the effect of connecting taxi cars to the internet via apps such as Uber, Taxify and Littlecab. This has had the effect of significantly lowering taxi fares and waiting times in ways we thought impossible just a few years back. This is just one example of how connecting previously unconnected everyday things to the Internet will change how we live and work.

IoT Security and Regulation

The IoT is coming, whether we are ready or not. However, lessons from the mobile telephony adoption wave can be adopted to avoid similar mistakes that arose during the mobile era. These mistakes in the IoT include:
1. Failure to secure user data in transit or in storage collected by the IoT sensors.
2. Failure to regulate the quality of both the IoT software and hardware components imported into the country.
3. Lack of public awareness on the good use of the IoT and best practices when using or interacting with the IoT.
4. Failure to ensure privacy of people or entities the IoT sensors collect data about whether deliberately collected or not.

The above can be remedied by putting in place laws and regulations on the IoT use in Kenya and creating public awareness early enough for the IoT users.

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ICT and Telecoms, Mobile Telephony, Regulation and Law

The Dominance Debate Should Be About The Consumer’s Welfare, Not Operators

Posted on by Tom Makau

Communication TowerDuring the last Safaricom AGM, the dominance debate came up and all contributors to the discussion at the meeting seemed to agree on one  thing: That the regulator is punishing Safaricom for being successful and that it was not their fault that their competitors have refused to invest and innovate. The recent calls by their competitors to the regulator to have them declared dominant and abusing their dominance are based on a market study report released last year by a consultant. This report found Safaricom to be dominant in both the mobile communication and mobile money markets. The report went further to suggest remedies that include infrastructure sharing, retail tariff controls and the splitting of the company into several independently run companies for mobile money and mobile communications.

In July this year, the parliamentary committee on ICT’s met sector players on the issue of dominance and what came out was other operators still strongly feel that they cannot be able to compete with Safaricom on equal footing. On the other hand the committee members felt that the operators are not doing enough to pry off Safaricom’s grip on the sector. Recent reports also indicate that the regulator is also under pressure to declare Safaricom dominant and in abuse of its dominance. By going ahead and doing so, the operator will not have a free hand in the determination and introduction of new products and services in the market without the regulators direct approval. Another recommendation that is being pushed is the sharing of both active and passive infrastructure by Safaricom with its direct competitors.

A point to note on the above is in all this discussion, no one is looking at the possible effects the implementation of these recommendations will have on the most important person in this debate; the consumer. The focus is mostly on the operators commercial welfare. Also, should the regulator decide to go ahead and implement the recommendations, what laws or framework will be applied? Are the laws also relevant to the current technological and market realities?

The Kenya Communication Act of 1998 and its subsequent amendments (Kenya Information and Communication amendment act of 2013) specify that the regulator shall from time to time develop and publish, in the Kenya Gazette, guidelines to be followed when determining whether a licensee in a dominant market position in a specific communications market. The Act also specifies that for the regulator to determine if a player is dominant, it shall prepare a dominant market power report to determine whether a licensee is dominant in a service or geographic communications markets. This is the report that was released in February this year. Based on the reports findings, the Act specifies that the regulator can declare a licensee dominant by considering the gazetted criteria, One of the critical criteria is if the operator possesses Significant Market Power (SMP).

Upon declaring an operator as dominant, the regulator will also need to show that the dominance is being abused to edge out competition from the market or to generate more profits or even offer inferior quality of service with no consequences. The criteria that can be used to check if there is abuse of dominance are as below. It’s worth noting that Safaricom meets none of the criteria below for abuse of dominance.

  1. Refusal to deal with competitors on the essential facilities doctrine: essential facility is facility supplied on a monopoly basis but is required by competitors but they cannot be reasonable duplicated by competitors for either economic or technical reasons. With new approaches or alternatives to essential facilities sharing such as VNOs and national roaming, and the fact that all mobile networks now have  a packet switched core as opposed to circuit switched, this doctrine cannot be used as a measure of dominance abuse because already Safaricom is sharing and leasing out unbundled services.
  2. Cross subsidization: This is where the dominant firm uses revenues from a market in which it is dominant to cross-subsidize the price of a service or product it provides in other markets. For example, there would be suspicion of cross-subsidization if Safaricom, when recently entering the home internet market (which Zuku was the de-facto player), offered much lower pricing than them by subsidizing home internet user pricing with revenues from their voice business. Entry prices for most markets Safaricom ventures into are often higher than competitors.
  3. Predatory pricing: This is where the dominant operator charges prices below a normal cost standard. At the moment, Safaricom prices are not the cheapest in the market so this also does not apply too. This debate would have made more sense if Safaricom was dominant through the offering of prices well below their competitors price points.
  4. Bundling of services: This is where the operator sells a product at a fairer price on condition that you also buy other services from them. For example, a user who simply wants airtime should be able to buy only airtime and not be forced to buy airtime and data though an offer despite them not having an immediate or future need for the data. If anything, its Safaricom’s competitors who are bundling services leading to wasteful accumulation of unnecessary services such as hundreds of unused SMS’s and talk time minutes that accumulate as subscribers purchase bundled data for internet access.

Innovation and Operations

There is this notion that the mobile sector is vendor driven, that the telecom equipment vendors often dictate the pace of innovation in the market. This is partly true and therefore also means that competitors in the sector have access to similar technology because the vendors in the sector supply all operators. Nokia, Huawei, Cisco, Ericsson all supply to the operators the same products. The difference however comes in on how these products are monetized. The dominance report recommends that Safaricom, upon being declared dominant should not sell services that are not replicable by the competition. This is to say, they cannot come up with a product that their competition, using their resources and infrastructure cannot come up with easily. The Kenyan ICT talent pool is very large and any operator worth their license can afford to hire the best brains in the country. The fact that all operators have equal access to technology and talent means that its not hard to replicate competitors products. But why then isn’t this happening? The answer lies in company culture. Safaricom cannot be punished for cultivating a culture of innovation as their competitors sit and wait for the regulator to give them a piece of the innovation pie. All operators have the necessary ingredients to succeed.

One business model that has been adopted by Safaricom’s competitors is outsourcing of functions. Ideally, firms are supposed to outsource their non-core functions so as to enable them focus on their core function. If its a hospital for example, it can outsource its transportation, cleaning, etc but isn’t expected to outsource core functions like diagnostics and patient care. However, many firms that adopt the outsourcing path end up over outsourcing even core functions. The reason is purely to make the financial statements look better because most of the costs will be classified as variable and not fixed costs. When a firm outsources both core and non-core functions to third parties, it loses control over quality of service and also fails to clearly see any inefficiencies in the operations.  The result is outsourcing will make the books look good but affect customer experience through inefficient service delivery.

What are the alternatives?

With telecommunication services now permeating all sectors of our lives, it has become a critical catalyst for socioeconomic development. drastic actions such as declaration of dominance and splitting up Safaricom will have far reaching effects on the Kenyan economy all in the name of giving it’s competitors an equal footing. So far, several regulatory actions aimed at leveling the playing field have not yielded much. First it was Mobile Number Portability (MNP) which according to analysts didn’t work well because subscribers were afraid to change operators due to M-pesa. For MNP to work, many felt that Mobile Money Interoperability (MMI) had to be in place. The regulator managed to bring all operators on the table and effect mobile money interoperability. So far since implementation, there has been no effect on the market dynamics. There are also a raft of measures put in place by the regulator to create a level playing field. Many of these measures have actually helped Safaricom’s competitors make slight gains in their market share. I believe these gains could have been more if these operators improved their operational efficiencies first.  Splitting Safaricom when the competitors operations are inefficient as they are will only do more harm to the sector as the supposed benefits will not be realized at that level of efficiency. The regulator in addition to playing its current role, should also demand accountability from operators on actions it takes to enable them gain market share but the operators fail to take up these opportunities. A good example is there was a very big push to effect mobile money interoperability, but when it was done, there was very little in terms of marketing this development bu those who were asking for it. At the very least there should have been a major marketing campaign that coupled MNP and MMI.

Another approach would be to offer tax breaks to Safaricom’s competitors on investment in network and services. This would lower their CAPEX on network roll out and services. Tax breaks can also be applied as a motivating factor when these operators reach certain predetermined targets. For example, if an operators revenues or market share hits a target, the government gives them a tax break. This will push them to be innovative in revenue generation and market share gaining activities.

The consumer

All the discussion around dominance has been mostly about operators gaining market share. There seems to be very little concern on the most important stakeholder: the consumer. At the end of the day the consumer should be able to make the decision on which provider to subscribe to based on the value they get. There is a general assumption that the consumer is always price driven. That all his decisions are based on price. This assumption is what has led to the many price wars we have witnessed in the market which have yielded little in terms of market share gains. Consumers buy convenience and experiences. operators who want to be successful must start looking at the consumer experience and convenience when they are on their network.

The focus of this debate should be the improvement of consumer welfare. All actions by the regulator should take into consideration the consumer, consumer welfare is the regulators biggest mandate. The best approach would be for the regulator to look at how best citizens will be served telecom services. The recommendation for Safaricom to share its infrastructure with competition can be shelved in favor of the Universal Service Fund. The USF can be used to lower the cost of rolling out services by operators in under served areas. This approach has worked very well in Latin America.

According to an analysis by the Institute of Economic Affairs (IEA), should the regulator implement the dominance report  recommendations, consumer prices for services would actually rise and not fall. This will hurt the consumer despite the fact that the leveling of the playing field for all operators is supposed to lead to lower prices. The declaration will serve the operators but not the consumer. So in the interest of the consumer, I believe other approaches listed above can be implemented, splitting Safaricom is not one of them.

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Mobile Telephony, Regulation and Law

My Thoughts on the Proposed Retail Tariff Controls in Kenya

Posted on by Tom Makau

telecoms-13The Communication Authority of Kenya is mulling on introducing retail tariff controls in the Kenyan mobile telephony sector. As you would imagine, this has elicited mixed reactions depending on who you ask. This move it is said is part of a raft of recommendations by the recently released report that studied the Kenyan telecommunication competitive landscape. The introduction, according to the regulator is aimed at correcting market failures that are as a result of one operator being dominant over the rest. The proposed retail price controls aim at limiting Safaricom’s freehand in determination of loyalty schemes and promotions, prohibition of on-net discounts, mobile money fees charged to unregistered and cross-platform money transfers. Tariff  control is a regulatory mechanism that can be employed to correct market failures in a market. The main motivation for price control is to protect consumers’ rights and interests in circumstances where market forces alone have been unable to do so.

The competitive landscape report implies that Safaricom’s price differentiation between on-net and off-net calls leads to tariff-mediated network effects. By this I mean that subscribers on a network find it cheaper to call others who are on the same network than calling people on a different network, the effect of this the emergence of the ‘club’ effect where subscribers decide which network to join based on which network the people they call mostly are on. If most of my family and friends subscribe to a network X, I am more likely to subscribe to network X because by being on network X and not on network Y, my overall calling costs will be lower due to cheaper on-net pricing. This it is argued is abuse of its dominance. But this is only true if the interconnection rates are high between Y and X meaning it will cost me more if I chose network Y where none of my relatives and friends subscribe to. As we speak, interconnection rates are already regulated by CA. This fact alone means that the regulator found and enforced an interconnection rate that was cost based and reflected the market realities. The Safaricom on-net call rates are above the regulator-set interconnection rates  and are similar to the rates its competition provides its customers to call into the Safaricom network, in short, Safaricom’s subscribers pay the same rate as competitors subscribers when both call another Safaricom subscriber. CA would be justified in imposing tariff controls if indeed Safaricom’s subscribers paid less to call their counterpart than when competition subscriber calls. The fact that the report found that each operator was dominant on its own network also means that the club effect can easily be replicated by competition through aggressive marketing and innovation.

Individually tailored tariffs

Another proposal by the regulator is the prohibition of individually tailored loyalty schemes and promotions. The CA 2010 Tariff regulations specify that all promotions or loyalty schemes must be approved by the regulator prior to commencement. Any promotion, offer or scheme currently in operation has the direct approval of the regulator, the details of each promotion or loyalty scheme structure were available to CA before approval and these include individually tailored schemes and promotions. When an operators behaviour due to regulation causes it to become successful, it cannot be punished for successes it encountered while operating within the laid down regulatory framework. If there is any discriminatory behaviour, then CA failed in detecting and stopping this even with the existence of regulations. When that happens, it is clear that regulation is not the solution to the perceived market failures and the only remedy is let competitive forces determine customer choice.

What would happen if call tariffs are regulated?

Most people assume tariff regulation leads to the lowering of retail rates. This would only be true if CA had a way of accurately measuring the costs involved to provide service to additional customers on their network. At the moment, due to the fact that Safaricom has invested more in network infrastructures geographical and population reach, it costs them less to bring in a new customer and provide service to them than its competitors. The proposal to use Long Run Incremental Costs (LRIC) method would mean that because of the massive economies of scale enjoyed by Safaricom owning a large network and technology convergence, the cost of offering an extra minute of termination on the network is virtually zero in the short-term and LRIC is applied to give a realistic cost over the long term. How long is ‘long term’ will determine the price point.
A regulated tariff price should imitate the prices that would have arisen in a market with effective competition, both because this provides incentives to produce the requested service at the lowest possible cost and because the operators requesting the service have the incentive to optimize their own investment decisions. In this way price controls can contribute to efficient utilization of social resources. The problem however is that LRIC works very well in legacy circuit switched networks where it was easy to link network utilization with the provision of a service (if a switched circuit is in use, it is providing a directly attributable service), in a converged environment, the relationship between network resource utilization and provision of services is not that straightforward and an LRIC model applied to it would fail to efficiently allocate costs. As networks evolve into Next Generation Networks (NGNs), LRIC approach to service cost allocation becomes inefficient and LRIC starts to resemble the Full Allocated Costing (FAC) model. The result? higher prices to the consumer.

Replicable retail tariffs

One of the recommendations by the study is that Safaricom’s Tariff must pass the ‘replicability test’.  In order for a product or service to be considered replicable, it must be commercially and technically capable of being replicated by Safaricom’s competitors. By this we mean that any new tariffs that Safaricom comes up with should take into consideration the capability or state of competitors infrastructure and services especially at the wholesale level. If for example, Safaricom comes up with a tariff that takes advantage of a new innovation they developed, then competition should have similar innovations on their networks or should be allowed by Safaricom to access this new innovation at wholesales prices to enable them offer similar tariffs. In order for competitors to be able to compete with Safaricom in retail markets, it is necessary for them to have access, either via their own networks or through access to Safaricom’s network, to the wholesale components that enable those retail prices to be offered. This as you can imagine will slow down the pace of innovation by Safaricom or change the main focus of innovation from the customer to competition, anytime Safaricom wants to innovate, they will think of ways through which competition will not benefit much from it as opposed to spending their time and knowledge on how the innovation will first benefit the customer.

Tower sharing

The report found that Safaricom is dominant in the tower market owning about 65% of telecommunication towers in Kenya and recommends that it shares it towers with competition. To do this effectively, Safaricom has to let a 3rd party manage the towers on its behalf. Safaricom owns its towers while competition has a mix of owned and outsourced/leased towers. With rapid advancement in technology, there is a saying in the industry that it is always cheaper to build a network tomorrow. Any new entrant or existing operator rolling out new retail services and infrastructure such as towers will do it cheaper today than those who did it in the past. See how easy it was for Finserve Africa (Equitel) to get market reach by the flick of a switch riding on an MVNO license? Older operators didn’t get to enjoy these benefits and had to put in sweat and blood to get where they are.
In the Safaricom 2017 sustainability report, the operator spent close to 10 million litres of fuel and about KES 48,000 per month per tower location on energy costs. The report also shows that fuel and power costs are coming down and that Safaricom has also embraced green energy initiatives to power the active components at the tower stations, it is becoming cheaper by the day to setup and manage tower locations but the increase in the number of towers makes the management of the same a challenge.  Outsourcing of tower management is used by some operators to shift a large element of their fixed costs to the variable costs column of their financial books, in doing so the operators financial health improves. Tower outsourcing has little to do with improved efficiency in actual operations and management of these towers but more to do with improving the books. Due to this, the global trend in the telecom sector is the outsourcing of tower management to independent 3rd parties, something Safaricom should consider for its own benefit and not due to regulatory requirement. Safaricom should then decide to lease its towers to competition on a purely commercial basis.

Conclusion

Although well meaning, the CA needs to explore non-tariff based remedies to the perceived dominance of Safaricom. Tariff control is a very intrusive approach to handling abuse of dominance whether real or perceived. As markets evolve to become competitive, ex ante regulation should reduce as the regulator forebears regulation in favour of competitive forces. The challenge however is that customer inertia can mask the existence of competition in the market leading to the regulator applying regulatory tools to correct this perceived market failure. Market forces should be let to dictate the market tariffs.
The tariff control ocean floor is littered with shipwrecks of tariff control attempts by various countries that  tried to correct market failures by  employing it. One of these countries is Mexico who in 2012 introduced tariff controls by baring America Movil from charging interconnection fees to its competitors. Movil controls 70% of Mexico mobile market. As of 2015, mobile call charges had dropped by about 17% but investment in the sector dropped 30% during the same period, for a developing country like Kenya, a drop in ICT investments will have far reaching effects across multiple sectors of the economy. Whereas the intended outcome of tariff control is to  protect the consumer from a dominant operators actions, the question that remains is whether tariff control is the only viable market correction tool available.

 

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