Sudan oil fuels rapid growth in telecoms and internet sectors – report
Mar 6, 2006 (LONDON) — Sudan is Africa’s largest country but more than 70% of its population live in its small towns and scattered across rural areas. The country sits strategically between Arabic-speaking North Africa and the Gulf and several sub-Saharan African countries: it is bordered by no less than 12 countries. The civil war in the south of country raged for over 20 years but now seems to be at and but troubles persist in the west of the country. Its oil revenues have created a building boom in the capital and attracted telecoms investment from the UAE (Canartel) and Kuwait (Celtel).
So despite the continuing American sanctions, international investors are interested in what one person described as “the smell of money.” Some idea of the scale of money to be made can be gained from a story told to us of an ISP with only 6 clients which is making millions of dollars profits: all the clients were oil companies.
US sanctions means that the military government has put in place a programme it controls for local assembly of things as diverse as copper wire, cars, computers and lorries. And well-known international brands like Hyundai (producing the parts and expertise to produce the local GIAD car) are closely involved in this process.
The peace with South seems to be holding on the basis that “the details” are not being worked out. Whilst one mobile operator from the North is beginning to roll-out in the South, the Southern Government is planning to introduce a new “national” operator into its area and went to the ITU to ask for a separate numbering scheme. If the South’s new operator conflicts with existing licences from NTC, how will this be resolved? Will that new Southern Sudan operator be able to go north and operate there? Nobody seems sure although the two sides are talking to each other. When Southern Sudan’s Minister of Communications in Juba has an office with no electricity, it’s fair to say that these things will take a while to sort out.
INCUMBENT SUDATEL FACES NEW COMPETITION FROM SNO CANARTEL
There are four main operators: Canartel, Sudatel, Areeba and Mobitel. The latter two are GSM mobile operators and are described in the section below. The incumbent Sudatel is now a public company quoted on the Dubai and Khartoum stock exchanges. The Government still has 26% of Sudatel but is likely to sell this. Two of the key local shareholders are the Dal Group (a local company that has the agency for Mitsubishi and Coca Cola) and Advanced Technologies (which among other things does copper wire assembly and GIAD car assembly).
Sudatel is seen by other operators as having a good fibre network and it extends to most of the main centres in the country (including Al Fasher in the west) and internationally to Egypt and Saudi Arabia. Its international fibre connections mean that it is buying international bandwidth at between US$1-2,000 per mbps per month.
Because it borders so many countries and is connected to the Middle East, it would like to develop a role as a regional hub and is going to be one of the bigger investors in the EASSy project. (We also heard that Canartel are interested in investing). However the existing fibre route south stops short of the country’s southern border Kadugli because of the civil war. If the peace holds, it will now be extended down into Uganda and another route will connect up to Ethiopia. At the end of this process, it will have three or more international connections. Both mobile operators (Mobitel and Areeba) use its backbone network but Mobitel has said that it will build its own unless interconnect prices fall (see below).
Meanwhile the regulator is trying to persuade the National Electricity Corporation (which has 3,000 kms of fibre) and some locally-owned oil companies to “outsource” this capacity to existing licence holders so that they can sell it to others.
However Sudatel’s former management, like quite a lot of former incumbents, were engineers and are not good at marketing this capacity to other operators. Although the new CEO of Sudatel (who was formerly the Chair of Mobitel and used to work for GIAD) is credited with having vision, he will have to move quickly if this lack of marketing is not to become SNO Canartel’s opportunity.
Sudatel depends heavily on voice whereas newcomer Canartel has a strong emphasis on data. This is much needed in the business sector that will look to it for VPNs and Internet access. It will offer fibre to the office and wants to do IP-TV to the home in the medium to long term. It sees this as having huge market potential. But for two years at least it will probably rely on Sudatel’s backbone infrastructure.
In order to stay in the game, Sudatel has put together a CDMA voice and data service called Sudani which it publicly announced before it had sorted out a licence for it. The regulator NTC has now given it a vertically-defined, “unified” licence which means that it can offer all services including mobile at a cost of $230 million. Since Canartel paid US$53.7 million for a licence that excluded mobiles, the value of the mobile element can be read from a sum akin to the difference between these two licence prices.
The big four operators are the only ones allowed to operate international gateways. ISPs have to buy their international bandwidth through these companies.
Sudatel has a fixed line capacity of 2 million but currently only has 1.1 million active subscribers. This number is decreasing and once disconnected, subscribers hardly ever reconnect. In one instance there is a switch that has capacity for 50,000 users that is only used by 4 subscribers.
The regulator NTC has stopped cross-subsidy in tariff regimes and there are now only two tariffs: national and international. The rationale for the national tariff is that if all the backbone is fibre and soon most of the calls will be IP-based, then distance should not be seen as a factor for charging.
Sudatel is hoping to have gone over to a packet-switched network by next year. It is also trying to set up a fibre-based metropolitan area network in Khartoum using Huawei as the vendor. But informed sources say that the interfacing on the network has not been good and as a result the company are now going back to Siemens,
THE SNO Canartel is setting up a completely IP-based network using CDMA and is offering both voice and data. The offer is what is described as fixed mobile which means that subscribers can use their phone within only one cell in the network (up to 1.5 kms). The handover protocol is disabled. Since Etisalat missed getting the second mobile licence, insiders believe that it will either seek to buy out Areeba or purchase a unified licence based on whichever turns out to be cheaper. Whichever way it goes, it will simply have to activate the handover protocol and its fixed mobile subscribers will become mobile subscribers. Thus technology developments are already making a nonsense of service licences based on technologies.
Canartel has in its first month already attracted 18,000 subscribers. Industry sources say that it is experiencing problems with network coverage and CDMA handset supply. Whilst the company is keen to emphasise that it is quality and service that it’s selling, it is cheaper than the incumbent’s fixed offer and adds in limited mobility: approximately 3 dinars against 4 dinars. However, according to the regulator, when monthly charges are included, the costs per minute are identical.
Nevertheless these fixed prices compare very favourably with the mobile operators whose average per minute price is 26 dinars a minute, a shade over five times the fixed price. And those of you who think mobile prices in Africa are too high, might ponder what the market would look like if existing mobile operators had to compete at this “fixed mobile” price level.
The regulator NTC has a Universal Service Fund and there is a five year plan to build 2,500 Knowledge Centres and 5,000 computer labs in schools.
Sudan Goes From Two to Four Mobile Operators with New Unified Licences
There are two mobile operators: Areeba and Mobitel. Celtel recently bought Mobitel at a price that is widely acknowledged to have been a high one at US$1.23 billion. The valuation was made on the basis that each subscriber was worth US$1000 at the time of sale. Areeba Sudan is owned by the Lebanese-owned Investcom but 50% of the operation is in the hands of a Sudanese company called Larrycom.
There are just over 2 million mobile subscribers. Areeba started in July 2005 and has 350,000 subscribers. Mobitel says it has 1.92 million subscribers. Estimates of overall potential vary between 4-5 million subscribers by the end of 2005 to around 8 million in the longer term. Mobitel plans to get to 5 million by 2008.
75% of the customers are in the capital with the majority of the balance to be found in the state capitals. There are 12 million people in the Greater Khartoum area out of a population of 34 million people. At present Areeba’s network covers 29% of the population. Industry sources say that it is suffering coverage problems: these include “holes” in the Khartoum area and lack of extensive coverage outside the Greater Khartoum area.
The two main price differences between Areeba and Mobitel according to former are that Mobitel charges a three monthly fee of US$10 irrespective of use to pre-paid customers and Mobitel has per minute billing against Areeba’s per second billing.
However on the basis of these two price differences, Mobitel’s ARPU is $17 against Areeba’s $10. However once per second billing gets established, it rarely goes away so Mobitel is vulnerable in this area as it makes up about 20% of their income.
On interconnect between mobile operators, each pays 14 dinars a minute. The SNO Kanartel pays Areeba 9 dinars a minute and receives 8 dinars a minute. Sudatel gets 9 dinars a minute for calls it receives and 9 dinars for calls sent to Areeba. It has argued successfully with the regulator to prevent the lowering of the amount it gets for calls sent. Last year Mobitel was fined US$1 million by the regulator for an interconnection issue involving network congestion.
At the retail level, Areeba is much cheaper for calls made to its own network subscribers: 16 dinars against Mobitel’s 32 dinars per minute. Connecting to a subscriber on another network costs 28 dinars per minute for both networks.
Mobitel is planning low-cost packages for students, teachers and low-income groups. These will include reduced prices on SMS and MMS and a special tariff on voice.
Areeba operates its own international gateway and buys capacity from a number of international suppliers of which the largest is Monaco-based Midnet. As Satti tells it:”We have had more international traffic than we had in our business plan.”
Mobitel will launch its GPRS service in June 2006 and is currently trialling it for free with post-paid subscribers. The vendor is Ericsson. Coverage will be in the Khartoum area initially and then in the regions. It will offer specific packages for large corporate users who want “internet in the field”. It will offer it on a cost per kilobyte but the price is likely to be lower than existing ISP prices.
Areeba is just on the point of launching GPRS and is testing a 3G network: both upgrades have Alcatel as the main vendor. The offer on GPRS for post-paid subscribers will not be a monthly subscription but per amount of capacity used. Pre-pay subscribers will pay a one-off activation fee plus again capacity usage. Like SMS which are already very popular, MMS will charged on a per message basis. It is expecting to have somewhere between 25-30,000 regular users in the medium-term. 3G will probably be launched on the basis of a free trial to post-paid users.
Mobitel is slightly further ahead of its rival with value-added services, drawing 4% of its revenue from this source. It has ring-tones and SMS News. The latter is supplied by Al-Jazeera and SUNA and has 50,000 users. An SMS banking service will be launched next week and it will then move on to introduce a mobile payment system. It estimates that there are 200,000 potential users for the latter service based on a survey it conducted amongst its own users.
Interestingly Siddiq Ibrahim, head of the regulator NTC told us that Sudanese were already using their mobiles for money transfer. For example, someone in Khartoum would send a relative credit for minutes to a relative in Port Sudan. This relative would then go to a tele-kiosk that would turn this mobile minutes credit into cash. According a recent investigation by the regulator, US$25 million worth of minutes are transferred by SMS.
Currently Areeba does not offer mobile content but is installing a platform to do so and looking at local, regional and international third party content providers whose proposals respond to local Sudanese culture. First offerings are likely to be in the areas of sport and entertainment.
Areeba is just starting to roll-out its network in Southern Sudan. But as Satti says:”There are tremendous problems of infrastructure, both in the South and in the rest of the country outside the main urban areas”. Each base station in the South has been put up on the basis that it will work on its stand-by generator, drawing down mains electricity if it’s available.
Is the market big enough for four “unified licence” operators?. Areeba’s Deputy Managing Director Ghada Satti worried is not worried by this prospect:”The telecoms market is booming. It can take all the new players just to provide basic services. We are talking about an overall penetration rate of 6%. There is need for everyone to be here.” Likewise Mobitel’s Product Development Manager Musab Osman seems undaunted by increased competition:”The market is wide open and there is huge potential. The market can easily contain all four operators.”
The regulator NTC has plans to introduce number portability.
Sudatel’s Unwillingness to Wholesale Broadband May Spell End for Independent ISPs
The internet market is dominated by Sudatel as it was in the beginning the only company allowed to offer an ISP service. Indeed the growth of the first ISPs remains tangled up in its somewhat unfocused commercial Internet strategy. It bought a shareholding in an ISP called Sudanet and before Mobitel was sold to Celtel, it owned an interest in a third ISP, Mobinet. However it suffered big losses on Sudanet when it implemented a “loans for computers” scheme as it was unable to collect the outstanding loans effectively. But despite this setback, it controls more than 70% of the market, which two years ago had around 300,000 subscribers. Mobinet currently claims 90,000 subscribers.
There is currently a working group of ISPs looking at setting up an ISP association but no work is currently being done on setting up a local IXP.
Until October 2005 all ISPs shared the monopoly incumbent’s international gateway and service suffered because the incumbent gave priority to its international voice business.
With liberalisation, there will now be three “big players” moving into the Internet space: Areeba, Mobitel and Canartel. All of which does not leave a lot space for the other 22 ISPs in the market; 19 of whom offer dial-up and three wireless access. Most of these ISPs are small and with the arrival of broadband, some level of consolidation looks inevitable.
In these circumstances, wireless access should have taken off as the alternative challenger to the incumbent. One of the largest operators ICOM launched in 2003 with a proprietary point-to-point system. Initially it attracted a lot of customers but because of high levels of contention, customers were unhappy with download speeds. Apparently a single base station only delivered 4 mbs of capacity. In addition, there were problems with customer aerials getting out of alignment when there were high winds. As one insider told us:”The image of wireless access has been very badly damaged by this experience.”
E-Sharaf has a Wi-Max licence but it is only achieving 7-5 kms on point-to-multipoint connections. Zinanet also offers broadband wireless. Interestingly Mobitel has been using Wi-Max as a substitute for for more traditional mobile networking.
The other issue has been pricing as the service is expensive. One provider charges 400,000 dinars for the equipment needed and between 5-600 dinars (US$22-26) a month for access.
The ISPs offer “free” internet with the ISPs taking 60-70% of the retail bandwidth cost. Sudatel has launched DSL broadband but appears to have no intention of wholesaling to retail ISPs. It has rolled out the service mainly in the capital Khartoum but it has ambitious plans to roll it out to 60 towns and cities and a number of rural areas. The monthly charge for a 512k download service is 60,000 dinars (approx $260 a month).
However prices will come down by around 70% when Sudatel announces its new pricing structure shortly. And with this kind of price reduction, the number of subscribers should go up from the current figure of around 3,000. Dial-up subscriptions are therefore soon likely to become a thing of the past: As Mobitel’s Product Manager told us:”After DSL, most ISPs will vanish.”
Despite legalising a number of retail companies (buying from Sudatel) to offer VoIP (with a quality threshold), the grey market is apparently till a very large part of the international voice market. It is used both by individuals using things like Skype and through the country’s cyber-cafes and tele-kiosks. The latter advertise openly cheap calling prices to destinations like USA.
However, there is still plenty of room for those wanting to offer lower quality calling in the grey market. Sudatel’s current call cost to Washington DC is around 90 cents a minute. And as the regulator estimates that there are 60 million minutes coming into the country and probably as many going out, the grey market will remain profitable for some time to come.
Another interesting aspect of the international traffic market is that Monaco-based Midnet that supplies international connectivity to Areeba is owned by the same group of people that control Areeba’s owner Investcom. And packet-switched traffic is being sent for conversion and refiling to Areeba in Sudan.
Internet use is low because use of PCs is not widespread. The regulator NTC is looking at cutting import duties and has a scheme to offer Government employees 2 year loans to buy computers. Last year it sold 60,000 computers and has ambitious plans for that total to hot 2 million over 5 years. There are no computer labs in the smaller universities.
Nevertheless there are many cyber-cafes and access usually costs around 200 dinars (US87 cents) an hour.
The regulator NTC also filters the internet for things like pornography and spam through a joint venture with an American company. As a result, internet access is much slower than might be expected from a country with international fibre connections.
Sudan is more “North African” in size and scale than typical Sub-Saharan African countries. Therefore you cannot fail to be impressed by the quality and extent of its backbone and the scale of its markets. But its vertically-defined, unified licence structure is an almost certain recipe for the triumph of the “big boys”: in effect, it pours all the potential of a large market into four buckets. It is noticeable that all four companies seem happy with this level of competition and that to us would seem to imply that the market could easily benefit from higher levels of competition.
Without regulatory intervention, there is an almost certain danger that most of the ISP sector will disappear unless Sudatel is forced to wholesale broadband capacity. Without others (like the power utility and oil companies) being allowed to sell fibre backbone capacity themselves, Sudatel has the opportunity to exercise dominant market power in the infrastructure layer. And these are not simply theoretical points as they are about whether local Sudanese will get the opportunity to set up small and medium-sized businesses in the sector as the market begins to double in size.