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Commercial Visibility of Rural Telecoms

Commercial Visibility of Rural Telecoms. By: Eng. Ibrahim Eisa El-BAIGAWI , Manager of Projects Department, Sudatel, Sudan Tel: + 249 1 83 77 63 99 Fax: + 249 1 83 78 50 27 Cell: +249 9 12 30 32 01 E-mail: elbaigawi@sudatel.net or ibrahimeisa@hotmail.com. CoE/ARB.

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Commercial Visibility of Rural Telecoms

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  1. Commercial Visibility of Rural Telecoms By: Eng. Ibrahim Eisa El-BAIGAWI, Manager of Projects Department, Sudatel, Sudan Tel: + 249 1 83 77 63 99 Fax: + 249 1 83 78 50 27 Cell: +249 9 12 30 32 01 E-mail: elbaigawi@sudatel.net or ibrahimeisa@hotmail.com CoE/ARB Regional Workshop on “ Visibility of Rural Connectivity ” Khartoum –Sudan 05 - 07 September 2004

  2. Major Points: • Abstract • Definition of Rural Areas/ Telecoms • Rural Communications in Africa • CAPEX and OPEX of Rural Telecom in Sudan • Marketing of Rural Telecoms • Resources for Telecom Business • Revenues and ARPU’s • Analysis of Commercial Viability • Conclusion and remarks • References

  3. 1.0 Abstract (1): • Over 75 % of the people in the third world live in the rural areas. • The rural areas where those people live suffer from the lack of almost all kinds of infrastructures (roads, rails, electricity,. and ICT). • As a human right, all the mankind should have an access to the ICT. • In fact almost every one need an access to the voice/ telephone, data and Internet services and the relevant applications. • The rural areas need the ICT services no matter what the cost is.

  4. 1.0 Abstract (2): • The ICT is mandatory vehicle for the socio-economic development. • The investment cost of the rural networks is reasonably higher than that of a traditional network. • The revenues from a telecom business in the rural areas are fairly low due to the poverty and lack of the affordability. • In spite of these facts, there are some rural areas in the world who have shown remarkable commercial viability and business attractiveness. • This paper will try to explore the rural telecom business and to proof its viability in some areas of the world (e.g. Sudan).

  5. 2.0 Definition of Rural Areas/ Telecoms (1): • Urban, Su-Urban, Rural, Remote Isolated Areas • Rural areas are the areas in which people life is more difficult due to lack of infrastructures. • Rural areas have small number of inhabitants the residents and business buildings if any are in wide spread • In the rural areas power/ electricity is either not available or unstable.

  6. 2.0 Definition of Rural Areas/ Telecoms (2): • In the remote isolated areas there are very low levels of economic that makes the telecom services not affordable • Rural areas are the areas that in bad need for economic, social, cultural development (walk 10 km to access service) • Rural areas can disturb the stability of the urban areas and disorder the socio-economic structure if not treated well by development

  7. 2.0 Definition of Rural Areas/ Telecoms (3): • Rural Telecom System can be: • Wireless Local Loop (WLL) systems • Satellite systems • Small switches • Vsat + WLL • Rural Telecom Technologies can be: • TDMA based • CDMA based • GMPC, Vsat • GSM

  8. 2.0 Definition of Rural Areas/ Telecoms (4): Pros and cons of each standard in each geographical area type Source: Analysis

  9. 2.0 Definition of Rural Areas/ Telecoms (5): • TDMA-most effective in dense rural and urban areas • Fixed cellular-cost-effective for urban and certain rural areas • CDMA-best in high-density suburban/ flat areas • Satellite-appropriate for remote isolated areas Different technologies have coverage –specific cost structures ‘’’ Source: Analysis

  10. 2.0 Definition of Rural Areas/ Telecoms (5): Cost per access line Example of cost characteristic curve Wire line access Wireless access Decreasing subscriber density Source: Analysis

  11. 2.0 Definition of Rural Areas/ Telecoms (6): Spectrum is becoming more valuable • In rural areas spectrum is not an issue, but closer to urban areas it can become of value. • Spectrum is now seen as a national asset • Technology choice is driven by the spectrum (range coverage) • Spectrum is limited by existing users Source: Analysis

  12. 2.0 Definition of Rural Areas/ Telecoms (7): • Rural Telecom Manufacturers include many like: • Qualcomm, ZTE, Huawei, L3,…. (CDMA) • SR Telecom, NEC, Intracom, Alcatel ..etc (TDMA) • Ericsson, Motorola, …(GSM)

  13. 3.0 Rural Communications in Africa (1): • Mitland Report”The Missing Link” PROMISES (Nairobi 1982, ITU conference, committee report 1984) …. Telecom growth & Economic progress. • The Universal-Service (Every individual have telephone Access) • The Universal-Access (Those who can access a phone) • The access to the Internet is a human right • Digital-Divide (Gaps to Telecommunications and to the Information services, ICT)

  14. 3.0 Rural Communications in Africa (2): WLL in Africa: Source: Pyramid Research estimates

  15. 3.0 Rural Communications in Africa (3): WLL in Africa: Source: Pyramid Research estimates

  16. Rural Communications in Sudan: 1995-2004 “Penetration: fixed line around 4 %, Rural around 0.16 %” Source: Core Planning Division

  17. National Rural Network • مواقع الشبكات الريفية • بور تسودان. • كسلا و أروما. • القضارف. • حلفا الجديدة. • الفــــــاو. • وسط الجزيرة. • شمال الجزيرة. • المناقــــل. • الدمازين. • النيل الأزرق. • النيل الأبيض. • الأبيض. • بـــــارا. • هجليج. • شــندى. • دنقـــلا. • كريمة. • المدن الثلاثة(عطبرة-أبو حمد – الدبة ). • الخرطوم الكبرى. وادى حلفا بورسودان الحفير دنقلا سواكن كريمة هيا مروى عطبرة حلفا الجديدة كسلا الفاشر الخرطوم الجنينة مدني بارا المناقل القضارف الدويم الابيض زالنجى نيالا سنار كوستى دوكة بابنوسة سنجة كنانة الدمازين المجلد الرنك هجليج ملكال واو الشبكات المخططة في 2004م جوبا الشبكات الريفية العاملة

  18. The Vsat Networks of Sudatel • 1. VSAT Project 1 (STM Wireless)- 8 Remote Terminals. • VSAT PROJECT 2 (DAEWOO Telecom ) –30 Remote Terminals. • VSAT PROJECT 3 (STM Networks) 220 Remote Terminals (Phase 1 ).

  19. VSAT Projects 1& 2-Network Architecture LEGEND ARABSAT 2B @ 30.5° East Main Hub VSAT 1 Remote Terminal VSAT 2 Remotes

  20. VSAT Project 3 – Network plan Satellite Zone 1 Zone 2 Zone 3 Fibre Optic Cable Zone 4 Zone 5

  21. National Transmission Network (2004) To Egypt القضارف To Ethiopia (Microwave Link) VSAT Terminal(Sample) Optical Fiber Links Details Sudosat Earth Station(Sample) Local Network = 396,178 Km National Network = 5,723.68 Km Total Fiber Length= 6,127 Km(2003) Planned Fiber Length=630 Km(2004) Under Implementation Optical Fiber Planned Optical Fiber أرقين To Saudi Arabia Sea Cable (SE-ME-WE 3) وادى حلفا بور تسودان الحفير دنقلا هيا عطبرة مروى كسلا الخرطوم طوكر القطينة مدني الابيض الفاشر الدويم النهود أنجمينا المناقل دوكة الجنينة بابنوسة الرهد سنار كوستي سنجة Legend أبو زبد زالنجى نيالا الرنك المجلد الدمازين راجا ملكال كاد قلى بور واو Existing Microwave Link جوبا Existing Optical Fiber Source:Core Planning Division

  22. Annual Increase in Vsat & Sudosat stations (Sudatel)

  23. 4.0 Capex and Opex of Rural Telecoms (1): • The financial evaluation process is complex: • Business plans must analyze all factors equally and business models should be able to determine which factor most sensitive to change. • Evaluation includes: Demand, population density, coverage, equipment cost, regulatory framework, traffic, spectrum availability, • Regulatory framework affects three economic variables: spectrum availability, traffic & coverage.

  24. 4.0 Capex and Opex of Rural Telecoms(2): • Reasonably high investment cost: • Fixed line cost: ($100 for switch line+ $250 for OSP= $350) • Rural line cost: ($ 400 for equipment+ $250 for OSP= $650) • Rural line needs towers and solar power which increases the investment cost. • Reasonably high operational cost: • The long distances between the stations make it more expensive to maintain the system. • Cost-effective solutions: • Technology is driving towards reduced prices and cost-effective solutions..

  25. 4.0 Capex and Opex of Rural Telecoms(3): Cost: General Rules • Installed capital costs are much more than sometimes quoted: • Switch, transmission, access system, buildings, power • Full operating costs are probably 25 % of capital cost per year: • depreciation 8-15 % depending on technology • admin,marketing, operation & maintenance 10-15 %. • finance 4-5 %

  26. 4.0 Capex and Opex of Rural Telecoms(4): Cost: Break Points • Cellular and fixed cellular few $00’s to $1000 + user: • No. of customers within cell area • PMP & WLL (usally well over $ 1000): • Distance to economic hub or network switch • Size of villages • Distribution clustering of demand • Power requirements • Vsat & fixed MS S ($ 3-5000 +): • Mesh or star (traffic pattern) • Supporting terrestrial network required • Power • Traffic & space segment

  27. 5.0 Marketing of Rural Telecoms (1): Key Business Case Issues: • Market & Demand • Users, revenues, traffic pattern & growth • Supply Choices: • Technology, capital cost, operating cost, changes over time. • Regulation: • Tariffs, inter-connection & obligations. • Finance & Funding: • Equity, loans & Special funds.

  28. 5.0 Marketing of Rural Telecoms (2): Key Business Case Issues: • Market & Demand • Users, revenues, traffic pattern & growth • Supply Choices: • Technology, capital cost, operating cost, changes over time. • Regulation: • Tariffs, inter-connection & obligations. • Finance & Funding: • Equity, loans & Special funds. Source: www.inteleconResearch.com

  29. 5.0 Marketing of Rural Telecoms (3): Market Demand: • Composite affordability in rural areas • Local economies & communities spend 1-3 % of their income on the telephone (African average 1.8-2.0 %). • Institutions and business • Payphones and phone shops serving the populace • Private homes • Access or market strategy? First few access lines in a village may attract large proportion of total potential demand. • Rapidly declining revenues per line with penetration • Telephone affordability and cumulative average revenue decrease with household penetration.

  30. Data Traffic Data traffic overtaking Voice, leading to significant shift in Telecom Strategies Voice 2000 However, voice-related revenues will still be dominant for some time Voice Revenues Data Source: Gartner Group 2000 Market DriversToday’s Facts

  31. Demand structure Demand is for the POTS as well as for the data communications, multimedia services and the Internet. Universal access to information services is not a luxury for developing countries not regard as a priority (Digital Divide). Internet uses: Business: emerging global networked business infrastructure and knowledge-based economies, new business techniques and advanced information technologies. Education: distance learning & training, > 100 million documents exist on line. Healthcare:Telemedicine, consultation with experts

  32. Internet users on line January 1999 WORLD TOTAL : 153.25 million 2.6 %) USA & Canada: 87 million Europe: 33.39 million Asia/ Pacific: 26.55 million South America: 4.5 million Africa: 1.14 million Of which South Africa between 850000 & 9000000 “There is no parallel with the access to the Internet”

  33. Tariffs/ Pricing Elasticities important but : • Total affordability & cost is the starting point for rural. • Affordability for total bill per line must meet operator’s commercial objectives . • Elasticity changes with income, situation, tariff element • Tariff elements: • Call charges need to encourage usage by populace. Assume e.g. elasticity of –0.5. • Installation fee should be set according to realistic roll-out targets and stage of development – can contribute to the “community valuation” & operators costs • Rentals should be cost based & affordable to target customers- institutions & business first. • .

  34. Interconnection Revenue sharing : • % split between originating & terminating operator. • How much long for distance portion . • Recognition of small/ rural operator’s high cost & risk Access charge : • Based on long run marginal costs per minute of use. • Universal access element . Incoming outgoing : • Can impact rural operator’s financial performance.

  35. 5.0 Marketing of Rural Telecoms (4): Market Scenarios:

  36. 6.0 Resources for Rural Telecom Business: Marketing: • conduct feasibility study and careful business case to avoid risks and ensure revenues • Set up a proper pricing strategy • Set up a proper collection strategy Technical: • select high quality, reliable, cost-effective solution/ equipment or systems. • Set up proper maintenance procedures • Select systems of open standards that matches with the future networks (NGN) Manpower: • well trained for market analysis, radio planning, project implementation and network operation. Support & Logistics: • Make available the vehicles for transportation for maintenance.

  37. 7.0 Revenues and ARPU’s (1): Money spent on Telecoms % of community income spent on telecoms Source: Intelecon

  38. 7.0 Revenues and ARPU’s (2): Lessons from Sudatel: Rural ARPU per month: 2135 SDD= $ 8.2 Overall ARPU per month: 4054 SDD= $ 16 In Greater Khartoum: Rural ARPU= 74 % to residential & 27 % to business area. Rural ARPU= 72 % to residential & 27 % to the business (for Overall network).

  39. Average Revenues Per User: One USD=260 Sudanese Dinars (SDD) Source: Mass marketing dept & Business development dept.

  40. ARPU for the Telecom Regions and Khartoum for telephony service Rural ARPU= 72 % to residential & 27 % to the business (for Overall network).

  41. 8.0 Analysis of the Commercial viability(1): Fundamental drivers of Viability:

  42. 8.0 Analysis of the Commercial viability(2): • Operator investment in the future • Kick start a promising market • Dynamic area with economic growth potential • Establish presence, reduce future costs • Low marginal cost for few extra lines and low risk • Fiscal reasons (good loss for a year or two) • Advertising and brand recognition • Policy/ regulatory “push” • Incentive/ subsidy received • Fair compensation for incoming revenue through interconnect Reasons for exceeding the viability zone:

  43. 9.0 Conclusion and Remarks: • In spite of the fact that the CAPEX & OPEX are high for the telecoms business in the rural areas but the revenues are considerable (72 % of the residential & 27 % of the business areas of the whole network). • In some cases the revenues generated by the rural network are higher that than the mother switch that is tying them • Proper Marketing studies need to be carried out with full functionality • Rural connectivity can be a true business opportunity as well as a high risk business. • Commercial viability cab proofed if the right technology and the cost-effective solution is chosen. • Access to the ICT is a human right supported by business

  44. 10.0 References: • Rural telecoms’ 99 Cape Town, South Africa organized by IRR group. • Pyramid research • Report of the independent commission for world wide telecommunications development “The Missing Link” Executive Summary • Analysis research center • Intelecon research center • Business development department, sudatel • Mass marketing department, Sudatel • Core planning division, Projects department, Sudatel

  45. Thanks • Thanks are due to the ITU and Center of Excellence who invited me to contribute to this workshop (Visibility of Rural Connectivity) . • Thanks to Sudatel for giving the honor to lead the (Workshop Preparatory Steering Committee). • Thanks to Dr. Abuqayyas for recommending me to the ITU/ BDT to do this work. • Thanks to our distinguished delegates and guests from esteemed companies and sister countries. The END

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