SAT3: The end of national monopolies

1. SAT3: The end of national monopolies Russell Southwood Balancing Act http: //www.balancingact-africa.com e-mail: info@balacingact-africa.com

2. Overview • Why the issue is important • Background to SAT3 • Key issues to be addressed • Pricing • The impact of EASSy and surrounding debates • What happens when the national monopolies end?

3. Why the issue is important • Competition is increasingly delivering cheaper prices and wider access at national level but the strategic international heights remain a complete or de-facto monopoly • Economic impact: Cost of international voice and Internet more expensive for individual. Countries less competitive (President Mbeki and South Africa) • Social impact: Access to knowledge, ideas and international networks • Cheaper access means that more people will ultimately have access. Not reached the bottom of the price elasticity curve

4. SAT3’s shareholders • Launched in 2002, building of SAT3/WASC a considerable achievement but times have changed • SAT3/WASC has 36 shareholders. Its international carrier members include: AT&T, Belgacom, BT, China Telecom, Cable and Wireless, France Telecom, KPN, Marconi, Sprint, Swisscom, Telecom Italia, Telefonica, Teleglobe, Telstra and VSNL. The last one is owned by Tata that has bought into the soon to-be-set-operating South African SNO. • The SAT3/WASC section has 10 Sub-Saharan African shareholders: Sonatel (Senegal); Cote d'Ivoire Telecom; Ghana Telecom; OPT(Benin); Nitel (Nigeria); Camtel (Cameroon); Gabon Telecom; Telecom Namibia; and Telkom (South Africa). Telecom Namibia only one that did not invest in a landing station. • All incumbents, many still have legal or de-facto monopolies

5. SAT3 ownership structure • Club consortium - traditional method of financing large fibre projects • Shareholder agreement “commercially confidential” • Managing agent: Telkom SA. Largest amount of traffic amongst consortium members • Members have monopoly (exclusivity) on selling their capacity in their own country up to 2007. • This monopoly has affected pricing and access. • What then? • Pool capacity: IRUs (Indefeasible Rights of Use)

8. How does a major customer feel? • “You have to use SAT3 and we’re all victims of this issue. As MTN, we are working as part of the EASSy consortium (through our Ugandan subsidiary) so that we have landing rights on an alternative route". Mike Brierley, CEO, MTNS

9. 4 key issues to be addressed • Ownership: Members of the Consortium are now more or less fixed. Difficult for a new shareholder to join. It can reject new shareholders on the basis of a single vote. Nigerian SNO Globacom asked to join and rejected. • Access to capacity: Everyone forced to buy international capacity from monopoly operator and allows a single company to have dominant market power over prices. Satellite capacity not always a legal alternative.

10. 4 key issues to be addressed • Pricing: Monopoly providers have the ability to set prices high without any form of competitive challenge. Where satellite operators are allowed to compete with the SAT3 fibre providers, prices have only come down to the same level as satellite or just below. • Landlocked/no landing station countries: At the mercy of those who control the landing station and extract a premium for accessing it.

11. Pricing • Fibre should be cheaper than satellite (Prices Mbps per month, duplex throughout) • Senegal: Cheapest on the route (US$1316 per mbps pm) No competitive satellite alternative. Position of shortly-to-be SNO? Same price as Sonatel? • Ghana: Larger ($3000) Smaller ($4250-4900) Satellite: $3500-4000 Closer to satellite. • Cameroon: $15,000 Satellite: $8514 Competitive satellite alternative • South Africa: $11,000 down to $8250 in August 06. Only one satellite alternative (Sentech)

12. Landlocked country case study • Mali: ISP paying $6500 for satellite. Fibre “just a bit cheaper”. Let assume generously $6,000 • London - Dakar portion costs: $1316 • Therefore Bamako-Dakar portion costs • $6,000-$1316 = $4684 • Everyone claims pricing is distance-related. • If so, why does it cost more to get from Bamako to Dakar than from Dakar to London?

13. No direct access countries • Botswana: BTC bought SAT3 capacity from BT. Dispute. Telkom lost that battle but charges more for Gaberone-Cape Town than Cape Town- London (Market distortions) • Lesotho and Namibia: Almost completely rely upon satellite because fibre is more expensive because of high South African price • Mauritania: Same set of issues as it connects into SAT3 in Senegal

14. EASSy and impact of open access debates • To be part-funded by range of DFIs that insisted on Open Access. EU position. • What does Open Access mean in this context? • Everyone gets cost plus international connectivity ($1000-1500) KDN ($150) Profit and investment at national level • All can invest, not just incumbents. • Impact on SAT3: South Africa: $8250 vs $1500 Which would you choose?

15. What happens when national monopolies end? • Users can buy capacity from anyone but who can supply it? • Greater involvement of international carriers? • How to make market more competitive by involving local companies? • How to use competition to bring prices down? • What happens to IRUs and pool capacity? • End of monopolies is a pretext for re-examining how SAT3 delivers

16. Different ways of intervening • Tactics designed to initiate change, not necessarily just used in their own terms • Competition law and “dominant market power” • Outlawing monopoly arrangements? Can’t be retrospective • “Essential national facility” • Price investigation and setting • Separation of assets (eg Nigeria, Ghana & Lesotho)