africa's ict infrastructure

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Africas ICT InfrastructureBuilding on the Mobile Revolution

Mark D. J. Williams, Rebecca Mayer, and Michael Minges

Vivien Foster and Cecilia Briceo-Garmendia

Series Editors

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2011 The International Bank for Reconstruction and Development / The World Bank1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.org

All rights reserved

1 2 3 4 14 13 12 11

This volume is a product of the staff of the International Bank for Reconstruction andDevelopment / The World Bank. The findings, interpretations, and conclusions expressed inthis volume do not necessarily reflect the views of the Executive Directors of The WorldBank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. Theboundaries, colors, denominations, and other information shown on any map in this workdo not imply any judgement on the part of The World Bank concerning the legal status ofany territory or the endorsement or acceptance of such boundaries.

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The material in this publication is copyrighted. Copying and/or transmitting portions or allof this work without permission may be a violation of applicable law. The InternationalBank for Reconstruction and Development / The World Bank encourages dissemination ofits work and will normally grant permission to reproduce portions of the work promptly.

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ISBN: 978-0-8213-8454-1eISBN: 978-0-8213-8676-7DOI: 10.1596/978-0-8213-8454-1

Library of Congress Cataloging-in-Publication data has been requested.

Cover photo: Jonathan Ernst / World BankCover design: Naylor Design

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v

About the AICD xiiiSeries Foreword xv

About the Authors xvii Acknowledgments Abbreviations

Chapter 1 Introduction 1

Access to Communications 2Institutions and Market Reform 9Financing 15

Future Investment Needs 17Policy Analysis and Conclusions 20Notes 24References 24

Chapter 2 Access to Telecommunications in Africa 25

Access: Burgeoning, at Least for MobileTelephony 26

Prices: Falling, Where Competition Is the Rule 33

Quality: Reliability Is a Problem 45

Contents

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vi Contents

Infrastructure: Bottlenecks Impede Growth 50Conclusion 66Notes 66References 68

Chapter 3 Market Reform and Regulation 71

Market Liberalization and the Developmentof Competition 73

Private Sector Participation 95Regulation 98

Reform and Performance 108Notes 115References 118

Chapter 4 Financing Telecommunications in Africa 123

Private Financing of ICT Investment 124Public Financing of ICT Investment 137Notes 144References 145

Chapter 5 Future Investment Needs 147

The Cost of Providing Basic Voice NetworkCoverage 149

Wireless Broadband Infrastructure 170Notes 178References 178

Chapter 6 Policy Analysis and Conclusions 181

Policy Analysis 181

Recommendations 186Conclusion 199References 200

Appendix 1 Access to Telecommunications in Africa 201

Appendix 2 Market Reform and Regulation 203

Appendix 3 Financing Telecommunications in Africa 237

Appendix 4 Future Investment Needs 245

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Contents vii

Appendix 5 Rates of Penetration of ICT Services inSub-Saharan Africa 255

Index 267

Boxes

2.1 The Challenge of Estimating the Number ofBroadband Users in Africa: The Case of Nigeria 34

3.1 Fixed-Line Services in Nigeria 765.1 Wireless Broadband Infrastructure Basics 171

Figures

1.1 Competition in Mobile Markets in Sub-SaharanAfrica, 19932009 10

2.1 Telecommunications Subscribers, Sub-SaharanAfrica, 19982008 27

2.2 Growth in New Mobile Subscribers, Sub-SaharanAfrica, 19992008 28

2.3 ICT Penetration Rates per 100 Inhabitants, 2008 292.4 Average Penetration Rates, Top 10 Countries in

Sub-Saharan Africa versus Bottom 10, 2008 302.5 Access to Telephones by Rural/Urban and

Income Quintile, 2007 312.6 Public Pay Phones in Kenya, 2001/022007/08 322.7 Wireless Broadband Subscriber Growth (200010),

Top 10 Countries in Sub-Saharan Africa 332.8 Cost of Fixed-Line Monthly Basket, 2009 362.9 Cost of Mobile Prepaid Monthly Basket, 2009 372.10 Trends in Mobile Prices in Africa 39

2.11 Median Mobile Monthly Average Revenueper User, 200010 40

2.12 Value Added and Excise Taxes on MobileCommunications Services, 2007 41

2.13 Average (Mean) Price of a One-Minute Peak-RateCall to the United States from Countries inSub-Saharan Africa, 200008 42

2.14 Price of One-Minute Peak-Rate Call to the UnitedStates from Countries in Sub-Saharan Africa, 2010 43

2.15 Price of One-Minute Peak-Rate International

Call within Africa, 2010 44

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viii Contents

2.16 Price of One-Minute Peak-Rate Call within and outsideSub-Saharan African Trade Agreements, 2010 45

2.17 Fixed Broadband Price, 2010 462.18 Fixed Broadband Internet Subbasket by Region

and Level of Development, 2008 472.19 Monthly Mobile Broadband Prices, 2010 482.20 International Internet Bandwidth, 2009 512.21 GSM Footprint, 1999 and 2009 542.22 Mobile Network Population Coverage, 2009 552.23 Wireless Broadband Subscribers in Sub-Saharan

Africa, 200510 572.24 Backbone Bandwidth Requirements for Various

Communication Services 592.25 Fiber-Optic Backbone Infrastructure Deployed

and Planned, 2009 602.26 Length of Operational Fiber-Optic Backbone

Networks in Top 10 Countries in Sub-SaharanAfrica (excluding South Africa), End 2009 61

2.27 Length of Fiber-Optic Backbone Network underConstruction in Top 10 Countries in Sub-SaharanAfrica (excluding South Africa), End 2009 62

2.28 Submarine Fiber-Optic Cables in Africa, 2011 633.1 Net Change in Fixed Lines, Sub-Saharan

Africa, 19992008 783.2 Mobile Voice Market Liberalization in

Sub-Saharan Africa, 19932009 793.3 Broadband Internet Value Chain 843.4 Ownership of Fiber-Optic Backbone Networks 863.5 Fiber-Optic Backbone Networks in Nigeria, 2009 89

3.6 Fiber-Optic Backbone Networks in Sudan, 2011 913.7 Financing Structure of Regulatory Authority

for Select Countries in Sub-Saharan Africa, 2007 993.8 Scorecard for Oversight of the Telecommunications

Sector in Sub-Saharan Africa, 2007 1023.9 Interconnection Policies in Sub-Saharan Africa, 2008 1043.10 Mobile Termination Rates in Sub-Saharan African

Countries, 2009 1063.11 Difference between Expected and Actual

Penetration Rates for Mobile and Fixed-Line Operators 109

3.12 Impact of Reform on Tariffs 110

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Contents ix

3.13 Telecommunications Revenue as Percentage ofGDP in Select African Countries 111

3.14 Impact of Competition on Subscriber Growth 1123.15 Impact of Country Income and Sector Competition

on Mobile Performance, 2008 1133.16 Mobile Price Changes after Second Operator

Enters the Market 1144.1 Private Investment in ICT Infrastructure in

Sub-Saharan Africa, 19982008 1254.2 Investment in ICT Infrastructure Projects with

Private Participation in Sub-Saharan Africa,19982008, Top 10 Countries 125

4.3 Investment in ICT Infrastructure Projects withPrivate Participation in Sub-Saharan Africa asPercentage of GDP, 19982008, Top 10 Countries 126

4.4 Breakdown of Investment in ICT InfrastructureProjects with Private Participation in Sub-SaharanAfrica,19982008 127

4.5 Geographic Breakdown of Sponsors ofTelecommunications Businesses in Sub-SaharanAfrica, 19982008 129

4.6 Geographic Origin of Loans to TelecommunicationsOperators, 200509 133

4.7 Investment in Fiber-Optic Backbone Networksin 2009 139

4.8 Chinese Financing Commitments for ConfirmedICT Projects in Sub-Saharan Africa, 200107 140

4.9 Total DFI Financing of the ICT Sector in Sub-SaharanAfrica, 19982009 141

5.1 Coverage Gap Analysis Framework 1495.2 Proportion of the Population Living within Range

of a GSM Mobile Network, 19992008 1515.3 Spatial Modeling of Mobile Networks in the

Democratic Republic of Congo, 2009 1525.4 Results of Coverage Gap Analysis 1615.5 Sensitivity of Coverage Gap and Public Funding

Gap to Revenue Potential for Voice Services(Sub-Saharan Africa) 163

5.6 Country-Level Sensitivity of Coverage Gap to

Assumed Revenue Potential 164

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5.7 Country-Level Sensitivity of Coverage Gap toInfrastructure Cost Assumptions 166

5.8 Commercially Viable Broadband NetworkCoverage (Scenario 1, Shared Access) 174

5.9 Subsidy Requirements for Scenario 2, IndividualAccess (Selected Countries) 175

5.10 Effects of International Connectivity Costs onBroadband Viability in Scenario 1, Shared Access 176

A4.1 Sensitivity of Broadband Analysis to RevenuePotential Assumptions 252

A4.2 Sensitivity of Broadband Analysis to InfrastructureCost Assumptions 253

Tables

2.1 Choice of Broadband Backbone Technology Basedon Traffic Volume and Distance Traveled 58

3.1 Status of Telecommunications Market Competition,Sub-Saharan Africa, 2009 74

3.2 Number of ISPs in Sub-Saharan AfricanCountries, 2009 85

3.3 Top Multinational Mobile Investors in Sub-SaharanAfrica, by Number of Subscribers, 2009 98

3.4 Average Mobile Monthly Price Package and theHerfindahl-Hirschman Index (HHI), 2007 114

3.5 Price of International Services in Countries withand without Access to Submarine Cables in 24AICD Countries, 2007 115

4.1 Existing Annualized PPI Flows (19982008) 1264.2 Syndicated Lending to the Telecommunications Sector 131

4.3 Details of Syndicated Loans to TelecommunicationsBorrowers in 2006 132

4.4 Details of Corporate Bonds Issued byTelecommunications Operators at the End of 2006 136

4.5 Expenditure Controlled by the Public Sector, 200106 1374.6 Potential Gains from Reducing Overstaffing, 200106 1425.1 Voice Services Investment Model: Definitions 1535.2 Baseline Assumptions Used in the Market-Gap Analysis 1545.3 Overview of Selected Literature on Household

Expenditure on ICT 156

5.4 Sensitivity of Public Funding Gap to CostAssumptions 167

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5.5 Percentage of Existing Rural Coverage Predictedby the Model 169

A1.1 Submarine Fiber-Optic Cables Connectingto Africa, 2010 202

A2.1 National Telecommunications Laws, as of 2008 204A2.2 Status of VoIP Services, by Country, 2008 207A2.3 Year of Termination of Exclusivity for Incumbent

Telecom Operator, 200207 211A2.4 Status of Market Liberalization in Sub-Saharan

Africa, 2009 216

A2.5 Average Annual Increase in Subscriptionbetween Entries of Successive Mobile Operators,through 2008 217

A2.6 Privatizations of Incumbent Operators in Sub-SaharanAfrica, 19932009 218

A2.7 Pan-African GSM Operators, 2009 221A2.8 National Regulatory Authorities, September 2009 225A2.9 Interconnection Policies in Sub-Saharan

Africa, 2007 229A2.10 Status of Universal Service Funds, by

Country, 2009 231A3.1 Investment in Telecommunications Infrastructure,

19982008 238A3.2 Overview of Chinese Financing Commitments

to Confirmed ICT Projects in Sub-SaharanAfrica, 200107 240

A4.1 Gap Analysis of Voice Infrastructure Coverage 246A4.2 Average Annual Investment Required to Reach

Universal Voice Coverage 247

A4.3 Key Cost Assumptions Used in BroadbandInfrastructure Modeling 248

A4.4 Broadband Infrastructure Modeling Scenarios 249A4.5 Average Annual Investment Requirement in

Shared-Access Scenario 250A5.1 Fixed Telephone Lines and International Voice

Traffic in Sub-Saharan Africa, by Economy andEconomy Group, 1998 and 2008 256

A5.2 Mobile Telephone Subscriptions in Sub-SaharanAfrica (1998 and 2008) and Mobile Network

Coverage (1999 and 2009), by Economy andEconomy Group 258

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A5.3 Personal Computers and Internet Users perCapita (1998 and 2008), Internet Bandwidthper Capita (1998 and 2008), and Fixed andMobile Broadband Subscriptions (2005 and 2009)in Sub-Saharan Africa, by Economy and Economy Group 261

A5.4 Radio and Television Ownership in Sub-SaharanAfrica, by Economy, 1998, 2000, and 2008 264

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xiii

This study is a product of the Africa InfrastructureCountry Diagnostic (AICD), a project designed toexpand the worlds knowledge of physical infrastruc-ture in Africa. The AICD provides a baseline againstwhich future improvements in infrastructure services

can be measured, making it possible to monitor theresults achieved from donor support. It also offers amore solid empirical foundation for prioritizinginvestments and designing policy reforms in the infra-structure sectors in Africa.

The AICD was based on an unprecedented effort tocollect detailed economic and technical data on theinfrastructure sectors in Africa. The project produced aseries of original reports on public expenditure, spend-ing needs, and sector performance in each of the main

infrastructure sectors, including energy, informationand communication technologies, irrigation, transport,and water and sanitation. The most significant findingswere synthesized in a flagship report titled AfricasInfrastructure: A Time for Transformation. All the under-lying data and models are available to the publicthrough a Web portal (http://www.infrastructureafrica.org), allowing users to download customizeddata reports and perform various simulation exercises.

The AICD was commissioned by the Infrastructure

Consortium for Africa following the 2005 G-8Summit at Gleneagles, which flagged the importanceof scaling up donor finance to infrastructure in sup-port of Africas development.

The first phase of the AICD focused on 24 coun-tries that together account for 85 percent of the grossdomestic product, population, and infrastructure aidflows of Sub-Saharan Africa. The countries wereBenin, Burkina Faso, Cape Verde, Cameroon, Chad,Democratic Republic of Congo, Cte dIvoire,Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi,

About the AICD

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xiv About the AICD

Mozambique, Namibia, Niger, Nigeria, Rwanda,Senegal, South Africa, Sudan, Tanzania, Uganda, andZambia. Under a second phase of the project, cover-age was expanded to include the remaining countrieson the African continent.

Consistent with the genesis of the project, themain focus was on the 48 countries south of theSahara that face the most severe infrastructure chal-lenges. Some components of the study also coveredNorth African countries to provide a broader point of

reference. Unless otherwise stated, therefore, theterm Africa is used throughout this report as a short-hand for Sub-Saharan Africa.

The AICD was implemented by the World Bankon behalf of a steering committee that representsthe African Union, the New Partnership for AfricasDevelopment (NEPAD), Africas regional economiccommunities, the African Development Bank, andmajor infrastructure donors. Financing for theAICD was provided by a multidonor trust fund towhich the main contributors were the Departmentfor International Development (United Kingdom),the Public Private Infrastructure Advisory Facility,Agence Franaise de Dveloppement, the EuropeanCommission, and Germanys Kreditanstalt fr Wiederaufbau (KfW). The Sub-Saharan AfricaTransport Policy Program and the Water and SanitationProgram provided technical support on data collec-tion and analysis pertaining to their respective sec-

tors. A group of distinguished peer reviewers frompolicy-making and academic circles in Africa andbeyond reviewed all of the major outputs of the studyto ensure the technical quality of the work.

Following the completion of the AICD project,long-term responsibility for ongoing collection andanalysis of African infrastructure statistics wastransferred to the African Development Bank underthe Africa Infrastructure Knowledge Program(AIKP). A second wave of data collection of the

infrastructure indicators analyzed in this volumewas initiated in 2011.

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The Africa Infrastructure Country Diagnostic (AICD) has producedcontinent-wide analysis of many aspects of Africas infrastructure chal-lenge. The main findings were synthesized in a flagship report titled

Africas Infrastructure: A Time for Transformation, published in November2009. Meant for policy makers, that report necessarily focused on thehigh-level conclusions. It attracted widespread media coverage feedingdirectly into discussions at the 2009 African Union Commission Heads ofState Summit on Infrastructure.

Although the flagship report served a valuable role in highlighting themain findings of the project, it could not do full justice to the richness

of the data collected and technical analysis undertaken. There wasclearly a need to make this more detailed material available to a wideraudience of infrastructure practitioners. Hence the idea of producingfour technical monographs, such as this one, to provide detailed resultson each of the major infrastructure sectorsinformation and communi-cation technologies (ICT), power, transport, and wateras companionsto the flagship report.

These technical volumes are intended as reference books on each ofthe infrastructure sectors. They cover all aspects of the AICD projectrelevant to each sector, including sector performance, gaps in financing

Series Foreword

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xvi Series Foreword

and efficiency, and estimates of the need for additional spending oninvestment, operations, and maintenance. Each volume also comes witha detailed data appendixproviding easy access to all the relevantinfrastructure indicators at the country levelwhich is a resource inand of itself.

In addition to these sector volumes, the AICD has produced a seriesof country reports that weave together all the findings relevant to oneparticular country to provide an integral picture of the infrastructuresituation at the national level. Yet another set of reports provides an over-all picture of the state of regional integration of infrastructure networks

for each of the major regional economic communities of Sub-SaharanAfrica. All of these papers are available through the project Web portal,http://www.infrastructureafrica.org, or through the World Banks PolicyResearch Working Paper series.

With the completion of this full range of analytical products, we hopeto place the findings of the AICD effort at the fingertips of all interestedpolicy makers, development partners, and infrastructure practitioners.

Vivien Foster and Cecilia Briceo-Garmendia

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xvii

About the Authors

Mark D. J. Williams is a Senior Economist in the Global ICT (information

and communication technologies) group of the World Bank. He has car-ried out extensive research into the economics and regulation of theICT sector and has been involved in the development of World Bankpolicy on broadband and on public private partnerships in the sector.Mr. Williams has worked on the design and implementation of ICTinfrastructure projects around the world and has advised governmentsand operators on a wide range of policy and regulatory issues. He regu-larly publishes articles and speaks at conferences on the sector, recentlyfocusing on Africa and the Middle East. Mr. Williams has degrees from

Oxford and Warwick universities in the United Kingdom.

Rebecca Mayer is a consultant on telecommunications and energyinfrastructure in Africa and other developing regions. She specializesin techno-economic modeling of wireless telecommunications anddistributed power solutions, as well as the use of ICTs in off-grid andenergy-constrained environments. In addition to her work for theWorld Bank, Ms. Mayer has previously served as a Program Officer inthe Clean Energy Group at Winrock International, as a ResearchOfficer at the International Telecommunication Union, and as a Senior

Associate at Pyramid Research/Economist Intelligence Unit. Ms. Mayer

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xviii About the Authors

holds masters degrees in Engineering and Public Policy from CarnegieMellon University and in Economics from Tufts University, as well as aBachelor of Arts in Near Eastern Studies from Yale University.

Michael Minges is an international ICT consultant. Mr. Minges wasformerly head of the market research unit at the InternationalTelecommunication Union, where his functions included the analysis oftelecommunications trends in developing nations, market studies ofcountries and regions, and regulatory and policy advice. He also workedat the International Monetary Fund as an information technology spe-

cialist. Mr. Minges regularly advises governments and private clients onkey ICT policy, strategy, and regulatory issues. He has written numerousarticles and makes frequent presentations around the world on tele-communications progress in emerging countries. He launched a princi-pal industry publication, the World Telecommunication DevelopmentReportand designed a leading indicator for measuring ICT progress, theDigital Access Index. Mr. Minges holds a Bachelor of Arts degree inEconomics from the University of Oregon and a Master of BusinessAdministration degree from George Washington University.

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Acknowledgments

This book was coauthored by Mark D. J. Williams, Rebecca Mayer, andMichael Minges, under the overall guidance of series editors Vivien Fosterand Cecilia Briceo-Garmendia.

The book draws on background papers that were prepared by WorldBank staff and consultants, under the auspices of the Africa InfrastructureCountry Diagnostic (AICD). Key contributors to the book on a chapter-by-chapter basis were as follows.

Chapter 1

This chapter is an introduction to the work, written by Mark D. J.Williams.

Chapters 2 and 3

Contributors

Mavis Ampah, Cecilia Briceo-Garmendia, Daniel Camos, MichaelMinges, Rupa Ranganathan, Maria Shkaratan, and Mark D. J. Williams

Key Source Document*

Ampah, M., D. Camos, C. Briceo-Garmendia, M. Minges, M. Shkaratan,and M. Williams. 2009. Information and Communications Technologyin Sub-Saharan Africa: A Sector Review. AICD Background Paper10, World Bank, Washington, DC.

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xx Acknowledgments

Chapter 4

Contributors

Mark D. J. Williams, Jacqueline Irving, and Astrid Manroth


Irving, J., and A. Manroth. 2009. Local Sources of Financing forInfrastructure in Africa: A Cross-Country Analysis. Policy ResearchWorking Paper 4878, World Bank, Washington, DC.

Chapter 5

ContributorsRebecca Mayer, Ken Figueredo, Mike Jensen, Tim Kelly, Richard Green,Alvaro Federico Barra, and Mark D. J. Williams


Mayer, R., K. Figueredo, M. Jensen, T. Kelly, R. Green, and A. F. Barra.2009. Connecting the Continent: Costing the Needs for Spending onICT Infrastructure in Africa. AICD Background Paper 3, World Bank,Washington, DC.

Chapter 6

This chapter was written by Mark D. J. Williams. It contains a synthesisof the analysis presented in the other chapters and presents policy recom-mendations intended to drive the sector forward.

None of this research would have been possible without the generouscollaboration of government officials in the key sector institutions of eachcountry, as well as the arduous work of local consultants who assembledthis information in a standardized format.

The work benefited from widespread contributions and peer review

from colleagues within the World Bank, notably Mavis Ampah, LaurentBesanon, Jrme Bezzina, Doyle Gallegos, Tim Kelly, Ioannis Kessides,Kaoru Kimura, Juan Navas-Sabater, Rupa Ranganathan, Carlo Rossotto,Lara Srivastava, and Eloy Eduardo Vidal. The external peer reviewers forthis volume, Charley Lewis and Russel Southwood, provided construc-tive and thoughtful peer review comments. The comprehensive editorialeffort of Steven Kennedy is much appreciated.

*All source documents are available for download from the AICD website, http://www.infrastructureafrica.org.

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Abbreviations

Costs are expressed in U.S. dollars unless stated otherwise.

3G third generationAAA authentication, authorization, and accountingACE Africa Coast to Europe (cable)ADSL asymmetric digital subscriber lineAfDB African Development BankAICD Africa Infrastructure Country DiagnosticAIKP Africa Infrastructure Knowledge ProgramAIX Accra Internet Exchange

ARPU average revenue per userASB Alcatel Shanghai BellBCIE Banco Centroamericano de Integracion EconomicaBESA Bond Exchange of South AfricaBOAD Banque Ouest Africaine de DveloppementBRVM Bourse Rgionale des Valeurs MobiliresBSC base station controllerBTS base transceiver stationCAPEX capital expenditureCCT China-Congo Telecom

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xxii Abbreviations

CDMA Code Division Multiple AccessCEMAC Economic and Monetary Community of Central

AfricaCIAT Centro Internacional de Agricultura TropicalCIESIN Center for International Earth Science Information

NetworkCOMESA Common Market for Eastern and Southern AfricaCPE customer premises equipmentCST Companhia Santomense de TelecomunicacaoesDBSA Development Bank of South Africa

DEG Deutsche Investitions- und EntwicklungsgesellschaftmbH

DFI development finance institutionDFID Department for International DevelopmentDGE/DGI Direction des Grandes Entreprises/Direction Gnrale

des ImptsDGRAD Direction Gnrale des Recettes Administratives,

Judiciaires, Domaniales et de la ParticipationDSL digital subscriber lineEAC East African CommunityEASSy Eastern African Submarine Cable SystemECCAS Economic Community of Central African StatesECOWAS Economic Community of West African StatesEIB European Investment BankEIG Europe-India GatewayESCOM Electricity Supply Corporation of MalawiEVDO EvolutionData OptimizedFALCON FLAG Alcatel-Lucent Optical NetworkFLAG Fiber-Optic Link around the Globe

FMO Nederlandse Financierings-Maatschappij voorOntwikkelingslanden N.V. (Netherlands DevelopmentFinance Company)

GAMTEL Gambia Telecommunication Company Ltd.Gbps gigabits per secondGDP gross domestic productGGSN gateway GPRS support nodeGHz gigahertzGIX Ghana Internet ExchangeGLO-1 Globacom-1

GNI gross national income

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Abbreviations xxiii

GPRS general packet radio serviceGRUMP Global Rural-Urban Mapping ProjectGSM global system for mobile communicationsGSMA GSM AssociationHA home agentHH householdHHI Herfindahl-Hirschman IndexHLR home location registerHSPA HighSpeed Packet AccessICASA Independent Communications Authority of South

AfricaICT information and communication technologyIDA Infocomm Development AuthorityIFC International Finance CorporationIPLC international private lease circuitISM industrial, scientific, and medical (radio band)ISP Internet service providerITU International Telecommunication UnionIXP Internet exchange pointJSE Johannesburg Securities ExchangeKbps kilobits per secondKfW Kreditanstalt Fr WiederaufbauKIXP Kenya Internet Exchange Pointkm kilometerkm2 square kilometerkWh kilowatt-hourLAP Libyan Arab PortfolioLIBOR London Interbank Offered RateLION Lower Indian Ocean Network

LTE Long Term EvolutionMAURITEL Socit Mauritanienne de TelecommunicationsMbps megabits per secondMCEL Moambique CelullarMHz megahertzMNP mobile number portabilityMSC mobile switching centerMTC Mobile Telecommunications CompanyMTL Malawi Telecom Ltd.MTR mobile termination rate

MVNO mobile virtual network operator

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xxiv Abbreviations

NB&D network, build, and deployNEPAD New Partnership for Africas DevelopmentNITEL Nigerian Telecommunications Ltd.NRA national regulatory agencyNRPT National Rural Telephony ProjectODA official development assistanceOECD Organisation for Economic Co-operation and

DevelopmentONATEL Office National des TlcommunicationsOPEC Organization of the Petroleum Exporting Countries

OPEX operating expenditurePDA personal digital assistantPDSN packet data serving nodePPI private participation in infrastructurePPP purchasing power parityPV present valueRCDF Rural Communications Development FundRIO reference interconnection offerSADC Southern African Development CommunitySAFE South Africa Far EastSAT-1 South Atlantic 1 cableSAT-2 South Atlantic 2 cableSAT-3/WASC South Atlantic 3/West Africa Submarine CableSE stock exchangeSEA-ME-WE South East AsiaMiddle EastWest EuropeSGSN serving GPRS support nodeSIM subscriber identity moduleSMS short message serviceSOCATEL Socit Centrafricaine de Tlcommunications

SOE state-owned enterpriseSONATEL Socit Nationale des Tlcommunications du

SenegalSONITEL Niger Telecommunications Co.SOTELGUI Socit des Tlcommunications de GuineSOTELMA Socit des Tlcommunications du MaliSRTM shuttle radar topography missionTbps terabits per secondTCRA Tanzania Communications Regulatory AuthorityTDB Telecommunication Development Bureau

TdM Telecomuniaes de Moambique

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Abbreviations xxv

TDMA Time Division Multiple AccessTEAMS The East African Marine SystemTELMA Telecom MalagasyTHL Telecom Holdings Ltd.TRX transceiverTTCL Tanzania Telecommunications Company Ltd.UCC Uganda Communications CommissionUEMOA Union conomique et Monetaire Ouest-AfricaineUMTS Universal Mobile Telecommunications SystemUN United Nations

USE Uganda Securities ExchangeVAT value added taxVLR visitor location registerVoIP Voice Over Internet ProtocolVRA Volta River Authority WACS West Africa Cable System WAEMU West African Economic and Monetary Union WCDMA Wideband Code Division Multiple Access WiMAX Worldwide Interoperability for Microwave Access WLL wireless local loopZamtel Zambia Telecommunications CompanyZCC Zambia Competition CommissionZESCO Zambia Electricity Supply Corporation Ltd.ZTE Zhong Xing Telecommunication Equipment

Company Ltd.

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1

C H A P T E R 1

Introduction

Information and communication technologies (ICTs) have been aremarkable success in Africa. Across the continent, the availability andquality of service have gone up and the cost has gone down. In just10 yearsdating from the end of the 1990smobile network coveragerose from 16 percent to 90 percent of the urban population; by 2009,rural coverage stood at just under 50 percent of the population.Institutional reform has driven this radical change in telecommunica-tions. Markets have been liberalized, and regulatory bodies have beenestablished. The resulting increase in competition has spurred invest-ment and dramatic reductions in prices.

The speed at which the sector has evolved, the nature of the policychanges that have triggered the reforms, and the way in which investmenthas been financed all make telecommunications unique among the infra-structure sectors in Africa. Despite the successes of recent years, however,several major challenges remain for policy makers.

The first of these challenges is to continue the expansion of the mobilenetworks, bringing basic voice services to as much of the population aspossible. To do this, policy makers need answers to key questions: Whathave been the drivers of past expansion? Why do some countries in the

region consistently outperform others? How far will the current model of

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2 Africas ICT Infrastructure

reform go toward providing universal coverage? The answers to these ques-tions can serve as a foundation for designing policy that fosters the successof the mobile voice revolution across the region.

Although the performance of Africas mobile networks over the pastdecade has been remarkable, the telecommunications sector in the rest ofthe world has also evolved rapidly. Many countries now regard broadbandInternet as central to their long-term economic development strategies,and many companies realize that the use of ICT is the key to maintainingprofitability. In Africa, however, the Internet is still in its infancy. In mostcountries, access is limited and slow. Where broadband is available, it is

typically very expensivefar beyond the financial means of the majorityof Africans. Ensuring that networks are capable of delivering broadbandInternet access at affordable prices is the next major challenge on thehorizon for policy makers.

This book is about that challenge and others. Chapters 2 and 3 describethe recent history of the telecommunications market in Africa; they coversuch issues as prices, access, the performance of the networks, and theregulatory reforms that have triggered much of the investment. This partof the book compares network performance across the region and tries toexplain why some countries have moved so much more quickly than oth-ers in providing affordable telecommunications services.

Chapter 4 explores the financial side of the telecommunications revo-lution in Africa and details how the massive investments have beenfinanced and which companies have most influenced the sector.

Chapter 5 deals with the future of the sector, addressing some of themain policy questions that it faces: How far will the expansion ofmobile voice networks go under the current policy regime? How muchof the population is likely to be living outside the regions commerciallyviable zones? Is it commercially viable to provide broadband Internet to

broad segments of the population, in addition to large businesses andhigh-income individuals? Is there any way in which broadband Internetwill develop into a mass-market service in Africa?

The final chapter synthesizes the main chapters of the book and pres-ents policy recommendations intended to drive the sector forward.

Access to Communications

Since the end of the 1990s, the availability of telecommunications serv-ices has dramatically increased across Sub-Saharan Africa. Networks

have expanded and prices have fallen, bringing basic telecommunications



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Introduction 3

services within reach of the majority of Africans. This success, however,does not extend to all segments of the market. The number of subscrib-ers to fixed-line networks, relative to the size of the population, has beenstatic, and although more and more Africans are accessing the Internet,online use in Sub-Saharan Africa still lags far behind that in other partsof the world.

AccessThe explosion in access to telecommunications services has been mostprominent in the mobile market, in which the number of users grew by

more than 247 million between 1998 and 2008.The mobile penetrationrate increased from less than 1 percent of the population in 1998 toalmost one-third by 2008and since then has continued to increase.1Moreover, rapid growth has occurred throughout the region. Low-incomecountries, where telecommunications services were once accessible onlyto a privileged few, are quickly catching up with their richer neighbors,such as Namibia and South Africa. In 1998, at the start of Africas tele-communications revolution, South Africa accounted for 86 percent of allsubscribers in the region, but by 2008, that figure was down to 18 per-cent; Nigeria overtook South Africa as the regions biggest telecommuni-cations market in 2008.

Other segments of the telecommunications market have not devel-oped nearly as quickly as the mobile businesses. The number of fixedlines, for example, increased from 1.4 subscribers per 100 people in 2000to 1.5 in 2007 before falling to 1.4 in 2008. Internet access across Africais also very low: Penetration rates on the continent are a fraction of thosein other regions, but these rates are slowly increasing as wireless broad-band technology becomes more established and prices fall.

Despite the overall improvement in access to telecommunications in

Africa, some countries have been much more successful than others.Nearly seven times as many mobile subscribers per capita are found inthe most successful 10 countries as in the least successful 10, despiteglobal standards and broadly similar costs and operating conditions acrossthe region.

PricesHigh prices have historically been one of the factors preventing the pub-lic from accessing ICT services in Africa. Although the price of specifictelephone services (such as local calls, international calls, and text mes-

sages) varies, a standard basket of services that includes subscription



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charges and different types of calls can be used to compare average pricesover time and among countries. In 2009, for example, the cost of a rep-resentative monthly mobile call package ranged from $2 to $15, with anaverage of about $10. As networks have expanded, competition hasintensified and operators have increasingly pursued new customers fromlow-income households, forcing mobile prices down. At the same time,the average amount of calling time used by subscribers has also fallen.These two effects have translated into operators generating lower averagerevenue per subscriber. The average revenue generated per subscriber inSub-Saharan Africa fell from $43 per month in 2000 to $13 in 2008.

Nevertheless, mobile call prices in Sub-Saharan Africa remain higherthan in most other regions. This indicates that, although mobile prices inSub-Saharan Africa have fallen considerably, scope can be found for fur-ther price reductions, which will benefit customers and bring mobileservices within reach of more Africans.

The price of fixed-line telecommunications services is similar to thatof mobile services, with the cost of a standard monthly package averagingabout $11 in 2008. Fixed-line prices exhibit greater geographical varia-tion than mobile prices, however, with the cost of the standard packageranging from $2 in Ethiopia to $23 in Cte dIvoire. Given the low costof fixed-line services, price is clearly not the reason for their relative lackof success compared with mobile services. Instead, other factors, such asconvenience, flexibility, and the ready availability of handsets and SIM(subscriber identity module) cards, have given mobile a commercialadvantage over fixed services.

Fixed-line operators have traditionally kept international call priceshigh to subsidize unprofitable local call services. Recently, however,increased competition has limited the ability of operators to commandthese high prices, and prices have begun to fall. The regional average price

of a call to the United States fell from just over $2 per minute in 2000 to$0.88 a minute in 2008, with the lowest price$0.31 a minuteseen inGhana, one of the regions most competitive markets.

Internet access in Africa remains very expensive, which partly explainswhy usage rates are so low. In 2008, the median price of a broadbandconnection was $92 per monthwell above the average price in themember countries of the Organisation for Economic Co-operation andDevelopment (OECD) and out of reach for the majority of Africans. Theintroduction of wireless broadband technologies is reducing prices, how-ever, and as the number of operators providing broadband increases,

these prices are expected to fall further.



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Introduction 5

QualityThe quality of telecommunications services affects the willingness ofusers to pay for them. Quality of service is measured differently for fixed-line and mobile services. For fixed-line services, the number of lines outof service and the time taken to repair them are the typical measurementsof quality. Those metrics are usually not relevant to mobile networks, someasures such as call-completion rates and call-dropping rates are usedinstead. Most regulatory authorities do not collect or publish quality-of-service statistics on a systematic basis, so it is difficult to get a quantita-tive picture of quality levels and trends. Anecdotally, although most

mobile customers seem to be satisfied with the overall quality of serv-ice, dissatisfaction has grown as the number of subscribers has grownand the networks have become more congested. Regulators are there-fore paying more attention to mobile service quality and beginning tocollect data on it.

In contrast to the generally acceptable level of quality for mobileservices, the quality of service for fixed lines is poor. Among countriesreporting data, the average number of faults per 100 fixed lines was69 in 2005. In other words, almost 7 out of 10 fixed lines were out of

service at some point during that year. There are no clear indications thatthe situation has since improved. For comparison, the average figure for14 OECD countries in 2003 was only 1 in 10. Canada and the Republicof Korea reported fault rates of 1 in 100 (OECD 2005).

Internet service quality is a function of the mobile and fixed-line net-works over which it is delivered and the total amount of internationalbandwidth available. The amount of international bandwidth is therefore animportant determinant of Internet service quality. In Africa, this is very lowby international standards. In 2009, for example, the average bandwidth inhigh-income countries stood at 50.40 megabits per second (Mbps) per

capita, but in Sub-Saharan Africa, it was only 0.06 Mbps per capita. In sum,the Internet in Africa is slow, unreliable, and expensive.

InfrastructureAfricas communications infrastructure has grown as the sector hasexpanded. Such infrastructure consists of a complex mesh ofinterconnected networks designed to carry different types of communi-cations traffic. Networks are traditionally divided into fixed andmobile networks, reflecting the historical divide between the copper-based fixed-line telephone networks of advanced countries and the

mobile wireless networks that began to emerge in the 1980s. In practice,



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this distinction really applies only to the last mile (that is, the linkbetween the network and the customer, also known as the access net-work), because much of a mobile network is actually composed offixed (usually fiber-based) links. The idea of physically separate networksis also not an accurate picture of the way modern telecommunicationsnetworks are designed. Operators buy and sell network services to oneanother, in effect using other operators networks to fill in gaps in theirown infrastructure. For example, mobile operators in many high-incomecountries may own only the wireless last mile infrastructure, while rely-ing on other operators for other parts of their network.

In Africa, the network architecture is different. The integration of net-works is less advanced; networks have traditionally been built as stand-alone, end-to-end networks. Mobile networks are more likely to bewireless throughout, rather than fiber optic at their core and fixed wire-less technologies are often used to provide the last-mile links to busi-nesses and homes in place of copper.

These technology-based distinctions are starting to become obsolete.Fixed wireless networks are becoming mobile, wireless networks arebeing upgraded to fiber, and networks that were once used to providevoice services are increasingly being used to provide a full range of ICTservices. For now, however, traditional concepts of fixed and mobile, andwireline and wireless, remain useful analytically and are used throughoutthis volume.

Fixed-line copper-based connections were the traditional means oflinking customers to the telephone network. In Africa, these networkshave always had very low penetration levels, and in many cases, the levelshave fallen over time. Mobile networks have provided a ready substitutefor these traditional networks for basic voice services while offering addedmobility, lower costs, and more payment flexibility.

The rapid growth in mobile network infrastructure, however, hasgreatly expanded access to telecommunications in Africa. Networks thatwere initially concentrated in towns and cities increasingly began pushinginto rural areas. By 2009, 90 percent of Africas urban population and 48percent of its rural population lived within reach of a mobile network.2Coverage numbers continue to increase, although signs indicate that therate of increase is slowing as networks expand into less economicallyviable areas.

As for offering access to broadband, Africa has followed a very differ-ent infrastructure growth path than high-income countries. The domi-

nant form of broadband Internet-access infrastructure in the OECD



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Introduction 7

countries has been copper based, either upgraded telephone lines orupgraded cable TV networks. Wireless broadband in these countries hasgenerally been seen as a complement to wireline access rather than asubstitute for it. In Africa, by contrast, the lack of suitable copper wirelineinfrastructure has not only limited access to broadband Internet butalso increased the role of wireless network infrastructure in providingsuch access. Many global wireless broadband standards are used, includ-ing the third-generation family of mobile standards(3G),3 WorldwideInteroperability for Microwave Access (WiMAX), and Long TermEvolution (LTE). WiMAX was the first widely deployed broadband

access network infrastructure in Africa. More recently, mobile operatorshave begun upgrading their networks to be able to provide 3G, andsome are using LTE on a trial basis. These technologies are expected toplay an increasingly important role in delivering broadband to custom-ers in Africa, because few signs exist that wireline access infrastructureis going to develop in a significant way for the foreseeable future.

As the number of subscribers, particularly broadband Internet users,increases, traffic levels on the networks grow. Although the access, or last-mile, networks are likely to focus on wireless technologies, operators areincreasingly upgrading their core, or backbone, networks to fiber-optictechnologies. These high-capacity networks lie at the heart of any modernbroadband communications system, even if the number of subscribers isrelatively limited. Although much of the investment in mobile networkshas gone into wireless infrastructure, the fiber-optic networks in Africa aredeveloping quickly. As of the end of December 2009, the operational ter-restrial fiber-optic transmission network in Sub-Saharan Africa was 234,000kilometers (km) long, with a further 41,000 km under construction.

Historically, the key players in the development of fiber-optic networkshave been state-owned telecommunications operators. This is gradually

changing as new private operators enter the fiber-optic network business.Private operators are building about half the length of fiber-optic cablescurrently under construction; this share is expected to increase as moreof the mobile companies move into the data business. Private investmentin fiber is dependent on a conducive regulatory framework. Countriesthat have encouraged investment in fiber networks through issuinglicenses and assisting operators to obtain rights of way, for example, haveachieved much better results than those that have placed restrictions onfiber networks. Such restrictions include licensing constraints that limitthe potential size of operators markets, obstacles to obtaining rights of

way, and, in some cases, outright monopolies.



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In countries that have encouraged investment in fiber-optic networks,development has followed a similar pattern. The most commercially via-ble routes for fiber-optic upgrades run along corridors connecting majorurban areas with one another and with exit points from the country (suchas submarine-cable landing stations and border crossings). Fiber-opticcables cluster along these routes, and networks compete directly with oneanother. This pattern has positive effects: The competition tends to pushdown prices, and the multiple networks provide resilience. At the sametime, route concentration leaves much of the regionespecially ruralareasunconnected to the backbone networks. Providing broadband

access to these areas will be a key policy challenge for the sector.Two recent trends in the sector have implications for further develop-

ment of domestic fiber-optic networks. The first is the emergence ofregional wholesale carrier network operators that provide cross-borderservices to corporate customers and other licensed operators. Second,fixed-line operators and mobile operators in contiguous neighboringcountries have in some cases fallen under common ownership throughprivatization, acquisition, and new start-ups. The owners then use theirlicenses in multiple countries to interconnect their networks. These trendsare driving the development of long-haul infrastructure that is connectingcountries within subregions and linking landlocked countries to thelanding points of the submarine cables. Competition between these net-works will lower prices and increase the capacity available to users, givingaccess to submarine cable infrastructure for the landlocked countries. Butthis process is more advanced in some parts of Africa than others. WithinEast Africa, for example, long-haul fiber-optic networks are being rolledout quickly. In Central and West Africa, however, cross-border networkdevelopment is still at an early stage.

Broadband generates higher volumes of traffic than voice services do.

Furthermore, a greater proportion of this traffic is international becausemuch of the content that is accessed over the Internet is stored in coun-tries other than the one in which the user is located. This is particularlytrue of Africa, which currently hosts very little Internet content. Thecapacity of international networks has therefore been a key constraint onthe development of affordable broadband services in Africa.

Voice networks in Africa have traditionally relied on satellites to handleinternational traffic because of the lack of submarine fiber-optic networkinfrastructure and the relatively low bandwidth requirements of interna-tional voice traffic. Recently, however, submarine fiber-optic cable proj-

ects have proliferated. As of 2010, 12 submarine cables were operational



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Introduction 9

in Sub-Saharan Africa and five more were being deployed. The opera-tional cables have a combined capacity of over 12 terabits per second(Tbps). A total of $1.7 billion is being invested in the five submarinecables currently under construction, which will bring an additional9 Tbps of capacity to the region. Clearly, the amount of internationalbandwidth available to Africa is growing rapidly. It therefore looks likelythat what was once a major infrastructure bottleneck in Africa will nolonger be a constraint on the sector in the future.

Institutions and Market ReformMajor reform in sector management has been the key factor in the dra-matic improvement in ICT services in Africa. Previously, a state-ownedmonopoly operator provided all ICT services in a country. Beginning inthe 1990s, however, African governments began liberalizing their tele-communications markets by issuing multiple licenses and allowing opera-tors to compete with one another. Private investment now drives networkexpansion, and privately owned operators are the main service providers.This shift has been accompanied by reform of the government institu-tions that are responsible for the sector. Regulatory authorities have beenestablished, and in many cases the formerly state-owned operators havebeen privatized.

Market LiberalizationThe widespread liberalization of markets and the emergence of competi-tion have greatly increased the performance of Africas ICT sector. Thegrowth in competition among mobile operators has been particularlyrapid. Most countries now have multiple mobile operators that competewith one another. By comparison, in the 1990s mobile networks were

usually monopoliesif they existed at all (figure 1.1).The increase in mobile competition has been accompanied by growth

in the number of subscribers, and that growth has accelerated as com-petition has intensified. Growth in subscriber numbers has generallybeen modest following the initial stage of market liberalizationthat is,the move from monopoly to duopoly. Once a country issues its fourthmobile license, however, penetration rates increase by an average ofabout 4 percentage points per year.

Despite the clear benefits of market liberalization, some countrieshave not moved as quickly as others. Although few countries in Africa

retain legal prohibitions on competition in telecommunications, other



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legal or institutional factors may prevent competition from developing inall segments of the market. For example, existing operators often haveexclusivity clauses in their licenses or other types of commitment fromthe government to issue no further licenses for a defined period of time.Competition in the fixed segment of the market also often lags behindthat in the mobile segment. Although 16 Sub-Saharan African countries

had fixed-line competition by 2009, only a few of them had more thantwo operators, for a combination of regulatory and economic reasons.Some countries that have formally ended a fixed-line monopoly havetaken time to issue a second fixed-line license. In other cases, fixed-linelicenses have been available, but only limited interest from investors hasbeen seen.

Overall, the state of market liberalization across the region is bestdescribed as incomplete. Although most countries have multiple mobileoperators, few have more than three, despite evidence that most mar-kets in the region can support more. Meanwhile, the process of liberal-

izing fixed-line markets is not far along. This is despite the fact that

Figure 1.1 Competition in Mobile Markets in Sub-Saharan Africa, 19932009percentage of countries with no provider, one provider, two providers, and

three or more providers

Sources: ITU (2010), regulators, operators.

0

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Introduction 11

countries, such as Nigeria, have shown that a competitive fixed-linemarket is possible and can deliver benefits to customers in terms of bothprice and services.

Private Sector ParticipationMarket liberalization and regulatory reform have triggered large-scaleinvestment in telecommunications networks, mainly from the privatesector. Most countries have adopted a relatively liberal policy towardforeign investment in telecommunications, allowing foreigners to ownat least 51 percent of telecommunications companies, and some have

gone even further by allowing foreign investors to have complete own-ership of subsidiaries. Only four countries (the Comoros, Djibouti,Eritrea, and Ethiopia) retain major restrictions on foreign investmentin operators.

In general, private investors have favored investment in greenfieldprojects (that is, the purchase of a license without any existing businessor network assets) over privatization. In fact, greenfield projects haveattracted three-quarters of all investment in physical assets in the sector,with most of the rest going to privatized incumbent operators. Most of

these projects have involved mobile operators, although fixed-line opera-tors have also proved attractive to investors in some countries, such asNigeria and Sudan.

Where does private investment in Africas telecommunications sectorcome from? One might expect Europe or the United Statesthe pio-neers of mobile telephone networksto lead the drive to invest in similarbusinesses in Africa. Yet this has not been the case. There was an initialflurry of investment by European and American operators in privatizedincumbents in the late 1990s. Since then, however, most investment inthe telecommunications sectorfor both greenfield projects and privati-

zationhas come from investors in other developing countries. Forexample, Morocco-based Maroc Telecom has participated in the privati-zation of incumbent operators in Burkina Faso, Gabon, Mali, andMauritania, and Malawi Telecom Ltd. (MTL) was sold to a group ofmainly domestic investors. In all, more than 80 percent of the investmentin private operators in Sub-Saharan Africa has come from companiesbased in Africa or the Middle East. Only recently have investors fromdeveloped countries re-entered Africas telecommunications market in asignificant way: France Telecom bought 51 percent of Telkom Kenya in2007, and Vodafone, based in the United Kingdom, bought 70 percent of

Ghana Telecom in 2008.



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RegulationThe shift from monopoly to competition in the ICT sector has beenaccompanied by reform of the legal framework that governs it. AllAfrican countries have introduced new laws and regulations coveringtelecommunications. Typically, the new laws and associated regulationsestablish a national regulatory agency (NRA) along with general provi-sions for competition, licensing, interconnection, managing scarceresources (particularly the radio spectrum), and pricing. The primaryrole of an NRA is to establish and implement the rules that govern thesector and to protect customers by regulating prices and monitoring the

quality of service. The NRAs decisions affect the pace at which compe-tition intensifies, the amount that operators invest, and the extent towhich customers benefit from improved services and lower prices. By2009, 41 African countries had established independent NRAs, up from5 in 1996.

The effectiveness of an NRA depends on many factors, including thenature of the decision-making process, how the institution is financed,how senior staff members are selected, and the terms of their employ-ment. Operational independence from government helps the NRA to

make unbiased decisions without undue political influence and is there-fore essential to its effectiveness. The way in which the authority isfinanced is a key aspect of this independence. Most regulatory authoritiesare financed through license fees, providing them some autonomy fromthe central government. Budgets often have to be approved by the gov-ernment or parliament, however, so some residual political influence overregulatory activities remains.

Another important aspect of operational independence is the way inwhich the senior staff of the regulatory authority are appointed. Amongthe heads of regulatory bodies in Sub-Saharan Africa, 78 percent are

appointed by either heads of state, the parliament, or a council of minis-ters. This method of appointment contributes to regulatory independencefrom the day-to-day politics of the sector. In other countries, however, thesector minister retains the power to appoint the head of the regulatoryauthority, often resulting in increased political influence over regulatorydecisions.

Regulators have a wide range of responsibilities, including licensing,arbitrating disputes, setting tariffs, monitoring the sector, and implement-ing the universal service policy. These responsibilities have evolved ascompetition has developed: Whereas regulators used to focus mainly on

controlling the tariffs of the incumbent operator, now they must regulate



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Introduction 13

an increasingly competitive market. Most countries have followed abroadly similar path of liberalization in the sector, so regulators are facingsimilar challenges across the region. One of the most significant of theseis regulating the terms on which operators are interconnected. This is acrucial factor in the development of competition and the extent to whichbenefits are passed on to customers. African regulators are gradually mov-ing toward a system that bases interconnection tariffs on costs. One of thefirst decisions in this area occurred in Botswana in 2003, where the regu-lator resolved a dispute between operatorsby imposing a rate based on abenchmark of tariffs from European operators. This was followed in 2004

by a decision by the Tanzanian regulatory authority imposing mobileinterconnection tariffs that were based on costs. Since then, other regula-tors have followed suit.

Another key role of regulators is to design and implement universalservice funds, which have been established in many countries to provideservices to underserved areas of the country. They are usually financedthrough a levy on the sector, which the regulator is typically responsiblefor collecting. The amount of discretion that the regulator has in deter-mining how the funds are spent varies among countries. The regulatoroften has an executive role and is responsible for spending the funds oncethey are allocated.

The third major area of responsibility for telecommunications regula-tors is the management of the radio spectrum. Across Africa, the organi-zation and management of the spectrum is done in the traditionalwaypublic authorities decide what the different radio-spectrum bandswill be used for, how they will be allocated, and how much they will costto use. Regulators are often then given responsibility for implementingthe governments decisions. The lack of widespread wireline infrastruc-ture in Africa means that the success of the telecommunications sector is

even more dependent on the efficient management of the radio spectrumthan in countries where many telecommunications services are providedover copper or fiber-optic cable. Globally, a trend is seen toward usingmore flexible and market-based methods for allocating and managing theradio spectrum. Initial allocations of the radio spectrum are often done byauction, and then, importantly, the allocations are transferable betweenprivate parties. This reduces the direct control of public authorities overthe radio spectrum and allows market forces to have a greater influenceon how it is used. Such mechanisms have yet to be introduced in Africa,but given the dependence of the sector on the radio spectrum, they could

have a significant positive impact.



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Widespread regulatory reform has been a major factor in the successof the ICT sector in Africa. The gradual shift from a politically drivendecision-making process to a more rules-based, technocratic one hasimproved investor confidence and allowed competition to develop.Independent regulatory authorities were relatively unknown in Africabefore the establishment of telecommunications regulators. Although ithas taken time for these institutions to become effective, their technicalcapacity and experience in carrying out their mandate has improved, andthe quality of regulation has increased.

Reform and PerformanceThe dramatic changes in the way that countries manage their telecom-munications sectors have had an impact not only on investment, but alsoon the way that services are delivered and the efficiency with which thesector is managed. Mounting evidence suggests that as markets becomemore competitive, performance improves, which, in turn, stimulatesgreater levels of investment, more extensive networks, and lower prices.

It takes time before the market outcomes of policy reforms can beseen. Markets in countries that were the earliest to reform and that wentfurthest in establishing effective competition have therefore exhibitedbetter performance than countries that delayed the process. For example,over the past 10 years early reformers have experienced higher mobilepenetration rates than countries that reformed later or less thoroughly.Sector performance has been very poor in the few countries in Africa thathave not introduced any major structural reforms. In the mobile segmentof the market, increased competition has also resulted in lower prices.However, competition in the fixed market has tended to result in slightlyhigher average prices as tariffs are rebalanced. The net effect of higherpenetration rates and lower prices has been an increase in the overall size

of the sector. In countries that implemented comprehensive sectorreforms early on, the sector-generated revenues were equivalent to about6 percent of gross domestic product (GDP) on average. Countries thatwere late reformers, however, had sectors with total revenue equal toabout 4.6 percent of GDP.

What lessons can be drawn from a decade of reform in the telecom-munications sector in Africa? First, improvements in sector performancedue to market liberalization take time to materialize and usually dependon the markets reaching a threshold level of competition. For example,increased competition among mobile operators significantly increased the

availability of services and reduced prices in that segment of the market.



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Introduction 15

Yet countries that issued only two mobile licenses did not see as muchbenefit from competition as those that issued three or more. In general,the more mobile operators there are and the stiffer the competition forcustomers becomes, the faster the market will grow.

The second major lesson is that not all segments of the market arewinners. In contrast to the major benefits that liberalization has conferredon the mobile segment of the market, competition in the fixed-line mar-ket has resulted in either static or declining numbers of fixed-line sub-scribers as customers switch from fixed-line to mobile services. The majorexception is Nigeria, which aggressively liberalized its fixed-line market

and has seen significant increases in the number of fixed-line subscribers.Nevertheless, the sector as a whole has grown dramatically as a result ofliberalization. Customers have benefited from lower prices and betterservices while governments have benefited from higher tax revenues.

Financing

The rapid expansion of the telecommunications networks in Africa hasrequired very high levels of investment. Between 1998 and 2008, anaverage of $5 billion a year was invested in Sub-Saharan Africas telecom-munications sector, amounting to about 1 percent of total GDP. Theprivate sector accounted for most of this investment, which primarilytargeted mobile infrastructure development following the liberalizationof mobile markets.

This investment has not been distributed evenly across the continent.Nigeria and South Africa together account for more than 60 percent ofthe total network investment in Sub-Saharan Africa, with the remain-der being distributed among the other countries in the region. Theuneven distribution of investment corresponds to the size and relative

wealth of these countries. In addition, in the case of some countriessuch as Nigeriait also reflects policy decisions made by the govern-ments over the past decade. Countries that have promoted competitionwithin the sector by encouraging new operators to enter the markethave received higher levels of investment than countries that have lim-ited competition.

What are the predominant sources of investment? The majority of spon-sors of telecommunications investment in Sub-Saharan Africa originate inAfrica itself, although much of the financing has been sourced from outsidethe continent. The only other region driving significant investment in the

sector has been the Middle East. Historically, the telecommunications



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industry in Africa has seen relatively little involvement by investors fromdeveloped countries and from Asia. Recently, however, this has changed asIndian operators have begun to enter the market, and several recent priva-tizations were awarded to operators from developed countries.

Little of the capital invested in the sector has been in the form ofequity from shareholders. The majority of investment is financedthrough debt, in the form of either bank loans or, to a lesser extent,issuance of bonds on local securities markets. More than half of thefinancing originates in Europe and North America, and 20 percentoriginates in the Middle East and North Africa. Yet the telecommunica-

tions sector in Africa has also successfully tapped local financial markets(to the extent that they exist) to fund investments. In some cases, tele-communications operators constitute a significant part of the total valueof securitiesboth equity and debton exchanges. Local telecommu-nications borrowing has also been a big factor in the growth of loansyndication in African markets.

Despite the dominance of the private sector in telecommunicationsinvestment, in many African countries the public sector continues toplay a role through its ownership of one of the operators. Approximatelyhalf of the countries retain full public ownership of one operatoralthough several of these are considering privatization. At the same time,a few governments have begun reinvesting in the sector via nationalbackbone projects.

In most cases, state-owned operators control only a small share of themarket. Many of them have positive cash flows, so they do not place anundue cash burden on government budgets, but there is usually a signifi-cant opportunity cost in retaining them under state ownership. Stateownership of a telecommunications operator has a long-term hiddencost, one that arises from biased regulatory and policy decisions

designed to protect the governments investment. Governments wouldbenefit by selling these operators both directly, through the revenuesgenerated by the privatization, and indirectly, through the increasedcompetition in the sector, resulting in higher tax revenues.

The public sector outside Africa is also a small but significant playerin telecommunications investment in the region. For example, the gov-ernment of Libya is directly investing in a number of operators in Africathrough a regional investment company. In addition, developmentfinance institutions have played a role in the development of the sectorthrough financing many telecommunications investment projects.

Traditional overseas development assistance, however, plays a very small



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Introduction 17

role in the sector and is mainly focused on technical assistance ratherthan investment.

Future Investment Needs

Since the end of the 1990s, both the scale of investment in telecom-munications and the speed of the networks growth have been remark-able. Mobile networks cover 90 percent of Africas urban population(94 percent if Ethiopia, the only large country in Africa that retains astate-owned monopoly, is excluded) and about half of the continents

rural population. Yet indications suggest that network coverage growthis slowing, and it is likely that some parts of the population live in areasin which mobile networks are not commercially viable. If this is the case,policy makers must ask themselves the following key questions: How farwill the private sector drive network expansion? How much subsidy, ifany, will be required to provide coverage to areas that would not other-wise be commercially viable?

The Cost of Providing Universal Voice CoverageIn the early stages of network growth in Africa, mobile operators con-centrated on urban areas for two reasons. First, more high-incomepeople live in cities and towns than in rural areas, so demand for serv-ices was higher there. Second, the high population density of urbanareas allowed operators to achieve economies of scale in building net-works, which translated into a lower average cost of providing mobileservices. Nevertheless, the combination of license obligations and com-petitive pressures soon drove operators to expand their networks tocover small towns and rural areas.

Operators continue to compete with one another to extend their

network coverage. It is unlikely, however, that network expansion willcontinue to cover 100 percent of Africas population. In some ruralareas, the population is so thinly distributed that it will be unprofitableto provide network coverage there for the foreseeable future. It is there-fore important for policy makers to know how far network coveragewill increase solely as a result of competition because this knowledgewill guide future decisions on license obligations and universal accesspolicies. By comparing the costs and the potential revenues of networkcoverage in each part of the region, one can develop an estimate of thefuture limit of network expansion. Expansion beyond this limit is likely

to require some form of subsidy.



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Recent developments in geographic information system technologyhave allowed a spatial analysis of the costs of network expansion and theassociated potential revenues. By dividing Sub-Saharan Africa into smallgeographical units and comparing the cost of building mobile networksin these areas with their potential to generate revenue, one can develop ageographic view of where networks are commercially viable and wherethey would need to be subsidized.

This analysis estimates that 92 percent of the population of Sub-Saharan Africa is living in areas that are potentially commercially viablefor mobile operators. The remaining 8 percent of the population lives in

areas that are unprofitable. The estimated cost of providing coverage tothese areas is just under $1 billion per year over nine years. For compari-son, that total is about 20 percent of the total investment expenditureover the past 10 years and would result in universal network coverage inthe continent.

Although the cost of providing universal network coverage does notappear to be excessive for Africa as a whole, this may not be the case forall countries. Countries in the region exhibit significant variation in theextent to which competition will drive network expansion and the levelof subsidy that will be required to provide universal coverage. For exam-ple, the very large, thinly populated countries in Africa such as theDemocratic Republic of Congo, Madagascar, and Zambia are likely tohave much larger coverage gaps (that is, the proportion of the populationliving in unprofitable areas) than the smaller countries. The cost of pro-viding universal coverage in these countries is therefore much greater.

The implications of this analysis are quite striking. The best way toachieve universal service is to encourage full liberalization and intensifiedcompetition, which will provide network coverage for more than90 percent of Africas population. Public subsidies or financial incentive

schemes are therefore needed to cover only the most rural or difficult-to-reach areas of the continent. Providing such subsidies will not becheap but, when compared with the total revenue generated by thesector, is feasible.

The Cost of Universal Broadband Internet CoverageBroadband Internet in most African countries has been limited to majorurban areas and to Internet cafs, businesses, and high-income residentialcustomers. Network coverage is limited, prices are high, and connectionspeeds are lower than in other regions of the world. This situation is

quickly changing, however, as operators and Internet service providers(ISPs) upgrade networks to provide wireless broadband services using 3G,



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Introduction 19

WiMAX, and other wireless broadband standards. It is also getting easierand cheaper for customers to access broadband Internet through hand-held devices (such as personal digital assistants [PDAs]) and externalwireless adapters for computers commonly referred to as dongles. Thesetechnological innovations, together with the introduction of prepaymentsystems, mean that broadband is now beginning to grow in Africa.

Sector policy makers face two key questions: How far will this processgo? Is wireless broadband commercially viable in Africa, and if so, will itextend beyond the major cities? To answer these questions, a modelingexercise was carried out. This is similar to that done for mobile voice

networks: The costs of expanding networks and associated potential rev-enues were compared on a geographical basis to understand how farmarket forces alone would drive network expansion.

A baseline scenario was used in which wireless broadband networksoffered a combination of personal and shared access to a relatively smallsubscriber base (1 percent broadband subscriber penetration in urbanareas and 0.25 percent in rural areas), but with the expectation that farmore people would be able to use the Internet at these shared facilities(such as Internet cafs) than actually subscribe for the service. This is thetype of demand scenario that is currently being envisaged by manyoperators and ISPs in the region and is therefore likely to reflect the real-ity on the ground over the next few years. Nevertheless, many countriesaspire to higher levels of Internet usage. An alternative scenario wastherefore modeled in which target penetration rates are higher. Suchlevels of usage cannot be sustained on a commercial basis for the foresee-able future, however, because broadband networks cost too much tobuild compared with the revenues that they are likely to generate. Thisscenario analysis is used to estimate the level of subsidy that would berequired to achieve these targets.

Under the first scenariolow penetration and shared accessbroadband wireless networks would be commercially viable for about75 percent of the population of Sub-Saharan Africa. This would be amajor increase from current network coverage levels and consistentwith forecasts from operators in the most advanced countries, such asKenya and Nigeria. Expanding the networks to cover 100 percent ofthe population would require an additional $648 million per year overan eight-year period.

A more ambitious objective of mass-market personalized broadbandaccess involves extending coverage into less commercially viable areas.

This would require much greater levels of investment and would not befinancially viable without extensive subsidies. With target broadband



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penetration rates of 20 percent in urban areas and 10 percent in ruralareas, which is comparable to current OECD broadband penetrationrates, the system would not be commercially viable even if subscriberswere willing to pay $10 per month for the service. A total subsidy ofabout $10 billion per year would be required to make such a scenariocommercially attractive to operators.

Broadband Internet is currently rare in Africa, but the advent of low-cost wireless broadband technologieson both the network and thecustomer sidehas brought wireless broadband within reach of much ofAfricas population. This analysis indicates that in the short to medium

term, the provision of wireless broadband services is commerciallyviable throughout much of the region. Still, at current costs andincome levels in Africa, replicating the commercial success of broad-band in high-income countries is unlikely to happen in the foreseeablefuture, unless governments are willing to provide financial support tothe rollout of broadband networks and subsidize their use.

Policy Analysis and Conclusions

Full and effective market liberalization and sound regulation have beenthe major drivers of the rapid expansion of telecommunications networksand services in Africa. Yet the region as a whole still has a long way to go,and many countries lag far behind the regions best performers. The firstkey policy priority is therefore to complete the reform agenda. This willdrive network expansion farther into rural areas and, at the same time,boost the development of more advanced segments of the market such asbroadband Internet.

Some parts of Africa are always likely to remain commercially unvi-able because of difficult physical terrain or low revenue potential. In

these areas, some form of direct incentive is likely to be required toachieve the regions policy objectives in the areas of basic voice andbroadband Internet. The policy recommendations arising from thisanalysis can be divided into these two broad categories: (1) completingthe reform agenda and (2) creating incentives for operators to meetevolving policy objectives.

Completing the Reform AgendaCompleting the reform agenda can be broken down into two parts: fullliberalization and effective regulation. Both steps are aimed at promoting

effective competition in the sector.



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Introduction 21

Effective market liberalization requires more than just issuing one ortwo mobile licenses. The liberalization process needs to go further anddeeper. Governments should consider issuing more than two licensescovering all segments of the market. The evidence from Africa is clearthat markets can sustain significant numbers of players in all segments.The licensing framework itself is also in need of reform. In particular,licensees should be free to invest and innovate in infrastructure andservice delivery. The imperative for this is further driven by the processof technological convergence that is breaking down the traditional linkbetween the network infrastructure and the service or services pro-

vided by it. The licensing framework needs to be reformed to matchthis evolution.

Even as markets have been liberalized, some governments have beenexerting tighter controls over international gateway facilities. The tempta-tion to do this should be avoided, because it is likely to decrease sectorgrowth as well as government revenue generated by the sector.

The final part of the liberalization path is the privatization of theremaining state-owned enterprises. Although these operators are typicallyminor players in the sector, with small market shares, the presence of onestate-owned operator generates a conflict of interest for the state, whichhas both a financial stake in its operators success as well as regulatoryresponsibility for developing effective competition in the sector.

The second pillar of the sector reform program is the establishment ofeffective regulation. Regulators play a central role in ensuring that sectorpolicy is implemented and that competition develops effectively. Manyaspects are found in improving regulatory performance. Most important,regulators need to be institutionally independent of government. This isachieved by guaranteeing independent financing for the regulatoryagency and having senior management appointed by the president, parlia-

ment, or a council of ministers rather than by sector management offi-cials. In addition, regulators need to have sufficient legal powers toimplement

africa's ict infrastructure

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