By Matthew Reed

East Africa currently has no submarine cable connections to the rest of the world, and as a result all international Internet connectivity in the region depends on expensive satellite services.

Kenyan ISP Flashcom is paying US$2,400 per Mbps for bandwidth while its peers in India, which is better served by cables, pay only US$10 per Mbps, said Flashcom’s CEO Joe Kimani at the East Africa Com conference organized by Informa Telecoms & Media in the Kenyan capital Nairobi at the beginning of this month.

But the shortage of international connectivity in East Africa is about to be redressed, with three new submarine cables scheduled to land on the East African coast in the near future. The TEAMS and SEACOM cables are due to land in East Africa later this year and the EASSy cable will follow in 2010. West Africa will also get three new undersea cables soon: GLO-1, MainOne and WACS.

The additional capacity provided by these cables should substantially increase the availability of bandwidth, allowing operators to offer cheaper and better Internet connectivity and other data services. Flashcom, for example, could upgrade its CDMA-based network with the faster EV-DO technology. Flashcom should also be able to offer keener prices and should expect its subscription numbers to rise as a result.

Fixed-line incumbent Telkom Kenya, which is now controlled by France Telecom, is also banking on the arrival of the new cables, particularly the TEAMS cable, which is backed mainly by Kenyan investors. Telkom Kenya has a 20% stake in the TEAMS Kenya consortium that holds an 85% stake in the cable project. Etisalat of the UAE is the major non-Kenyan investor, with a 15% stake in the cable. Flashcom has a 1.25% stake in TEAMS Kenya.

Telkom Kenya’s strategy is based on convergence, and it aims to be “the first and only integrated telecoms operator in the Kenyan market”, said Deputy CEO Peter Reinartz at East Africa Com. Telkom Kenya, which launched Kenya’s third GSM network in 3Q08, also offers fixed wireless and fixed wireless services.

Telkom Kenya will implement the first part of its convergent strategy in 2009 and the company’s full converged offering will be in place in 2010, said Reinartz. There are a number of aspects to convergence at Telkom Kenya, including improved customer service and the introduction of unified tariffs across its different platforms. But the availability of more bandwidth is also important to Telkom Kenya’s convergence strategy, as it plans to introduce new data services such as IP-VPN for the business market in 2009. New data services for the residential market will follow in 2010.

Telkom Kenya will also sell international bandwidth on a wholesale basis to other operators in Kenya and the wider East Africa region. For the region as a whole to benefit from the new submarine cables it is essential that the development does not stop at the shoreline. Terrestrial cabling is also needed to extend the links to the interior, including landlocked countries such as Uganda, Rwanda and Burundi.

In the meantime, there is already plenty of drama in the Kenyan market. No. 2 mobile operator Zain – formerly Celtel – Kenya has been rejuvenated over the past year under a new MD and brand and is competing aggressively on price with market-leader Safaricom. Telkom Kenya launched its Orange Kenya mobile network in September and Econet Wireless Kenya launched the country’s fourth GSM network, yu, in November. As is common in Africa, many users have SIM cards for two or more networks.

Safaricom still dominates the Kenyan mobile market with 13.13 million subscriptions and a market-share of about 77.5% at end-2008, according to research by Informa Telecoms & Media. Safaricom’s M-Pesa money-transfer service has become an integral part of the lives of many Kenyans, which makes it a valuable customer retention tool for the company. However, Zain has launched its own mobile-money service, Zap. Zain charges a flat fee of KES10 (US$0.13) for Zap transactions, whereas Safaricom charges KES30 for transfers to another registered M-Pesa user, and KES75-400 (depending on the size of the sum transferred) for transfers to recipients who are not registered with M-Pesa. Zap may offer a price advantage over M-Pesa, but that may not be sufficient to overcome M-Pesa’s dominance of the money-transfer market.

There has been speculation that MTN might take over the yu network, which has yet to gain traction in the Kenyan market. But India’s Essar group, which controls yu, renamed the local holding company Essar Wireless Kenya in an apparent move to assert its ownership and continued commitment to the operation. Essar has also reached a network-sharing agreement with Zain Kenya that could give yu some momentum.

Less happily for some Zain Kenya employees, 141 of them were made redundant at end-March. The company said this was the result of a group-wide strategy to cut operating costs through a range of efficiency measures including outsourcing and the centralisation of some activities, rather than a response to the international financial crisis. But there may be more pain to come at other Zain operations.