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DE RUEHDR #0585/01 2470448
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R 040448Z SEP 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 8830
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHNR/AMEMBASSY NAIROBI 1363
RUEHKM/AMEMBASSY KAMPALA 3491
RUEHLGB/AMEMBASSY KIGALI 1417
RUEHJB/AMEMBASSY BUJUMBURA 2955
RUEHBJ/AMEMBASSY BEIJING 0359
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS SECTION 01 OF 04 DAR ES SALAAM 000585
SENSITIVE
SIPDIS
AF/E FOR JTREADWELL
COMMERCE FOR BECKY ERKUL
STATE PASS USAID, USTR, USTDA
E.O. 12958: N/A
TAGS: ECON ECPS EINT ETTC PGOV TZ
SUBJECT: STIFLED POTENTIAL: FIBER-OPTIC CABLE LANDS IN
TANZANIA
1. (SBU) SUMMARY AND COMMENT: The landing of the Seacom
undersea fiber-optic cable presents Tanzania with significant
opportunities for making voice traffic and data connections
less expensive and more reliable. With proper management,
this cable could be transformative for Tanzania across the
development landscape. However, current trends point toward
near-monopolistic control of this critical resource by
telecoms parastatal TTCL, likely choking off the potential
benefit of the cable (and others to follow). Despite years of
notice, GOT preparations - both regulatory and for
infrastructure - have been inadequate. In addition to proper
regulation, significant investments in data infrastructure are
needed at a national level before the benefits of the cable
can be fully realized, both for private investors and the
Tanzanian people. The current situation points to an
increasing divide between Dar es Salaam and the rest of the
country and is a further example of Tanzania lagging behind
its neighbors in planning for economic development. END
SUMMARY AND COMMENT.
Background
----------
2. (U) Prior to the arrival of the Seacom cable on July 23,
the east coast of Africa was the longest populated coastline
on earth without access to a fiber-optic cable. The vast
majority of international communications in Tanzania flow out
via satellite. Without access to a terrestrial network,
providers have been paying USD 3000-6000 a month for a one
megabit satellite connection. Compare this to about USD 50
per month for the same capacity on a terrestrial network in
most of the developed world.
3. (U) Seacom, a private consortium, marketed itself by
claiming its broadband prices would be 80 percent lower than
those being charged in the region, and that its business model
of open investment into its landing stations would achieve
"open access" pricing without complicated regulatory and
policy frameworks.
4. (U) Seacom is the first of three fiber-optic cables landing
in East Africa. With access to a high capacity fiber-optic
cable, providers expect current prices to halve, and drop even
further with the landings of the subsequent cables. The East
African Marine System (TEAMS) cable, spearheaded by the Kenyan
Government in partnership with UAE's Etisalat, has landed in
Mombasa, but is not yet live. The East African Submarine Cable
System, or EASSy, an initiative of the World Bank and the
African Development Bank, is planned for completion in June
2010.
No Magic Bullet
---------------
5. (SBU) Bringing the Seacom cable to Dar es Salaam was only
the first step. Now, Tanzania faces the challenge of
distributing this capacity around the country. The only
provider currently wired into the Seacom Silver Sands beach
landing site is the ailing telecoms parastatal TTCL (Tanzania
Telecommunication Company Ltd.), which extends the fiber
capacity into its Dar es Salaam station. Seacom will permit
other providers to connect, but at a prohibitively steep
price; Seacom requires a reported minimum payment of USD 4-5
million to secure a 20-year lease for direct access to the
cable, with an additional USD 56,000 annually for maintenance.
(Note: Seacom refuses to publicly confirm these prices and
requires each lessee to sign a non-disclosure agreement, but
multiple operators, including TTCL, have confirmed the figures
to us. End Note) Though ISPs have been anticipating the
landing of the Seacom cable for years now, and many have the
wherewithal to build their own terrestrial networks, progress
has been slow because of bureaucratic, regulatory and policy
hurdles.
6. (U) In addition, many ISPs had little faith the cable would
be completed on schedule, and therefore signed long term
contracts with satellite providers and invested in satellite
equipment. Prices likely won't drop until the satellite
contracts expire and operators can recoup those costs. There
are also technological and business re-engineering steps
needed to adjust from a satellite to a fiber model. A month
DAR ES SAL 00000585 002 OF 004
after the cable went live, and after years of expectation,
only three, relatively small, private companies - Satcom, Raha
and Simbanet - had leased fiber capacity from TTCL. Currently
one Zanzibar ISP (Zanlink) is connected, and one national
cellco, Zain.
7. (U) As a silver lining for consumers, ISPs agree that while
prices will likely remain near current levels in the short to
medium term due to infrastructure costs, quality of service
will improve drastically, because of the faster and more
reliable connectivity provided by the fiber.
Monopoly Control
----------------
8. (SBU) The GOT owns the largest existing terrestrial fiber-
optic network (extending to Morogoro, Tanga, Arusha and
Mwanza), built by parastatal power company TANESCO, the
Tanzania-Zambia Railway Authority (TAZARA), Tanzania Railway
Corporation (TRC), TTCL and Songosongo Gas Supply (SONGAS).
In June, the head of ICT for the Ministry of Communication,
Science, and Technology stated the government would "regulate"
the Seacom cable in order to "make sure that prices go down."
However operators report TTCL is charging USD 130,000 per year
for STM-1 access to their connecting infrastructure (compared
with USD 4800 per year in Kenya, or USD 7-10,000 per month for
a T1 connection (compared with USD 1500 in the US). TTCL's
CEO and senior management team declined to confirm their rates
to Econoff, saying only that their prices will be
"affordable," in order to encourage users to leverage existing
infrastructure rather than building redundant networks. End
user prices, about USD 100 per month for a basic connection
with a 2GB download limit, have not yet dropped significantly.
9. (SBU) Reportedly, the Ministry of Communications rebuffed
an offer by a consortium of private and non-profit players
involved in EASSy to build a fiber optic backbone and provide
the GOT with free access. The Ministry made a public
statement to the effect that while it was nice of the private
sector to want to get involved, the government had things
under control. (However, the Deputy Permanent Secretary in
the Ministry of Communications, Patrick Makungu, recently told
Econoff that GOT "has no agenda against full private sector
participation.") There is one limited private alternative, the
cable TV incumbent CTV, which laid its own fiber LAN network
in 1999. CTV service now extends to Morogoro, Dodoma, Mbeya
and Tanga. CTV charges other providers USD 42000 per year for
STM-1 capacity. The opportunity for this business was an
unexpected stroke of luck; CTV had no plans to be a carrier,
but filled a gap when it became clear Tanesco and TTCL were
slow to supply the market demand for fiber infrastructure.
10. (SBU) Control of the fiber infrastructure was granted to
TTCL by presidential order. Yet TTCL has been slow to make
investments in expanding the national fiber infrastructure.
In 2007, TTCL contracted China International
Telecommunications Company (CITCC) to build a national ICT
backbone. (NOTE: USTDA and the World Bank have estimated that
the CITCC offer (about USD 170 million) was inflated by about
20 percent. According to a number of sources, the 20 percent
cost overrun seems to have been part of the project design, to
accommodate certain rent-seeking activities by GOT officials.
The Chinese government itself is financing this project with a
concessionary loan to the GOT. END NOTE.) The GOT recently
announced that the 10,000 km National Backbone Infrastructure
Project will enable fiber-optic technology to reach all
regions by June 2010 and all districts by the end of 2011.
However, this projection is wildly optimistic, since CITCC has
barely broken ground.
11. (SBU) Private companies that want to build infrastructure
face significant challenges in securing right-of-way licenses.
According to ISP sources, Zantel, an ISP majority-owned by
UAE's Etisalat, reportedly received a permit from TANROADS,
only to have it revoked by the Ministry of Communications as
"contrary to the national telecom policy."
12. (U) The CEO of the Tanzania Investment Center (TIC),
Emmanuel Ole Naiko, said at a recent regional infrastructure
conference that he "believes the private sector should be
DAR ES SAL 00000585 003 OF 004
encouraged to take part" in building infrastructure. The
Director General of the Tanzanian Communications Regulatory
Authority (TCRA), John Nkomo, emphasized that the resounding
success of the Tanzanian mobile sector was due to competition.
He highlighted the problem of right-of-way permission in
delaying the development of crucial IT infrastructure. Both
Nkomo and Ole Naiko, who has been quoted in the press recently
sounding the alarm against creeping GOT "re-nationalizations,"
publicly urged the Ministry of Communications representative
at the conference to take up the issue of right-of-way permits
with the Permanent Secretary and the Minister. For its part,
TTCL asserts that handing out permits to private operators
would result in "chaos," and would need a high level of
coordination at the local and national levels.
The Future
----------
13. (U) TTCL management is in flux during this critical stage.
SaskTel, a Canadian telecommunications company that had
managed TTCL since 2007, ended its management agreement in
June after a dispute with the government. At a time when a
coherent broadband strategy is crucial, the consequences of
this shake-up are further hindering progress. Private ISPs
complain TTCL is unreasonable to work with and that simple
decisions are constantly delayed. Interim TTCL CEO Said Amir
Said was quoted in a local daily on August 10 as saying that
TTCL has hired a consultancy firm to draw up a new business
plan and that the company is seeking loans from two Chinese
banks and a local bank to finance its operations and purchase
Chinese equipment.
14. (U) Competition between cable operators should be a key
factor in pushing costs down and driving broadband
penetration, especially with the arrival of the new undersea
cables. Connection to TEAMS will have to wait until the
national backbone reaches the Kenyan border at Namanga and
Horohoro. Because of its World Bank funding, the EASSy cable
may come with greater requirements for universal access.
However, unless the other cables extend further inland than
Seacom, the GOT will likely assume a similar level of control.
A private ISP owner told Econoff that while Seacom is "like a
dream" because the cable itself is a private venture with no
government influence, the uncertainty created by TTCL's slow
decision-making and action in connecting providers is "killing
the industry." He was grateful that TTCL was "just
incompetent and slow" and didn't seem to be competing for
profit.
15. (U) Given the current landscape, many providers will
likely avoid TTCL's unreliability and high prices by setting
up their own point-to-point relay systems using microwave and
wireless technologies. Tanzania's cell phone industry is
highly competitive, and mobile carriers will play an important
role in selling capacity to customers using their 3G networks.
3.5G networks are already in service, though with limited
geographic coverage, and sufficient bandwidth (30 MHz of
spectrum each) has been allocated for Wimax, which can handle
larger amounts of data. Though not as fast as fiber, these
wireless connections will have the advantage of avoiding
right-of-way licenses and of relatively safety from vandalism
or damage.
16. (SBU) Controlling third party access to the Seacom fiber
while selling data services to customers is a significant
conflict of interest for TTCL. Due to TTCL's bloated
bureaucracy and slowness to adapt, private ISPs would prefer
TTCL limit itself to being a wholesale "carrier of carriers."
Telecom regulator Nkomo candidly stated that "TTCL cannot
compete" with private providers and that its "service is
terrible."
17. (SBU) Funding is available to support the spread of the
internet in Tanzania. The World Bank has committed USD 100m
through its Regional Communications Infrastructure Program for
last-mile initiatives, e-government and capacity-building.
However, even some Bank officials are skeptical of the GOT's
anti-competitive approach to internet access. A recent Bank
report noted a correlation between increased broadband
penetration and GDP growth; Tanzania appears unlikely to take
DAR ES SAL 00000585 004 OF 004
advantage.
18. (SBU) Tanzania's East African Community partners were much
better prepared for the arrival of the broadband cables;
Kenya, Uganda, and Rwanda are leaving Tanzania far behind by
building numerous publicly and privately funded
terrestrial fiber networks at national and municipal levels.
Several industry sources say that Rwanda's President Kagame is
pressuring Kikwete to hurry up the building of
Tanzania's backbone so that his tiny landlocked country can
gain access. At the recent infrastructure conference, TIC's
Ole Naiko stated: "I hope the government and private sector
will increase investment so surrounding landlocked countries
can connect."
ANDRE