annex 2 eacp overview of preliminary feasibility study

8/8/2019 Annex 2 EACP Overview of Preliminary Feasibility Study

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2004-01-31

East AfricanCarrier Project

Preliminary

Feasibility Study

EAST AFRICAN COMMUNITYSECRETARIAT

Elias BahandaAnders Engvall

Annex 2


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2

Present State of Telecom-

munications in EAC CountriesEAC commissioned a communications strategystudy for Lake Victoria Basin, which identifiedthat the SERI OUS I SSUEof inadequate capacityand inefficient operation* of the regionaltelecommunications network, is resulting in

Bottlenecks and constraints for regional economic development

Reduced interest in regional investments due to inadequatetelecommunications services

* E.g. some transmission equipment of the incumbent operators has longpassed its economic life time, congestion is high and speech quality poor


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Privatisation and Liberalisation? Have successfully contributed to the spectacular

growth of the sector with large investments, but

? Have had a detrimental effect on regional co-

operation and cross-border transmission projects, dueto:

? Entrance of new operators in the Partner States

? Focus on domestic priorities

? Monopoly Licensing restricts freedom of action for new

power centres? Present situation poses a t hreat t o the economic

and social co-operat ion in the Lake Victoria Basin


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Side-effects of Competition? Has created an atmosphere of distrust in the

telecommunications sector

?

Has reduced the frequency of activities forregional co-operation programmes in thesector

? Specifically, the liberalization has resulted inEAC inter-regional traffic being routed viasatellite even in cases where transmissioncapacity is available across borders


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Identified #1 Priority of

the EAC Strategy Study

Solve the regional traffic restrictions by

establishing a regional backbone network (the

Carrier Project) by? Involving all stakeholders including the new mobile

operators and regulators

? Focusing upon small projects with immediate benefitsto the stakeholders, like direct interconnection

between mobile operators including cross-borderinterconnections for regional traffic


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Recent EAC Actions? The key recommendations of the Strategy

Study were agreed upon and adopted by theEAC Secretariat for implementation

?A pre-feasibility study was embarked upon todefine the investment needs and establish thefinancial viability of the Carrier Project

? The Communications Commissions of eachEAC country is jointly studying the legalimplications of the recommendations


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Methodology for

Pre-feasibility StudyThe Regional Operators and all threeCommunications Commissions were visited to:

?

Explain the objectives of - and to explore eachoperators interest in participating in - the proposedCarrier Project

? Find out the lay-out and capacity of existing andplanned transmission networks and demand forregional circuits

? Discuss the legal implications of the proposed CarrierProject


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Operator and Regulator

Interest

XDi rTA NZantel

TA N

TA N

TA N

TA N

TA N

KEN

KEN

KEN

KEN

UGA

UGA

UGA

UGA

Country

XActing CEOTCRA

XCEOTTCL

XCEOMobitel

X*CEOCeltel (MSI)

XDi rVodacom

XCEOCCK

XCEOTK L

XDi rKencell

X*Di rSafaricom

XCEOUCC

XDi rUTL (Telcel)

XDi rCeltel (MSI)

XDi rM TN

ScepticalPassive SupportActive SupportLevel MetOrganization

* Subject to no objection by their shareholders


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Operators Views? One fixed line monopoly holder was reserved

towards the proposed Carrier Company

(infringement on the monopoly)

? All mobile operators were strongly supportive tothe idea, but:

? They were questioning the likelihood of the threeCommunications Commissions being able to agree on ajoint licensing for all three countries

? Safaricom and Celtel (Tz Ltd.) felt constrained in activelysupporting the idea due to being owned by KTL andTTCL respectively


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Regulators Views? All three Communications Commissions were very

positive towards the proposal of a Regional CarrierCompany and did not see any legal obstacles

? Since fixed line monopolies are expiring in June2004 for Kenya and February 2005 for Tanzania,they felt that the proposal of the Carrier Companywas very timely

? A joint licensing mechanism for the three EACcountries would need to be established since there

is no EAC licensing authority? Licensing policy would need to be agreed

(e.g. auction or beauty contest)


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Availability of Transmission

Capacity? The Mission got confirmation that some mobile operators

have spare capacity (even if not fully equipped with radio)on individually owned transmission links, but not legallyavailable due to present licensing conditions

? Mobile operators in Kenya and Tanzania have been allowedby the regulators to build their own transmission links in lieuof provision by the fixed line monopoly carriers

? Uganda has two combined fixed mobile operators, both ofwhich have their own backbone network

? The Mission identified three microwave links, which could be

built to establish a high-capacity regional transport networkand be ready in a short time span and at modest costs


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Project ProposalSince Kenya-Uganda links are becoming

available, the following three microwave linkswere identified for establishing a regionalbackbone network:

? Mombasa Tanga (five sites, four hops)

? Arusha Nairobi (six sites, five hops)

? Masaka Bukoba (minimum three sites, but to

Mwanza maximum 12 sites, 11 hops)


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Estimated Project Costs

Low-cost Alternative

? 1.8 million*

? Making maximum use of existinginfrastructure

High-cost Alternative

?

5.2 million*

* Includes 10% contingency


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Deployment of Capacity(at full utilization in 2009)

36 E1 Circuits*Masaka - Bukoba Mwanza

10 E1 Circuits Arusha Nairobi

56 E1 Circuits*Mombasa Tanga

* Includes 16 E1 for one34 Mb/s TV channel


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Key Assumptions for

Viability Calculations? Traffic estimates have been made prorate in

relation to present number of subscribers (June2003)

?

Base traffic have been available from a few EACoperators only, but have been deemedrepresentative and used in the extrapolations

? Annual growth rates were estimated at 10%annually for voice and 10% - 50 % for data (froma very low initial level)

? Conservative revenue stream used at only sixyears (alternative fiber replacements will becomeavailable)


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Financial Viability(expressed as Internal Financial Rate of Return)

Low-cost Alternative

? Kenya Tanzania Links 41 % IRR

? Tanzania Uganda Link 96 % IRR

? Total P roject 53 % IRR

High-cost Alternative

? Kenya Tanzania Links 25 % IRR

? Tanzania Uganda Link 18 % IRR

? Total P roject 23 % IRR


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Sensitivity Analysis

17%45%OPEX increased by 50%

4%27%CAPEX increased by 50%

6%20%Rentals reduced by 50% butRevenue Stream 10 years

-8%9%Leased line rental reduced by

50%

High-CostIRR

Low-CostIRR

Parameter Change


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Non-financial Benefits? Will improve the spirit of EAC regional co-

operation since the venture would be owned andoperated by the regional stakeholders

? Will remove bottlenecks, stimulate regional trafficand drive tariffs down

? Will enable the establishment of a regional datanetwork, reducing the dependence on expensivesatellite links

?

Will provide the back-haul network that isessential for the East African Submarine Cableproject to materialize


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Implementation Issues? A full feasibility study should be carried out and

include:? A detailed lay-out of a Regional Transmission Backbone

Network? Study of the switching issues including switching

interconnect points between operators

? A consortium of the regional operators needs to beformed to commit to and bring the Carrier Projectforward

? The licensing process needs to be monitored forrapid progress


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Conclusion of the Pre-feasibility

Study for the Carrier Company

The shown strong viability of the CarrierCompany gives the EAC the opportunity

of rapidly improving regional telecom-munications services, greatly benefitingthe economies of the Partner States inaddition to getting a much better

utilization of existing infrastructure

annex 2 eacp overview of preliminary feasibility study

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