Fibre Feudalism
Rapidly growing demand for broadband is changing the landscape of African telecommunications infrastructure. This change has been enabled by the spread of both undersea and terrestrial fibre optic infrastructure, as well as the proliferation of low-cost smartphones, which can deliver broadband through either 3G/4G services or WiFi. In this new world, two critical choke-points emerge as key barriers to the growth of broadband on the continent. One is access to wireless spectrum through which last mile services can be delivered and the second is access to fibre optic backbones. I’ll deal with the former in a future post but in this article I want to concentrate on fibre backbones and the critical role they play in enabling a future where everyone has affordable access to high-speed internet.
The impact of the arrival of high-capacity undersea fibre cables to the continent in 2009 cannot be overstated. It is as significant a technological change as the introduction of mobile networks back in 1994. The mobile revolution was easy to recognise. Everywhere you went, you saw someone with a phone; the impact was right before your eyes. Fibre optic infrastructure, on the other hand, is harder to recognise because most of it is invisible to the casual observer. Yet the impact is profound. There is a direct causal link between the arrival of undersea cables to the development of what is now hundreds of thousands of kilometres of terrestrial fibre optic backbones across the continent, and from that to the rapid spread of Fibre To The Home (FTTH) services in African cities.
This infrastructure enables existing operators to deliver mobile broadband services more effectively and scalably to their customers but, perhaps more importantly, it also enables a whole new generation of service providers from FTTH operators to WiFi network operators to new market entrants with licensed spectrum. The relatively infinite capacity of these fibre optic cables means that they are what economists refer to as a non-rival asset, that is to say that use of the capacity by one operator in no way affects or impedes the use of it by another. On any modern fibre infrastructure there is enough room for all players using all the capacity they can for the foreseeable future without encroaching on each other. And should more capacity be necessary, fibre is also relatively inexpensive to upgrade compared to other kinds of telecommunication infrastructure, often only requiring the equipment lighting the fibre to be upgraded at the termination points.
Sadly this picture of digital abundance does not reflect the current reality. What exists now is an artificial scarcity created by fibre optic network owners that bears some resemblance to medieval feudalism. Those who own fibre network infrastructure use it to extract high rents from those who don’t own any. If you are a broadband service provider and you don’t own fibre infrastructure, you are completely at the mercy of your upstream fibre backbone provider who, because there are few backbones where there are multiple fibre routes, is at liberty to charge whatever the market will bear for access. As the cost of last mile technology (whether wireless or FTTH) steadily decreases, the cost of backhaul becomes the critical cost factor for small and even large service providers.
Yet by owning even a modest amount of fibre infrastructure, the game changes. Fibre network operators routinely engage in capacity swaps with other fibre operators. Operator A owns an FTTH network in a small city. Operator B owns a backhaul network in the same country. Operator B would like access to Operator A’s customers and Operator A would like backhaul capacity to the coast or beyond. A deal is done. Or Operator C owns capacity on one international submarine cable and Operator D on another. A capacity swap is arranged so that both operators now have redundant international fibre connections. Each operator can share the capacity without it affecting their own capacity requirements.
These capacity swaps are happening everywhere where fibre exists on the continent. I liken this to medieval aristocracy marrying off their sons and daughters into other aristocratic families in order to strengthen their hold on their titles. For those who don’t own fibre, they are the serfs and vassals who may toil as hard as they may but ultimately serve at the pleasure of whoever provides their upstream capacity. The metaphor isn’t by any means perfect but it is a powerful illustration of what I believe to be a fundamental roadblock to broadband development.
I think we can all agree that feudalism was not the system of governance that best serves the majority. But how did we get here? In broad strokes there are privately-owned networks and state-owned networks. The majority of privately-owned networks belong to the large network operators like MTN, Orange, Vodafone, Airtel, and others. They engage in this feudalistic approach because this has been their standard approach for many years. They seek to exclude others from the market. For many years this has been through actively inhibiting the release of wireless spectrum to anyone but themselves but more recently, where new operators have gotten around the wireless spectrum barrier by using unlicensed spectrum or by building FTTH networks, it has been through extracting high rents for access to their fibre networks. A recent report by Xalam Analytics, highlights this very issue.
“…fibre infrastructure is not only a source of competitive advantage for Tier-1 MNOs; it’s a potent weapon to drive smaller providers out of business, by keeping their fibre input costs high, while slashing average revenue.” ~Xalam Analytics
For state-owned networks, prices remain high for two reasons. One, the government has usually borrowed a large amount of money to build the network. Sadly this may often be several times what they should have paid for the network due to vendor influence and a lack of technical expertise on their side to back them up during negotiations. Whichever the case, governments are usually keen to get rid of the debt burden and thus not averse to matching the private sector in the high prices they charge. The second reason is that any attempt to reduce prices below what the private sector is charging is likely to be met with legal challenges from private operators charging that the government is undermining their sustainability.
This thinking by both governments and the private sector is bad news for broadband development on the continent. There is a need to stop thinking about fibre optic networks as commodities in which the market price is determined by controlling supply and demand and to start thinking about fibre in the same way that we think about roads, railways, shipping ports, that is to say as infrastructure. The strategic goal of infrastructure is not to derive economic benefit from the asset itself but to generate economic benefit by maximising the use of the asset. The more drivers we have on roads, the more economic activity is generated. It is true that toll roads exist but the reason for their existence is typically related to managing congestion and, as pointed out earlier, fibre optic networks are unlikely to suffer from this problem.
How do we get to a fibre infrastructure driven utopia? How do we escape from the feudalistic system we have found ourselves in? I have previously proposed a strategy for state-owned networks that would see part of the network sold off to a consortium of smaller operators. I remain convinced that, for many countries, this is exactly the strategy that should be pursued.
For privately-owned networks, I have a different proposal. In Mexico, as part of their license, satellite operators are required to donate a percentage of their capacity to the Mexican government, on the condition that it is used for security, public safety, universal service, public sites or other official uses. Universal service is the key phrase there. What if governments gave operators the choice of contributing to a universal service fund or making some small percentage of their fibre capacity available to universal service activities. This could be a game changer for community networks and small-scale operators wishing to provide access in underserved areas. This would have limitations as there is a catch-22 that underserved areas are unlikely to be served by fibre but microwave networks can extend fibre access by hundreds of kilometres.
Of course this does beg the question of financing. If the cost of access to fibre is lowered, operators may argue that they will not earn a sufficient return to justify investment in fibre networks. There are a few sides to this issue. One is the economics of scarcity vs the economics of abundance. High fibre costs restrict the number of people willing to pay for access. Low fibre costs are likely to drive up volume where existing purchasers simply increase their volume without increasing their costs and new market entrants become new purchasers of capacity because the lower costs enables their business models. There is a kind of prisoner’s dilemma with fibre at the moment where operators choose to undermine each other rather than acting in the collective interest so that everyone wins. In some cases, layer separation, where fibre networks are restricted to the provision of wholesale-only services may improve the situation. There is some evidence that wholesale fibre initiatives like CSquared (formerly Project Link) are having this kind of impact in the greater Kampala region in Uganda but the situation is less optimistic looking at the wholesale network built by Korea Telecom in Rwanda on behalf of the government. It seems clear that there is little point in implementing a wholesale network strategy without having a clear strategy for addressing the pricing of the network.
One strategy might be to have a state-owned wholesale network always match the very lowest price from the private sector in the most competitive part of the country. For example, if the best price for fibre capacity from Nairobi to Mombasa is $5/Mbps, then the state-owned, National Optic Fibre Backbone (NOFBI) network must offer capacity anywhere on its network at $5/Mbps. A similar situation in Uganda where the best price on capacity from Kampala to Entebbe must be matched everywhere on the government’s National Backbone Infrastructure (NBI) network. This would have a catalytic effect on service delivery to underserved regions.
Perhaps the most interesting and radical notion would to treat fibre backhaul networks as a “common pool resource” based on the principals of the commons articulated by Nobel laureate Elinor Ostrom. Under such a system, fibre network owners that join a common pool resource agreement, consent to give up ownership of the asset to the commons but are compensated in an ongoing manner in proportion to its use and maintenance costs. Each network that joins the commons, gains access to the entire network and increases its size and scope. Ensuring that all members of the commons contribute and/or are compensated fairly for their contribution requires careful rules and accounting but the result is something that delivers maximum fibre capacity to all at the lowest possible cost. Guifi.net in the Catalunya region of Spain operates a growing FTTH fibre optic network as a wholesale, common pool resource that now serves over 5000 households.
One way or another, there is a critical need to unlock the vast capacity lying dormant in most fibre infrastructure across the continent if African countries are to realise their full digital potential in connecting everyone to affordable broadband.
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I am grateful to my colleagues from Rhizomatica for invaluable feedback that improved this. Any errors are all mine.
Originally published at https://manypossibilities.net/2018/10/fibre-feudalism/
