EAST AFRICAN COMMUNITY Annex 2

SECRETARIAT

East African
Carrier Project

Preliminary
Feasibility Study

Elias Bahanda
Anders Engvall
2004-01-31
 Present State of Telecom-
munications in EAC Countries
EAC commissioned a communications strategy
study for Lake Victoria Basin, which identified
that the SERIOUS ISSUE of inadequate capacity
and inefficient operation* of the regional
telecommunications network, is resulting in
• Bottlenecks and constraints for regional economic development
• Reduced interest in regional investments due to inadequate
telecommunications services

*E.g. some transmission equipment of the incumbent operators has long

passed 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, due
to:
? 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 threat to the economic
and social co-operation 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 for
regional co-operation programmes in the
sector
? Specifically, the liberalization has resulted in
EAC inter-regional traffic being routed via
satellite even in cases where transmission
capacity 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 benefits
to the stakeholders, like direct interconnection
between mobile operators including cross-border
interconnections for regional traffic

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Recent EAC Actions
? The key recommendations of the Strategy
Study were agreed upon and adopted by the
EAC Secretariat for implementation
? A pre-feasibility study was embarked upon to
define the investment needs and establish the
financial viability of the Carrier Project
? The Communications Commissions of each
EAC country is jointly studying the legal
implications of the recommendations
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 Methodology for
Pre-feasibility Study
The Regional Operators and all three
Communications Commissions were visited to:
? Explain the objectives of - and to explore each
operator’s interest in participating in - the proposed
Carrier Project
? Find out the lay-out and capacity of existing and
planned transmission networks and demand for
regional circuits
? Discuss the legal implications of the proposed Carrier
Project

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 Operator and Regulator
Interest
Organization Country Level Met Active Support Passive Support Sceptical
MTN UGA Dir X
Celtel (MSI) UGA Dir X
UTL (Telcel) UGA Dir X
UCC UGA CEO X
Safaricom KEN Dir X*
Kencell KEN Dir X

TKL KEN CEO X

CCK KEN CEO X
Vodacom TAN Dir X
Celtel (MSI) TAN CEO X*
Mobitel TAN CEO X
Zantel TAN Dir X
TTCL TAN CEO X
TCRA TAN Acting CEO X

* 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 to
the idea, but:
? They were questioning the likelihood of the three
Communications Commissions being able to agree on a
joint licensing for all three countries
? Safaricom and Celtel (Tz Ltd.) felt constrained in actively
supporting the idea due to being owned by KTL and
TTCL respectively

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Regulators’ Views
? All three Communications Commissions were very
positive towards the proposal of a Regional Carrier
Company and did not see any legal obstacles
? Since fixed line monopolies are expiring in June
2004 for Kenya and February 2005 for Tanzania,
they felt that the proposal of the Carrier Company
was very timely
? A joint licensing mechanism for the three EAC
countries 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 legally
available due to present licensing conditions
? Mobile operators in Kenya and Tanzania have been allowed
by the regulators to build their own transmission links in lieu
of provision by the fixed line monopoly carriers
? Uganda has two combined fixed mobile operators, both of
which have their own backbone network
? The Mission identified three microwave links, which could be
built to establish a high-capacity regional transport network
and be ready in a short time span and at modest costs

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Project Proposal
Since Kenya-Uganda links are becoming
available, the following three microwave links
were identified for establishing a regional
backbone 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 existing
infrastructure
High-cost Alternative
? € 5.2 million*

* Includes 10% contingency

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 Deployment of Capacity
(at full utilization in 2009)

Mombasa – Tanga 56 E1 Circuits*

Arusha – Nairobi 10 E1 Circuits

Masaka - Bukoba – Mwanza 36 E1 Circuits*

*Includes 16 E1 for one

34 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 (June
2003)
? Base traffic have been available from a few EAC
operators only, but have been deemed
representative and used in the extrapolations
? Annual growth rates were estimated at 10%
annually for voice and 10% - 50 % for data (from
a very low initial level)
? Conservative revenue stream used at only six
years (alternative fiber replacements will become
available)
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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 Project 53 % IRR
High-cost Alternative
? Kenya – Tanzania Links 25 % IRR
? Tanzania – Uganda Link 18 % IRR
? Total Project 23 % IRR

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 Sensitivity Analysis
Low-Cost High-Cost
Parameter Change
IRR IRR
Leased line rental reduced by
9% -8%
50%
Rentals reduced by 50% but
20% 6%
Revenue Stream 10 years
CAPEX increased by 50% 27% 4%

OPEX increased by 50% 45% 17%

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Non-financial Benefits
? Will improve the spirit of EAC regional co-
operation since the venture would be owned and
operated by the regional stakeholders
? Will remove bottlenecks, stimulate regional traffic
and drive tariffs down
? Will enable the establishment of a regional data
network, reducing the dependence on expensive
satellite links
? Will provide the back-haul network that is
essential for the East African Submarine Cable
project 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 be
formed to commit to and bring the Carrier Project
forward
? The licensing process needs to be monitored for
rapid progress

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Conclusion of the Pre-feasibility
Study for the Carrier Company

The shown strong viability of the Carrier

Company gives the EAC the opportunity
of rapidly improving regional telecom-
munications services, greatly benefiting
the economies of the Partner States in
addition to getting a much better
utilization of existing infrastructure

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