Why Safaricom Should Not Build its Own Fiber Network Now

Safaricom is set to announce the tender for a company which will build for it its own fiber network by early 2012. Safaricom has reached this decision as it grapples with problems of capacity as it controls a massive 95% of the Kenyan data market. Safaricom’s 3 year exclusive fiber capacity contract with Jamii Telecoms (JTL) – sister company to Kass FM- is expiring late 2012.

Rumour has it that Safaricom tried more than 3 times to bed JTL without much success. Safaricom is reported to had been sending feelers to JTL that it was able to fork out Ksh 4 Billion for full acquisition of the company. JTL wanted Ksh 10 Billion. JTL knows that it has a great advantage with or without Safaricom as one of its clients. First JTL now has all the market intelligence on what rates they can play with in the market to deliver even better than Safaricom.

In the September 2011 Safaricom half-year result, the company is spending more than 31% on network expansion. That is a strong indicator that Safaricom is not only serious with building its own network but is actually putting its money where its mouth is. I doubt if the 31% CAPEX should be assumed that its being spent on expanding voice capacity. I think that this risk has been spread out and Safaricom is going for the kill.

But hold your horses

Safaricom has an upper hand on marketing and support. JTL will need to build on that if they would want to go for the mass market like they have started doing. JTL was set to build FTTH (fiber to the home) but shelved the idea when Zuku took the idea up and immediately started implementing it. Most of the ISPs believe that only the affluent parts of Nairobi already covered by Zuku can buy the FTTH idea. They are ignoring the Zimmerman, Buru Buru, Ngummo, Kahawa Sukari and all other middle class estates all over Kenya.

Safaricom is now grappling with capacity issues. I tell you that I would strongly want Safaricom to shed some of its clients. 95% market-share is both dangerous to other competitors and Safaricom itself. It is now even worse that Safaricom has deployed superior 3G networks of up to 21 Mbps in some areas while in reality does the clients even achieve rates of 2 Mbps. Why promise 21 Mbps when you can’t deliver even half of that? The best thing for Safaricom would be to better the network, improve on delivery to new clients and simply shed clients who ride on the network but adds no value.

On the issue of fiber network, I believe that Safaricom must strive to acquire JTL, Frontier Networks or Soliton Telmec. Soliton and JTL have great infrastructure while even on many instances we Frontier networks rely on them for deployment. Safaricom is very safe with JTL and would need only a minor boost to have a strong footing for a data brawl. Going for Soliton Telmec should be a last resort while Frontier Networks would just save Safaricom one year or two worth of work on developing the network.

Analysts believe that Safaricom would need close to 4 years to deploy an effective fiber network in place. This means that Safaricom is probably going to sign another 3 year contract with JTL to continue riding on the network. Now the deal might not be exclusive unless JTL will have to transfer all the clients they are already bringing on fold under the Safaricom management.

Safaricom would not have to go through the trouble of deploying its own network were the people behind the National Optical Fibre Backbone Infrastructure (NOFBI) so focused in delivering this great national resource. First the NOFBI was being managed by Telkom Kenya. The operators avoided the NOFBI because Telkom is a competitor and nobody wanted to go to a competitor to beg for a slice of what in actual fact the competitor does not own. So the operators called on the Kenyan government to have an independent entity manage the infrastructure.

The Ministry decided to behave like the politicians do and called on the stakeholders to appoint a committee to manage the resource. The problem is that the committee members are themselves owners of ISPs who in turn own shares in companies which have a stake in provisioning services similar to the NOFBI. What I am actually saying is that the committee can do nothing but sabotage the progress of having the NOFBI cake well shared. It will remain a white Elephant as long as people with crooked interests are left to manage the resource.

You remember this promotion of 100Mbps fiber links to homes? Safaricom cancelled that and will also not be doing the WiMax connections to homes and business premises any more. Safaricom was not getting enough returns on the WiMax business as the uptake remained low. Safaricom believes that in most instances, the last mile uptake is still mobile and that is why the mobile router and dongles will be Safaricom main sell for the time being.

Safaricom must really rethink this idea of building their own fiber network. The company must focus on an acquisition though I know that with an expected yearly profit of Ksh 10 Billion, Safaricom will not look to pay that to a company like JTL. I also believe that the latter is too ambitious for its worth. Still Safaricom has a way in the market. It has just not explored its options well enough.