In 2019, the World Bank estimated that it would cost US $100 billion to achieve broadband access for all in Africa. While efforts to understand the cost of connectivity investment are noble, they have the unfortunate side effect of making one think of the challenge as a monolithic problem; that it is simply a question of underwriting the cost of infrastructure investment so that existing operators can deliver service everywhere. This narrative is supported by the biggest network operators who are at pains to point out that they are the only ones with the economies of scale to deliver affordable access to all.
This used to be true. Twenty years ago a network operator in Africa had to solve every aspect of the telecommunications value chain — from international access via undersea cable (realistically satellite then), to national backhaul communication routes, local access networks, handsets, agent networks, the list goes on. All of that has changed. By 2023, Sub-Saharan African countries alone will be served by more than 20 undersea fibre optic cables. This is now complemented by more than a million kilometres of terrestrial fibre deployed across the continent.
Understanding fibre optic technology is fundamental to understanding the challenge of affordable access. Fibre optic infrastructure is qualitatively different from other access technologies in two important respects. The first is its sheer capacity. Fibre optic networks can carry orders of magnitude greater capacity than any other access technology. The image below (courtesy of Meta) does a great job of illustrating the difference. The practical impact is that fibre is what the economists call a non-rival good; that is to say, that consumption by one operator does not inhibit consumption by another operator.
The second important characteristic of fibre is its longevity. A well-installed terrestrial fibre optic network can last 20 to 25 years. Contrast this with wireless technologies whose lifespan is often less than 5 years. Many fibre optic networks can often be affordably upgraded by replacing the terminating equipment with upgraded signal processing technology. The impact is that, when treated as a long term investment, fibre can often deliver the cheapest, fastest, most durable broadband in the world.
But let’s come back to the issue of fibre as a non-rival good. This feature of fibre networks has the potential to transform competition in telecommunications markets. Standardised, low-cost wholesale fibre access could unlock potential for small-scale operators to deliver competitive local services, whether through a commercial ISP, a cooperative, a community network or a municipal government. There is no longer any reason for telecommunication operators to be national in scope.
A New Metaphor
The impact of this disaggregation of telecommunication infrastructure is profound. I believe it is what will ultimately enable affordable access to internet for all. Now why would that be?
I like to explain this through the metaphor of trying to fill a glass jar with stones. This is a concept that developed in discussion with my colleagues Peter Bloom and Erick Huerta a few years ago. Erick had been influenced by the work of Fernand Braudel, a French economic historian. Braudel argued that we don’t live in a single economy but rather two, a global economy and a local economy. The global economy is capitalism in its raw form as embodied by massive transnational corporations and in which the endgame for participants is complete control of the market or monopoly. We see the global economy every day through omnipresent brands from Amazon to Shell to MTN. At the same time, though, we also all live and participate in local economies served by a wide variety of local enterprises that comprise a vast array of local businesses from grocers to butchers to tradespeople. The list is endless. The endgame for these local entrepreneurs is not monopoly but simply thriving local business.
And indeed, the local economy goes beyond commercial enterprise to include other business models from cooperatives to non-profits to informal arrangements among local groups. While no small business on its own makes a noticeable contribution to GDP, taken in aggregate, some countries report that SMMEs are responsible for as much as 50% of GDP.
Now back to our jar of stones. We can look at the telecom sector in a new way through the use of a simple metaphor. If you try to fill a glass Mason jar with roughly fist-sized stones, you can fit a few of them in there but not very many. The jar looks full of stones but if you fill that jar with water, the water still takes up more than 50% of the volume. It’s true, I’ve tried. I think this is a great way of understanding the telecommunications industry as we see it in 2023.
Twenty-five years of privatisation and liberalisation in the telecom sector have revealed the reality that most countries cannot sustain more than 3 or 4 national operators. Some countries struggle to maintain that many. Yet the problem of connecting the almost half of the world that remains without affordable access to the internet persists. On the face of it, it does seem unlikely that the business model of a one-size-fits-all national operator may not be optimal for service delivery in challenging markets and regions. Not to mention the fact that the nimble nature of small businesses means that they are often better placed to innovate new services and delivery mechanisms to meet challenging environments.
Now that fibre optic backbone networks have unlocked the potential for multiple local operators, it is time lower the all the barriers to small-scale operators entering the market. You can think of this as filling the jar with smaller stones that are uniquely shaped to fit the different empty spaces in the jar. Note that making space for these new stones doesn’t reduce the size of the large stones. Rather they grow the volume of stones or the market. Thanks to network effects, the growth of the market will benefit large operators as well.
While I have focused on the market-enabling nature of fibre optic networks above, they alone are not enough to unlock the potential of small-scale operators. For that to happen, small-scale operators need to be embraced by governments, by regulators, and by investors as having the potential to collectively play as strategic a role in delivering affordable access as national operators do.
There are a number of things that have to change in order for this to happen.
Independent regulation of the telecommunication sector emerged in response to the privatisation of formerly state-owned telecommunication operators and the liberalisation of the market which allowed new national market entrants. Understandably, these large scale operators have commanded the attention of regulators, leading to rules and regulations geared towards the compliance of large corporations. Small-scale operators have often struggled to operate within this environment, faced with fees and administrative burdens that were disproportionate to their size and to the often-fledgling nature of their enterprises. When we plant seedlings in a garden, we clear space for them and protect them until they have had a chance to put down roots. We need to adopt a similar philosophy with small-scale operators when it comes to regulatory oversight. This is not heresy. It is exactly what government SMME programs have been doing for years, just not in the telecom sector.
Access to investment funding for small-scale operators is also a huge challenge. Their potential is often not well-understood by investors. They also may not be offered the right kind of funding. Venture Capital (VC) funding for small-scale operators, for example, may be exactly the opposite of what they need. Because they are in the local economy not the global economy, VC expectations of scale create perverse incentives for growth at the expense of adapting business models more specifically to local conditions. Happily, investors like Connectivity Capital are challenging that status quo by offering investment that encourages stable growth.
And it is not just commercial small-business that needs investment. Community-owned network infrastructure ranging from blazing fast fibre optic infrastructure in northern England to rural wireless cooperatives in the Eastern Cape of South Africa can provide alternative business models for internet access that are well-suited to the communities / markets they serve. Unfortunately it is often the case that where funding for small-scale operators is available, community-owned networks, which can range from non-profits to cooperatives to municipal networks, are excluded because they don’t fit the traditional commercial operator model.
Access to Spectrum
With local business models for access must come localised access to radio spectrum. Small-scale operators often depend on unlicensed WiFi spectrum to be able to deliver services but limitations in power output and limited amounts of license-exempt spectrum mean that they are not the ideal fit for some access challenges. We need to unlock more spectrum for local access using both license-exempt and licensed frameworks for access.
Last but by no means least, we must come back to fibre optic networks. It is not enough to build a million plus kilometres of fibre across the continent, it must be put to use. Terrestrial fibre optic networks are typically significantly underutilised due to lack of affordability, especially in rural areas. It is ironic that the remote areas that most need affordable access are the most expensive regions in which to access fibre backhaul. Typically, the further away you are from a landing station or a capital city, the more expensive your fibre access. It doesn’t have to be this way. If we are to unlock the potential of small-scale operators and, in doing so, unlock affordable access for all (filling that jar of stones), we need to both lower and flatten the cost of wholesale access to fibre optic networks.
Filling the Jar
So the next time someone talks to you about improving market competition in the telecom sector, tell them about the game of stones. I am willing to bet you will have a more interesting conversation than you might otherwise have had. Ask how small-scale operators might be empowered to deliver services. Not only can they deliver innovative business models to provide access in underserved regions but they can also nip at the heels of the incumbents, spurring them on to better and cheaper services.