Safaricom to lay its own optic cable

Monday November 12 2012

PHOTO | GIDEON MAUNDU Safaricom says it will from January lay its own fibre optic cable to cut renting costs.

PHOTO | GIDEON MAUNDU Safaricom says it will from January lay its own fibre optic cable to cut renting costs. NATION MEDIA GROUP

By CHARLES WOKABI [email protected]

Safaricom will start laying its own terrestrial fibre network in January next year.

The telecoms firm, which last week announced a 94 per cent jump in after-tax profit to Sh7.8 billion for the first half of the year, said it has awarded the tender to roll out the expansive network to Ericsson and Huawei in order to cut the cost of renting other providers’ infrastructure.

“We will commit Sh2.1 billion annually over the next three to five years to the project with the aim of covering the whole country within that period. Both companies are expected to cover at least 530 kilometres per year,” Safaricom CEO Bob Collymore told Smart Company.

The two firms will use the remaining part of the year to acquire way leaves and other required licences.

Coming after about six years of buying fibre optic capacity from Kenya Data Network, Jamii Telecom and the National Fibre Backbone, the Sh10 billion project is seen as a late realisation that the firm should have laid its own network a few years ago when its competitors were doing so.

“We should have started earlier than this especially because we had the financial capability. Entrusting all our capacity on leased infrastructure is no longer reliable and quality is not assured. With this project, we want to ensure our customers get quality data services,” said Mr Collymore.

He noted the price of data will also fall although the effect will not be felt immediately. Apart from the modem and handset data bundles, subscription prices from Safaricom data services are relatively higher than those of competitors at the moment.

Initially, the firm chose to rent other providers’ infrastructure to deliver services but that plan has become expensive as the price of renting fibre has remained high.

As a result, its enterprise unit was unable to mount stiff competition against other Internet Service Providers, say, Wananchi Group and Access Kenya, falling short of the firm’s target to raise Sh100 billion in revenues from data services.

Instead of laying its own fibre, the telecom, even with its big financial muscle, opted to lease infrastructure for all its traffic. Frustrations from providers may have prompted it to lay its own cables.

The decision to rent was largely informed by the willingness by Jamii Telecom Limited (JTL) to hire its country-wide fibre network that covers all major towns. Given that JTL was only playing in the wholesale market, it was a good deal for the telecoms.

Several years down the line, JTL introduced retail products encroaching on the operation realm of Safaricom as a competitor. This put the latter in a tricky position because, being a tenant of JTL, it has to pay rent and keep its profit margin resulting to a higher retail price than its competitors.

Safaricom and JTL had initiated joint fibre projects to homes especially in upmarket areas such as Karen but with each pursuing similar but independent projects it was hard for them to sustain a profitable relationship.

“It doesn’t make sense that I am competing with Telkom Kenya and JTL and at the same time I am paying rent for occupying their cables,” said Mr Collymore.