Kenya - role of the NRA

Is the Communication Commission of Kenya (CCK) Regulator Or Player?

CCK involvement in a multi-billion shilling fibre optic cable project is causing discomfort in the burgeoning telecommunication sector where it is mandated to play the role of watchdog, writes James Anyanzwa.

Riding on the back of the technology bubble that has swept across the globe, the country's telecommunication market regulator is torn between being a referee and a player.

What is at stake here is the vast business opportunities worth billions of shillings presented by the information technology boom.

As huge consumer demand and a need for continuous innovation that has seen upstarts secure a niche in this fast growing market, the Communication Commission of Kenya's (CCK) insatiable appetite has tempted it into real time business in contravention of its role as a regulator.

The current state of affairs has awkwardly placed it in a compromising situation owing to its involvement in the Sh6.5 billion The East Africa Marine System (Teams ) Ltd, a government-owned special purpose vehicle created to lay a fibre-optic sea cable connecting the East African region to the world's communications backbone.

But despite the clearly identifiable conflict of interest in the project, CCK's action is still seen as noble by some quarters that interpret it as perfect intervention that is designed to fast track the country's technological revolution.

But the question now being asked is if CCK had bitten off more than it could chew?

Already, concerns have emerged that CCK is frustrating a rival cable venture sponsored by Seacom from landing its cable at the Kenyan coast.

Seacom, a privately funded outfit, is 77 per cent African owned, including the Kenyan Government. It seeks to assist communication carriers in the South and East Africa through the sale of wholesale international capacity to global networks through India and Europe.

The row over landing rights puts Seacom on a collision course with CCK in addition to raising questions over the Government's involvement in two related projects.

The FS has reliably learnt that the industry regulator, among whose duties is to ensure free and fair play in the market for telecommunication services, has inexplicably introduced a new category of licence for fibre-optic sea cable developers.

The new licence, however, renders irrelevant an earlier one - Data Carrier Network Operator (DCNO) licence - already acquired by Seacom to carry out its business.

The CCK move is quickly raising eyebrows within the industry with market observers reading sinister motives geared to frustrating certain operators in the heavily competitive high-speed Internet market.

The decision could particularly prove to be a bitter pill for the high capacity bandwidth provider - Seacom - whose application for a DCNO licence, even if successful, may not grant it the much needed landing rights.

A cross-check by FS has, however, revealed that a section of the controversial DCNO licence read in part: "The licensed system comprises Satellite, Marine and/or Terrestrial telecommunication systems for the transmission and reception of data and video traffic from a point(s) in the Republic of Kenya to within or outside Kenya. In the case of use of satellite communication network, the Network Control Centre shall be situated in the Republic of Kenya."

Dr Bitange Ndemo, Permanent Secretary, Ministry of Information and Communication.

It is understood that this part of the provisions of the DCNO licence unequivocally allows the licensee (in this case Seacom) to construct, install, operate and own a licensed system comprising of satellite, marine and terrestrial telecommunication systems for the transmission and reception of data and video traffic from point(s) in the Republic of Kenya to within or outside Kenya.

However, although interpretations by the legal fraternity and industry players all point to the fact that the DCNO licence provides for landing rights, it is understood that the market regulator has recently come up with a contrary view.

CCK's new licence is said to be priced at a massive Sh62 million ($1 million).

This means under the new arrangements, Seacom will have to make fresh applications for its landing rights within the framework of the new class of licenses, exposing it to a loss of Sh16 million it already paid for its DCNO licence.

The mystery surrounding the new category of licences are yet to be explained, as it is also understood that they have never been gazetted and therefore the terms are unknown.

The urgency under which CCK rushed to introduce the new class of licences a couple of weeks ago has become a bone of contention, drawing serious concerns in the industry circles.

The sudden turn of events is set to spark off uncertainty over the planned provision of low cost Internet services in the country.

But when contacted for comment, CCK said it had not received any formal applications from any firm on landing rights.

"CCK has not received any request for landing rights from anyone, including Seacom," said Mr Mutua Muthusi, an assistant Director/Communication and Public Relations and personal assistant to CCK Director General, Mr John Waweru.

But efforts by FS to obtain comments from Seacom proved futile as the firm's officials were said to have flown out of the country.

As a result of the unfolding saga, speculation is rife that some insiders in the State-funded fibre-optic operator - Teams Ltd - are keen to delay progress of its rival, given that it remains to be a big threat to their vested interests.

FS has also reliably learnt that a senior official at CCK will be retiring from the organisation and is likely to take over the management of the Teams project, thus laying the foundation for what is expected to be a lucrative money-minting business.

The elaborate scheming could also be detected in the shareholding structure of Teams, which also comprises a number of unknown entities. Shares have been allotted to private companies in a manner that raises serious procurement issues, as there has been no tendering undertaken to auction the stakes.

Under the new procurement rules disposal of any public asset has to be through an open tender or auction.

"The issue is on what basis were people allotted shares in a government project without an open tender system," a source who declined to be mentioned due to the sensitivity of the matter told FS.

The regulator's foray in the business world became evident in January when Treasury authorised it to deposit Sh1 billion ($15.2 million) in an interest bearing account to kick start the Teams project.

The amount, Treasury says, should be built up with a monthly deposit of Sh100 million ($1.5 million) to guarantee Teams Ltd to borrow $60 million (Sh4 billion) to pay for the building and construction of the cable.

It's argued that CCK is holding the project in trust for local telecommunication operators who will be brought onboard once the projects take off.

The lion's share of the company has been allocated to Safaricom Ltd - a 20 per cent stake. In the second category are Econet Wireless Kenya Ltd, France Telecom, Kenya Data Networks, Wananchi Telecom Ltd and Telkom Kenya, with a 10 per cent each. Jamii Telecom has 3.75 per cent and Gilat Satcom 1.25 per cent.

The last category includes little known names - Equip Ltd (1.25 per cent) and Inhand Ltd (1.25 per cent).

However, the unusual request by Treasury has only helped complicate the role of CCK as both a regulator and a player, with observers accusing it of harbouring partisan interests.

It raised fundamental questions, more critically: Why is CCK guaranteeing the investment and whether this was consistent with its regulatory role in the telecommunication sector.

Ironically, part 111 of the Kenya Communications Act (No.2 of 1998) mandates CCK to inter alia, (a) maintain and protect effective competition between persons engaged in commercial activities connected with telecommunication services; and (b) encourage private investment in the telecommunication sector.

This means that CCK's mandate is to create a level playing field for sector players.

But guaranteeing investment in the Teams cable, CCK would until the expiry of the guarantee become a player in the submarine cable industry that has also attracted The East Africa Submarine System (EASSy) project co-owned by a number of telecommunication companies operating in Eastern Africa.

According to Dr Bitange Ndemo, Information and Communications PS, Teams Ltd, which has entered into an agreement with Alcatel-Lucent, the contractor of the cable, was registered under instructions from CCK.

In both instances, by posting the guarantee, CCK would be contravening its mandate as per the Communications Act.

Alcatel-Lucent won the tender to construct the 4,500 kilometres cable for $82 million. The cable is to connect the region with UAE through the Indian Ocean.

Seacom's investors include Industrial Promotion Services (26.25 per cent), an arm of the Aga Khan Fund for Economic Development, Venfin Limited (25 per cent), Herakles Telecom LLC (23.75 per cent), Convergence Partners (12.5 per cent) and Shanduka Group (12.5 per cent).

The system will provide African retail carriers with equal and open access to inexpensive bandwidth, removing the international infrastructure bottleneck and supporting East and South African economic growth.

The Internet market is expected to drive economic growth in Kenya and the region with the entry of three fibre optic submarine cables.

Seacom is seeking to become a full service provider of international fibre bandwidth along the East Coast of Africa to Southern Africa, Europe and Asia. It intends to provide high capacity bandwidth linking business and communities in these regions.

The company has already procured a nod to land its undersea cable in South Africa through a joint venture with a South African company - Noetel.

Teams project is considered to be less extensive compared to Seacom, which extends beyond Fujairah to Europe and India. It is therefore unlikely that the Teams project will be able to reduce bandwidth costs much lower than Seacom.

It is understood that Teams will be forced to buy onward capacities for its cable that ends at Fujairah, thus incurring additional costs that will have to be passed over to consumers.

Recent media reports attributed to Seacom indicate that the company was due to start rolling down its cable by August and that it would reduce bandwidth costs in the country by as much as 80 per cent.

The price for Internet connectivity remains high in Africa with most players paying up to $300 a month. The cost of doing business is anticipated will come down with the rollout of the undersea cables.

The Teams project promises to offer bandwidth at $500 per month per mega bit.

Apart from Seacom and Teams project, the EASSy project co-owned by a number of telecommunication companies in Eastern Africa states is also expected to lay an under sea cable running from South Africa to Sudan through Mozambique, Madagascar, Tanzania, Kenya, Somali and Djibouti.

The Kenya Government also plans to sponsor the Fibre Optic National Network (FONN) set to cover 4,300km by December.

Three companies have already been contracted by the Government to construct the FONN cable - French company, Sagem, will cover 1,800km running through North Eastern and the Coastal regions. Chinese company, Huawei, will construct 1,100km through central Kenya and ZTN, also Chinese, will lay about 1,400km covering between Nairobi, Isebania, Eldoret and Lokichoggio.