Chinese firm hopes to wire continent with same strategy that boosted Internet access across China

Source:Global Times Published: 2017/3/13 17:48:39

Connecting Africa


China has one of the highest Internet penetrations in the world, thanks to the country's efforts to rapidly build out its telecommunications infrastructure. Chinese companies hope to accomplish the same feat in Africa, where for years they have been pursuing the same strategy of building up telecom infrastructure and upgrading broadband networks. Hong Kong-based China Communications Services Corp has moved some of its business to Ethiopia as it attempts to tackle projects that major Chinese telecommunication companies like Huawei and ZTE could not accomplish, because they lacked supportive policies from the central government.

A man walks past a street-side cellphone vendor in Abidjan, Cote d'Ivoire, in April 2016. Photo: IC



While authorities in China have been upgrading telecom infrastructure, Hong Kong-based telecom services provider China Communications Services Corp (CCS), a major contractor for China's network backbone construction, is trying to copy and paste its business model to Africa by bringing in more local partners.

The main shareholders of CCS are China Telecom, China Mobile and China Unicom, the country's three major telecom carriers.

From 2016 to 2018, 1.2 trillion yuan ($173.73 billion) will be invested in building and upgrading telecom networks in Africa, including in network backbones, metropolitan networks and nationwide fixed-line broadband networks, according to a project outlined by the Ministry of Industry and Information Technology (MIIT) in December 2016.

Chinese companies have participated in 33 projects to build network backbone infrastructure. All together, the projects are worth 49.5 billion yuan.

The goal of China's "Eight Vertical and Eight Horizontal" plan for building network backbone infrastructure was to connect the country's provincial capitals. It was also the foundation of the country's long-distance telecommunication services.

From 1986 to 2000, nearly 80,000 kilometers of optical fiber was installed through 48 projects, according to a report by caixin.com on February 27. 

However, for the "Eight Vertical and Eight Horizontal" plan to work in Africa, it would require 200,000 kilometers of optical fiber to be installed in the 48 African countries participating in the plan, which will cover 82 large and medium-sized cities, said the report.

The company is now considering using the same name for the plan in Africa, said Si Furong, general manager of CCS.

Si noted that the company is now studying different situations in African countries to design networks that connect the countries.

Major Chinese State-owned telecommunication firms have shown interest in building telecom infrastructure in Africa.

For instance, through its 51.39 percent stake in CCS, China Telecom has been contracted to do the design and construction work.

Money from China

In April 2015, the CCS-initiated "Eight Vertical and Eight Horizontal" plan in Africa was encouraged by the China-proposed "One Belt and One Road" initiative. China welcomes African countries to participate in the initiative.

In December 2015, MIIT Vice Minister Liu Lihua and Zhao Houlin, secretary-general of the International Telecommunication Union and representatives from the East African Community signed a memorandum of understanding to build a broadband platform in East Africa called the information highway project.

Meanwhile, President Xi Jinping said during the Forum on China-Africa Cooperation in South Africa in December 2015 that the country will pump $60 billion into development projects on the continent, and telecom infrastructure was one key area of cooperation.

Thanks to those policies, CCS has been making headway on its plan in Africa. It has been reorganizing some of its affiliates in provinces such as South China's Guangdong, East China's Jiangsu and Zhejiang and Southwest China's Sichuan, to establish management firms to carry out projects in Africa.

However, Africa's outdated infrastructure posed challenges to the projects, said one employee involved in the design work, who preferred not to be identified.

Many countries depend on the undersea cables, and people need to access the undersea cables via CDMA (code division multiple access), which does not have a stable signal, according to the employee.

Among the five countries in East Africa, Kenya has the highest Internet penetration, with 45.6 percent, according to the World Bank. Internet penetration is 4.9 percent in Burundi and 5.4 percent in Tanzania, far below the global average of 44 percent.

In addition to the information highway project, China has also proposed building railways, highways and airline networks in Africa, which is "the right direction," said an expert from Standard Bank of South Africa, who refused to be named.

However, the expert noted that Chinese policy banks need to evaluate the profitability of these projects more rationally and carefully look into potential risks.

The "Eight Vertical and Eight Horizontal" optical fiber cable network is a good project, as the demand is significant, according to the expert. Meanwhile, establishing the backbone network will further stimulate demand for metropolitan area networks, which is a huge potential market.

Challenges in Africa

Foreign companies have also been rushing into the sector, which has ignited rising competition, said Si from CCS. Due to restrictions on overseas investment, the company has had to come up with designs in line with not only market demand but also China's policies.

Africa has an area of 30.3 million square kilometers. It is about three times the size of China. Consequently, the cost of connecting the continent is enormous. In Angola, it costs about $35,000 to lay one kilometer of fiber optic cable. At that price, it would cost an estimated $7 billion to lay the needed 200,000 kilometers of cable.

The business models for these projects also need more work, the expert said. Whether the major operator should be the network constructor and whether joint ventures should be established between operators in African countries are questions that still need to be tackled.

The expert noted that CCS could also set up a unified corporate structure, but the company has to spend time communicating with different African countries.  

CCS has moved part of its business from Hong Kong to Addis Ababa, capital of Ethiopia, to get closer to the market, Si noted.

"For example, our research center is now in Africa, and many of our employees have been sent there to work with local authorities," Si said.

The company is also seeking more business partners, including fiber optic cable manufacturers, machinery makers, fund investors and Internet companies.

Although other telecommunication services providers such as Huawei Technologies Co and ZTE Corp have been expanding their businesses in Africa for years, they lack the government support to advance projects like "Eight Vertical and Eight Horizontal."

Huawei had intended to install fiber optic cable on the continent, but it did not carry out any projects.

Compared to Huawei and ZTE, CCS could introduce more participants in the projects, which could be seen as a move to bring an entire value chain to Africa.

CCS's first cable project was in Ethiopia, with a total investment of $15 million. The company has since entered more markets, including Tanzania, Nigeria, South Africa and the Democratic Republic of the Congo.

The story is based on a report in the magazine Caixin Weekly. 

 

Posted in: INSIGHT

blog comments powered by Disqus