1. 1 Commercial Visibility of Rural Telecoms By: Eng. Ibrahim Eisa El-BAIGAWI, Manager of Projects Department, Sudatel, Sudan Tel: + 249 1 83 77 63 99 Fax: + 249 1 83 78 50 27 Cell: +249 9 12 30 32 01 E-mail: elbaigawi@sudatel.net or ibrahimeisa@hotmail.com Regional Workshop on “ Visibility of Rural Connectivity ” “ Visibility of Rural Connectivity ” Khartoum –Sudan 05 - 07 September 2004

2. 2 Major Points: 1.Abstract 2.Definition of Rural Areas/ Telecoms 3.Rural Communications in Africa 4.CAPEX and OPEX of Rural Telecom in Sudan 5.Marketing of Rural Telecoms 6.Resources for Telecom Business 7.Revenues and ARPU’s 8.Analysis of Commercial Viability 9.Conclusion and remarks 10.References

3. 3 1.0 Abstract (1) 1.0 Abstract (1): Over 75 % of the people in the third world live in the rural areas. The rural areas where those people live suffer from the lack of almost all kinds of infrastructures (roads, rails, electricity,. and ICT). As a human right, all the mankind should have an access to the ICT. In fact almost every one need an access to the voice/ telephone, data and Internet services and the relevant applications. The rural areas need the ICT services no matter what the cost is.

4. 4 1.0 Abstract (2) 1.0 Abstract (2): The ICT is mandatory vehicle for the socio-economic development. The investment cost of the rural networks is reasonably higher than that of a traditional network. The revenues from a telecom business in the rural areas are fairly low due to the poverty and lack of the affordability. In spite of these facts, there are some rural areas in the world who have shown remarkable commercial viability and business attractiveness. This paper will try to explore the rural telecom business and to proof its viability in some areas of the world (e.g. Sudan).

5. 5 2.0 Definition of Rural Areas/ Telecoms (1) 2.0 Definition of Rural Areas/ Telecoms (1): Urban, Su-Urban, Rural, Remote Isolated Areas Rural areas are the areas in which people life is more difficult due to lack of infrastructures. Rural areas have small number of inhabitants the residents and business buildings if any are in wide spread In the rural areas power/ electricity is either not available or unstable.

6. 6 2.0 Definition of Rural Areas/ Telecoms (2) 2.0 Definition of Rural Areas/ Telecoms (2): In the remote isolated areas there are very low levels of economic that makes the telecom services not affordable Rural areas are the areas that in bad need for economic, social, cultural development (walk 10 km to access service) Rural areas can disturb the stability of the urban areas and disorder the socio-economic structure if not treated well by development

7. 7 2.0 Definition of Rural Areas/ Telecoms (3) 2.0 Definition of Rural Areas/ Telecoms (3): Rural Telecom System can be: Wireless Local Loop (WLL) systems Satellite systems Small switches Vsat + WLL Rural Telecom Technologies can be: TDMA based CDMA based GMPC, Vsat GSM

8. 8 2.0 Definition of Rural Areas/ Telecoms (4) 2.0 Definition of Rural Areas/ Telecoms (4): Pros and cons of each standard in each geographical area type DECTPHSGSMProprietary WLL Analogue WLL CDMAVsat Urban XXXXX Suburban XXXXX Flat high- usage XXXX Flat low- usage XX Clustered high-usage XXX Clustered low-usage X Source: Analysis

9. 9 2.0 Definition of Rural Areas/ Telecoms (5) 2.0 Definition of Rural Areas/ Telecoms (5): Different technologies have coverage –specific cost structures Source: Analysis TDMA-most effective in dense rural and urban areas Fixed cellular-cost-effective for urban and certain rural areas CDMA-best in high-density suburban/ flat areas Satellite-appropriate for remote isolated areas ‘’’

10. 10 2.0 Definition of Rural Areas/ Telecoms (5) 2.0 Definition of Rural Areas/ Telecoms (5): Example of cost characteristic curve Source: Analysis Decreasing subscriber density Cost per access line Wire line access Wireless access

11. 11 2.0 Definition of Rural Areas/ Telecoms (6) 2.0 Definition of Rural Areas/ Telecoms (6): Spectrum is becoming more valuable Source: Analysis In rural areas spectrum is not an issue, but closer to urban areas it can become of value. Spectrum is now seen as a national asset Technology choice is driven by the spectrum (range coverage) Spectrum is limited by existing users

12. 12 2.0 Definition of Rural Areas/ Telecoms (7) 2.0 Definition of Rural Areas/ Telecoms (7): Rural Telecom Manufacturers include many like: Qualcomm, ZTE, Huawei, L3,…. (CDMA) SR Telecom, NEC, Intracom, Alcatel..etc (TDMA) Ericsson, Motorola, …(GSM)

13. 13 3.0 Rural Communications in Africa (1) 3.0 Rural Communications in Africa (1): Mitland Report”The Missing Link” PROMISES (Nairobi 1982, ITU conference, committee report 1984) …. Telecom growth & Economic progress. The Universal-Service (Every individual have telephone Access) The Universal-Access (Those who can access a phone) The access to the Internet is a human right Digital-Divide (Gaps to Telecommunications and to the Information services, ICT)

14. 14 3.0 Rural Communications in Africa (2) 3.0 Rural Communications in Africa (2): RegionWLL Lines 1998 WLL Lines 2003 East Africa6 %16 % West Africa31 %27 % Central Africa0 % Southern Africa43 %12 % South Africa20 %45 % Source: Pyramid Research estimates WLL in Africa:

15. 15 3.0 Rural Communications in Africa (3) 3.0 Rural Communications in Africa (3): RegionWLL Lines 1998 WLL Lines 2003 East Africa6300232900 West Africa32190402810 Central Africa4004527 Southern Africa43160183860 South Africa21000658202 Source: Pyramid Research estimates WLL in Africa:

16. 16 Rural Communications in Sudan Rural Communications in Sudan: Source: Core Planning Division 1995-2004 “Penetration: fixed line around 4 %, Rural around 0.16 %”

17. 17 الشبكات الريفية العاملة الدويم المناقل مدني دوكة الجنينة كسلا الدمازين كنانة عطبرة هيا وادى حلفا دنقلا بورسودان الخرطوم الابيض واو نيالا سنار ملكال بابنوسة مروى جوبا الفاشر زالنجى المجلد الرنك سواكن سنجة الحفير كوستى القضارف الشبكات المخططة في 2004 م حلفا الجديدة مواقع الشبكات الريفية 1.بور تسودان. 2.كسلا و أروما. 3.القضارف. 4.حلفا الجديدة. 5.الفــــــاو. 6.وسط الجزيرة. 7.شمال الجزيرة. 8.المناقــــل. 9.الدمازين. 10.النيل الأزرق. 11.النيل الأبيض. 12.الأبيض. 13.بـــــارا. 14.هجليج. 15.شــندى. 16.دنقـــلا. 17.كريمة. 18.المدن الثلاثة(عطبرة-أبو حمد – الدبة ). 19.الخرطوم الكبرى. بارا كريمة هجليج

18. 18 1.1. VSAT Project 1 (STM Wireless)- 8 Remote Terminals. 2.VSAT PROJECT 2 ( DAEWOO Telecom ) –30 Remote Terminals. 3.VSAT PROJECT 3 (STM Networks) 220 Remote Terminals (Phase 1 ). The Vsat Networks of Sudatel

19. 19 VSAT Projects 1& 2- Network Architecture ARABSAT 2B @ 30.5° East LEGEND VSAT 1 Remote Terminal Main Hub VSAT 2 Remotes

20. 20 VSAT Project 3 – Network plan Satellite Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Fibre Optic Cable

21. 21 الدويم المناقل مدني دوكة كسلا الدمازين كوستي عطبرة هيا النهود وادى حلفا دنقلا بور تسودان واو نيالا ملكال بابنوسة مروى الفاشر زالنجى المجلد الرنك سنجة الحفير سنار أرقين أبو زبد القطينة أنجمينا راجا طوكرالخرطوم الابيض الرهد بور جوبا الجنينة كاد قلى Existing Optical Fiber To Saudi Arabia Sea Cable (SE-ME-WE 3) Existing Microwave Link القضارف To Egypt Under Implementation Optical Fiber Planned Optical Fiber To Ethiopia (Microwave Link) VSAT Terminal(Sample) Optical Fiber Links Details Local Network = 396,178 Km National Network = 5,723.68 Km Total Fiber Length= 6,127 Km (2003) Planned Fiber Length=630 Km (2004) Sudosat Earth Station(Sample) Legend Source:Core Planning Division

22. 22 Annual Increase in Vsat & Sudosat stations (Sudatel) NetworkTotal Satellite Channels Remote stations 2003 Remote stations 2004 Total Remotes EOY 04 Rate of Increase Vsat38 62120163 % Sudosat8093664217 %

23. 23 4.0 Capex and Opex of Rural Telecoms (1) 4.0 Capex and Opex of Rural Telecoms (1): The financial evaluation process is complex: Business plans must analyze all factors equally and business models should be able to determine which factor most sensitive to change. Evaluation includes: Demand, population density, coverage, equipment cost, regulatory framework, traffic, spectrum availability, Regulatory framework affects three economic variables: spectrum availability, traffic & coverage.

24. 24 4.0 Capex and Opex of Rural Telecoms(2) 4.0 Capex and Opex of Rural Telecoms(2): Reasonably high investment cost: Fixed line cost: ($100 for switch line+ $250 for OSP= $350) Rural line cost: ($ 400 for equipment+ $250 for OSP= $650) Rural line needs towers and solar power which increases the investment cost. Reasonably high operational cost: The long distances between the stations make it more expensive to maintain the system. Cost-effective solutions: Technology is driving towards reduced prices and cost-effective solutions..

25. 25 4.0 Capex and Opex of Rural Telecoms(3) 4.0 Capex and Opex of Rural Telecoms(3): Installed capital costs are much more than sometimes quoted: Switch, transmission, access system, buildings, power Full operating costs are probably 25 % of capital cost per year: depreciation 8-15 % depending on technology admin,marketing, operation & maintenance 10-15 %. finance 4-5 % Cost: General Rules

26. 26 4.0 Capex and Opex of Rural Telecoms(4) 4.0 Capex and Opex of Rural Telecoms(4): Cellular and fixed cellular few $00’s to $1000 + user: No. of customers within cell area PMP & WLL (usally well over $ 1000): Distance to economic hub or network switch Size of villages Distribution clustering of demand Power requirements Vsat & fixed MS S ($ 3-5000 +): Mesh or star (traffic pattern) Supporting terrestrial network required Power Traffic & space segment Cost: Break Points

27. 27 5.0 Marketing of Rural Telecoms (1) 5.0 Marketing of Rural Telecoms (1): Key Business Case Issues: Market & Demand –Users, revenues, traffic pattern & growth Supply Choices: –Technology, capital cost, operating cost, changes over time. Regulation: –Tariffs, inter-connection & obligations. Finance & Funding: –Equity, loans & Special funds.

28. 28 5.0 Marketing of Rural Telecoms (2) 5.0 Marketing of Rural Telecoms (2): Key Business Case Issues: Market & Demand –Users, revenues, traffic pattern & growth Supply Choices: –Technology, capital cost, operating cost, changes over time. Regulation: –Tariffs, inter-connection & obligations. Finance & Funding: –Equity, loans & Special funds. Source: www.inteleconResearch.com

29. 29 5.0 Marketing of Rural Telecoms (3) 5.0 Marketing of Rural Telecoms (3): Market Demand: Composite affordability in rural areas Local economies & communities spend 1-3 % of their income on the telephone (African average 1.8- 2.0 %). Institutions and business Payphones and phone shops serving the populace Private homes Access or market strategy? First few access lines in a village may attract large proportion of total potential demand. Rapidly declining revenues per line with penetration Telephone affordability and cumulative average revenue decrease with household penetration.

30. 30 Voice Data Traffic 2000 Data traffic overtaking Voice, leading to significant shift in Telecom Strategies Voice Data Revenues 2000 However, voice-related revenues will still be dominant for some time Source: Gartner Group Market Drivers Today’s Facts

31. 31 Demand is for the POTS as well as for the data communications, multimedia services and the Internet. Demand is for the POTS as well as for the data communications, multimedia services and the Internet. Universal access to information services is not a luxury for developing countries not regard as a priority (Digital Divide).Universal access to information services is not a luxury for developing countries not regard as a priority (Digital Divide). Internet uses:Internet uses: Business: emerging global networked business infrastructure and knowledge-based economies, new business techniques and advanced information technologies.Business: emerging global networked business infrastructure and knowledge-based economies, new business techniques and advanced information technologies. Education: distance learning & training, > 100 million documents exist on line.Education: distance learning & training, > 100 million documents exist on line. Healthcare:Telemedicine, consultation with expertsHealthcare:Telemedicine, consultation with experts Demand structure

32. 32 January 1999 WORLD TOTAL : 153.25 million 2.6 %) USA & Canada: 87 million Europe: 33.39 million Asia/ Pacific: 26.55 million South America: 4.5 million Africa: 1.14 million Of which South Africa between 850000 & 9000000 “There is no parallel with the access to the Internet” Internet users on line

33. 33 Elasticities important but : Total affordability & cost is the starting point for rural.Total affordability & cost is the starting point for rural. Affordability for total bill per line must meet operator’s commercial objectives.Affordability for total bill per line must meet operator’s commercial objectives. Elasticity changes with income, situation, tariff elementElasticity changes with income, situation, tariff element Tariff elements :Tariff elements : Call charges need to encourage usage by populace. Assume e.g. elasticity of –0.5.Call charges need to encourage usage by populace. Assume e.g. elasticity of –0.5. Installation fee should be set according to realistic roll-out targets and stage of development – can contribute to the “community valuation” & operators costsInstallation fee should be set according to realistic roll-out targets and stage of development – can contribute to the “community valuation” & operators costs Rentals should be cost based & affordable to target customers- institutions & business first.Rentals should be cost based & affordable to target customers- institutions & business first.. Tariffs/ Pricing

34. 34 Revenue sharing : % split between originating & terminating operator.% split between originating & terminating operator. How much long for distance portion.How much long for distance portion. Recognition of small/ rural operator’s high cost & riskRecognition of small/ rural operator’s high cost & risk Access charge : Based on long run marginal costs per minute of use.Based on long run marginal costs per minute of use. Universal access element.Universal access element. Incoming outgoing : Can impact rural operator’s financial performance.Can impact rural operator’s financial performance. Interconnection

35. 35 5.0 Marketing of Rural Telecoms (4) 5.0 Marketing of Rural Telecoms (4): Market Scenarios: PlayersMarkets InvestorsGreenfield area Established TO’sUSO/ capacity enjancment New operatorsCopper replacement Equipment suppliersNew competitive service launch Community-financed initiatives Payphone franchise Pre-paid

36. 36 6.0 Resources for Rural Telecom Business 6.0 Resources for Rural Telecom Business: Marketing: conduct feasibility study and careful business case to avoid risks and ensure revenues Set up a proper pricing strategy Set up a proper collection strategy Technical: select high quality, reliable, cost-effective solution/ equipment or systems. Set up proper maintenance procedures Select systems of open standards that matches with the future networks (NGN) Manpower: well trained for market analysis, radio planning, project implementation and network operation. Support & Logistics: Make available the vehicles for transportation for maintenance.

37. 37 Money spent on Telecoms CountryNationalRural/ village Malaysia2.3 %1.3 % Peru1.2 %1.5 % Botswana1.6 %1.3 % Tanzania2.1 %1.9 % Zimbabwe1.9 %1.3 % For year 1992 Source: Intelecon % of community income spent on telecoms 7.0 Revenues and ARPU’s (1) 7.0 Revenues and ARPU’s (1):

38. 38 7.0 Revenues and ARPU’s (2) 7.0 Revenues and ARPU’s (2): Rural ARPU per month: 2135 SDD= $ 8.2 Overall ARPU per month: 4054 SDD= $ 16 In Greater Khartoum: Rural ARPU= 74 % to residential & 27 % to business area. Rural ARPU= 72 % to residential & 27 % to the business (for Overall network). Lessons from Sudatel:

39. 39 Region Current RPU (SDD) Total subscribers in the waiting list for 2005 Remarks Rural North Umdurman 18382000 Rural Southern Umdurman 28265898 Rural Khartoum North 200615396 Rural Khartoum18731642 ARPU213524936 Total for 2005 Average Revenues Per User: Source: Mass marketing dept & Business development dept. One USD=260 Sudanese Dinars (SDD)

40. 40 RegionRPU (SDD)SubscribersRemarks Northern (Dongola) 361622846 Karima 291514495 River Nile 301740012 Northern Gezira 216865693 Central Gezira 220384466 White Nile 279961976 Blue Nile 245534357 Damazin 348214740 Gedarif 340522636 Kassala 471633803 Red Sea 484540411 Northern Kordofan 404951903 Southern Kordofan 510016668 Northern Darfur 332123542 Southern Darfur 371340284 Southern Sudan 550012171 Residential 2970675497 Business 8040153000 Rural 213511500 ARPU for the Telecom Regions and Khartoum for telephony service Rural ARPU= 72 % to residential & 27 % to the business (for Overall network).

41. 41 8.0 Analysis of the Commercial viability(1) 8.0 Analysis of the Commercial viability(1): Fundamental drivers of Viability: ServicesRevenues Population, economy & demand IncentivesProfit? NPV, IRR, Time cycles {STEM outputs} Obligations (may not all be uneconomic) Operating costsInterconnect Finance Capital costs {deprec./ amort} Taxes

42. 42 8.0 Analysis of the Commercial viability(2) 8.0 Analysis of the Commercial viability(2): Reasons for exceeding the viability zone: Operator investment in the future Kick start a promising market Dynamic area with economic growth potential Establish presence, reduce future costs Low marginal cost for few extra lines and low risk Fiscal reasons (good loss for a year or two) Advertising and brand recognition Policy/ regulatory “push” Incentive/ subsidy received Fair compensation for incoming revenue through interconnect

43. 43 9.0 Conclusion and Remarks 9.0 Conclusion and Remarks: In spite of the fact that the CAPEX & OPEX are high for the telecoms business in the rural areas but the revenues are considerable (72 % of the residential & 27 % of the business areas of the whole network). In some cases the revenues generated by the rural network are higher that than the mother switch that is tying them Proper Marketing studies need to be carried out with full functionality Rural connectivity can be a true business opportunity as well as a high risk business. Commercial viability cab proofed if the right technology and the cost-effective solution is chosen. Access to the ICT is a human right supported by business

44. 44 10.0 References 10.0 References: 1.Rural telecoms’ 99 Cape Town, South Africa organized by IRR group. 2. Pyramid research 3.Report of the independent commission for world wide telecommunications development “The Missing Link” Executive Summary 4.Analysis research center 5.Intelecon research center 6.Business development department, sudatel 7.Mass marketing department, Sudatel 8.Core planning division, Projects department, Sudatel

45. 45 Thanks Thanks are due to the ITU and Center of Excellence who invited me to contribute to this workshop (Visibility of Rural Connectivity). Thanks to Sudatel for giving the honor to lead the (Workshop Preparatory Steering Committee). Thanks to Dr. Abuqayyas for recommending me to the ITU/ BDT to do this work. Thanks to our distinguished delegates and guests from esteemed companies and sister countries. The END