Demand for bandwidth runs ahead of supply in Uganda

Demand for bandwidth to power Internet service provisioning in Uganda is outrunning supply, according to the chairman of the country's ISP trade association.

Users experience slow Internet speeds, poor quality of service, and unreliable and expensive bandwidth, Badru Ntege, chairman of the ISP Association, acknowledges. The service providers in the ISP Association include MTN Uganda, Uganda Telecom, Infocom Uganda, Afsat Communications, Africa Online and Datanet.

Low investment in the ISP (Internet service provider) segment of the communications sector has led to the current situation in the country, Ntege says.

"The market is moving fast and demand is high," Ntege said in an interview. "For supply to meet demand there is an investment level that is required, but the market at this moment in time does not balance that investment level."

Ntege explained that an ISP that purchases 10 megabits of bandwidth at a cost of US$40,000 would need more than 100 clients to be able to break even, if average revenue per user is $320 per month for a 128k-bps connection.

"For an ISP that is selling 10 megabits of bandwidth to break even it needs 184 clients, and that is its challenge," Ntege said.

Ntege said that 10 megabits of bandwidth would serve 100 clients, optimally. But service providers are forced to expand the clientele sharing the 10 megabits to make the service affordable, and this is what leads to poor service and complaints from users.

Ideally, an ISP with a clientele of 184 clients would buy 30 megabits to effectively satisfy the users. But the 30 megabits would cost the bandwidth vendor $120,000 at market rates today.

In addition, ISPs don't build their own infrastructure, and instead piggyback on bigger infrastructure providers. This is expensive, because the costs to carry capacity over other players in the sector are prohibitive.

"To get to the client, the ISP still needs to make 'the last mile' for connection charges come down. Costs for both provider and the user are still prohibitive. Maybe advancements in technology will change that," Ntege said.

"It is a game of numbers. You need more bandwidth to connect more people, and to do that, you need more money -- and that calls for investment," he said. "And clearly, this requires the government to come in and partner with the private sector."

Mobile telephony in Uganda has reached a level of affordability because of low-cost handsets. According to Ntege, the same needs to happen in the Internet segment for penetration to rise substantially over the current 7,000 connections.

Before the telecom sector was opened up in 2006, the industry regulator, Uganda Communications Commission (UCC), had 17 licensed ISPs. Of the 17, five of them thrived while the rest never made it.

The five that thrived had foreign ownership, while the bulk of the other 12 were owned by indigenous Ugandans who did not have the financial muscle to invest in infrastructure, but believed they would offer a service and make a return on investment.

"Running an ISP successfully requires a lot. An ISP built on sweat will never grow. It requires substantial capital, which unfortunately all indigenous providers don't have," Ntege said.

According to Ntege, a change in fortunes can only happen if all indigenous ISPs pool their capital and human resources together.

"An entity of that type would take care of the bandwidth requirements of the market," Ntege said. According to Ntege, indigenous ISPs need to embrace partnerships to take advantage of a market that is underserved.

Of the three big mobile-phone companies operating in Uganda, only MTN and Uganda Telecom held an ISP license on top of a GSM (Global System for Mobile Communications) license before 2006. Of the two, Uganda Telecom had a larger share of the data segment of the market, while MTN opted to concentrate its energies on voice until recently, when its hand was forced by the opening up of the sector.