2019 East Africa Com

The East Africa Com conference took place in Nairobi, Kenya during the days 14 and 15 May 2019. The overarching theme of the conference was new technologies enabling the emerging digital world and digital transformation. The specific focus of the conference was also on how these developments will unfold in East Africa and the impact they are likely to have across economic, social and government environments in the region.

The eco-system was well-represented at the conference, with organisations from the ICT industry, financial institutions, parastatal utilities, government entities and academia inter alia. Theoretical discussions were supported by ample examples of current uses cases for new technologies in East Africa.

The topics at the conference dealt with a wide range of subjects, tackling issues such as:

  • Quality broadband connectivity and “affordable” access to ensure maximum socio-economic inclusivity in Africa (this continues to be a pertinent topic despite years of private sector and government initiatives);
  • Adoption and application of new technologies (such as Blockchain, Artificial Intelligence, Machine Learning) in various vertical industries and government agencies to deliver new and improved services to customers;
  • Democratisation of data to make it more readily available for analysis to solve socio-economic problems through development of correct policies, yet remaining mindful of the requirement for data anonymity;
  • Digital transformation among organisations in East Africa to become more efficient and globally competitive, and positioning for the 4th Industrial Revolution;
  • Mobile money and financial inclusion; and
  • Growing women leaders in ICT and business in general.

On the last point, the East Africa Com conference has developed a partnership with ITC SheTrades, an initiative of the International Trade Centre, a joint agency of the World Trade Organisation and the United Nations. The SheTrades initiative aims to connect three million women to market by 2021, facilitating opportunities for women entrepreneurs, supported by a web and mobile digital platform. At the conference, the emphasis was placed on bringing women into the tech sector and using technology to enable women to participate in economic activities to a greater extent. This would unlock a lot of additional value and grow the global economy, especially in developing markets.

Connecting ICT stakeholders

The AHUB again proved to be a very useful medium of connecting local technology start-ups with investors, operators and large corporates to foment collaboration on new projects and (hopefully) mutually beneficial partnerships. The discussion panel on “Realising synergies between MNOs and African tech start-ups” illustrated initiatives already in place aimed at creating an environment conducive to start-up development and success, although still only 1 in 10 start-ups achieve some form of success (including survival beyond the short term). Revenue splits from commercial products (such as apps) continue to be skewed in favour of large mobile operators who claim they provider greater inputs into the partnership. This can stymie the growth of start-ups into sustainable companies.

Building a successful digital economy

To build a successful digital economy in East Africa a number of more basic building blocks still need to be put in place. For instance, liberalisation of immigration laws to attract foreign skills and direct investment, or creation of incentive schemes to experiment with new technologies through pilots (“sand boxes”) free from bureaucratic constraints. Availability of requisite spectrum for new access technologies (such as 5G) timeously is also critical.

Regulating new technology

One of the recurring discussion points at the conference revolved around regulating the new technologies and services in the digital world. One first needs to understand what it is that one tries to regulate, which is what the governments and regulatory authorities in many markets are currently trying to achieve. Unfortunately, the consensus was that we are likely to see more rather than less regulation, which is also bound to become more complex with increasing complexity of the digital environment around us. This is at a time when most stakeholders hope to see less, not more, regulation to allow for freer development of the digital future. It is critical for governments and regulatory authorities to embrace new technologies, rather than stifle them with over-regulation, lest we miss out on opportunities the new technologies offer.

4th Industrial Revolution

In a sense, Africa is already well suited to the 4th Industrial Revolution. Out of necessity, and limited formal jobs, the gig economy is alive and well. New technologies such as AI, ML and mixed reality innovation will drive these opportunities and create more formal job. An example is the recent launch of the Africa Development Centre by Microsoft in Nairobi, Kenya and Lago, Nigeria which will bring USD100 million of investment and 500 engineering jobs over the next five years. Africa can take advantage of its young population to drive this growth but it first needs to create capacity.

This report was compiled by Dobek Pater who attended and participated in the 2019  East Africa Com.

FTTH and FTTB in Africa

Fibre broadband connectivity has been much talked about in many markets in Africa over the past few years. It is touted as required infrastructure for the next generation of services both in the business and residential markets – from operating out of the cloud by small and medium sized businesses (SMEs) to eGovernment services to future household entertainment (streaming content).

Factors limiting fibre growth

Yet, with the exception of a few countries, the growth of fibre access networks has been very limited in across most of the African continent. This can be ascribed to a number of factors, including:

  • Cost of fibre infrastructure deployment – This remains quite high in many markets and makes for a difficult business case, given the service adoption rates (although aerial fibre deployment is less expensive). It is less expensive to build wireless networks.
  • Cost of infrastructure maintenance – Once a fibre network has been built, the cost of maintenance and repairs can also be quite high if the fibre cable keeps being damaged due to other infrastructure development in the same area.
  • Small target market – Socio-economic development is often still slow, with slow middle class growth, and correspondingly low affordability levels. This is coupled with comparatively high prices of fibre connectivity, paying a premium for a superior service. In the business market, and in particular small businesses, the level of maturity (and often also affordability) limits the adoption of fibre broadband.

Fibre Access Infrastructure Market

The fibre access infrastructure provider environment tends to be quite fragmented in many markets, with a number of smaller fibre network operators (FNOs) operational. It is difficult for small operators to maintain a sustainable operation with a small footprint. Hence, in most markets in Africa, operators follow a multi-technology strategy, where possible, for the provision of connectivity services. Fibre is one of the technologies used but most of the connections may be provided wirelessly. Only in a limited number of cases have we seen the evolution of a pure fibre access infrastructure provider. This is most pronounced in South Africa, where around 50 FNOs are operational. Many of them very small and unsustainable. This leads to growing consolidation in this market.

As at mid-2018, there were 136 commercial FTTH / FTTB networks operational in Africa in 40 countries (including territories) and another ten networks either planned or in deployment. The presence of fibre broadband infrastructure on the African continent and growth over the past few years are presented below. The year-on-year growth of connected premises from mid-2017 to mid-2018 was 75%.

Concentrated Market

Fibre broadband uptake is concentrated in a handful of country markets, with almost 97% of total fibre connections on the continent (top five account for 85% of total). Even at that, household penetration is very low in these countries. The notable exceptions are Mauritius (where fibre deployment is being pursued as a national strategy) and La Réunion – both small islands with small populations in the Indian Ocean. This concentration of fibre broadband in several market on the continent is illustrated in the following graphic.

Some of the key market trends observed in the fibre broadband market are:

  • Access infrastructure has been expanding and improving, underpinned by improving national long-haul and metro backhaul infrastructure.
  • Pricing of fibre-based products has seen some reduction, making the products more affordable. This is combined with increasing disposable income levels (at least in growing economies).
  • Economic improvements (not in all markets) have led to improved business climate and demand for fibre-based services.
  • Government policy direction moving towards national fibre roll-out, digital agenda, etc.
  • Access to relevant content has been improving.

Market Opportunities

The present FTTH / FTTB market landscape in Africa provides for a number of opportunities going forward. These include:

  • Lack of legacy fixed infrastructure in many markets presents an opportunity to address this shortage with fibre. However, this can also be a challenge due to, for instance, lack of duct infrastructure which could be reused to lower the cost of deployment or lack of fixed line product / service culture and understanding of such products / services within the target user base.
  • Middle class migration to gated communities / complexes and increasing concentration of businesses in office parks means that the potential users can be reached more easily at a lower cost. New residential and business developments also provide an opportunity for greenfields fibre infrastructure deployment in such premises.
  • Once the first wave of FTTH deployment and uptake is past its peak (this may take a number of years in most markets in Africa), the cost of deployment and provision of services may be suitable for a second wave to address the lower socio-economic segments.
  • The fragmented fibre infrastructure provider environment presents M&A opportunities for (typically) larger operators or non-telecoms investors.
    Future evolution of the FTTH / FTTB markets in Africa will be driven by a combination of socio-economic development and government policies.

Market Outlook

However, given the diversity of markets in Africa in terms of ICT and socio-economic development, the pace of fibre broadband deployment and adoption will also differ significantly from country to country over the next five years. The expected market evolution trends are highlighted below.

Home Market

  • Greater focus on back selling of fibre services to achieve higher connectivity rate of homes passed.
  • Geographic expansion of the FTTH footprint (although limited to main cities in most countries).
  • Introduction of new products (including smaller bundled offers) to address households with lower disposable income levels (than the top end).
  • Introduction of converged products combining fixed and mobile services.
  • Increase in relevant content (requiring fast and reliable internet access) will drive uptake.
  • Continued downward trend in retail prices of fibre products, resulting in greater affordability.

Business Market

  • Geographic expansion of the FTTB footprint (although limited to main cities).
  • Introduction of converged products combining fixed and mobile services.
  • Move towards IoT (and IoE) over time, requiring greater good quality connectivity.
  • Government policy direction aimed at expansion of broadband (including fibre) infrastructure and services to drive socio-economic development.
  • Growth in maturity of the business community, realising the benefits of IP and cloud services. Fibre will be used for delivery of these services.

Microsoft Launches its Cloud Data Centres in South Africa

Microsoft launches two data centres located in Cape Town and Johannesburg.

The South African cloud data centre market has started gaining traction as demonstrated by the recent launch by Microsoft South Africa of two regional cloud data centres in Johannesburg and Cape Town. Companies have started realising the benefits of cloud adoption, which include reduced costs of managing and maintaitng IT systems as well as the scalability and agility of cloud services. Furthermore, various sporting bodies have also started adopting cloud services, notably the South Africa Rugby Union (SARU), to monitor and improve player performance. This is a demonstration that cloud solutions will not only have an impact in the work space, but across various sporting disciplines as well.

Market Overview

On 6 March 2019, Microsoft SA announced the official launch of its two regional Azure cloud data centres, located in Johannesburg and Cape Town. It is one of the first global cloud data centre providers to provide cloud services on the African continent. 

The newly appointed MD for Microsoft SA, Lillian Barnard, highlighted that these enterprise-grade data centres will support cloud, artificial intelligence and edge computing innovations across the continent. Further, key sectors of the economy that the company is looking at supporting through its cloud data centre infrastructure, include agriculture, financial services, healthcare, manufacturing, mining and the public sector. 

Microsoft’s cloud data centres are expected to enable skills development through the creation of a Cloud Centre of Excellence (CCoE) by companies migrating towards the cloud. The CCoE is a cross-functional team of executive support that leads other employees through cloud adoption, migration and operation. In addition, after cloud migration, employees will be required to upscale their skills to align them with the new cloud services.

Key Drivers and Inhibitors of Cloud Adoption in South Africa

Various drivers and inhibitors are currently influencing the uptake of cloud services in SA. Microsoft highlighted that some of the key drivers to cloud adoption include digital transformation and increased innovation by businesses.

The key drivers and inhibitors to the adoption of cloud services in SA are provided below.

Drivers

  • Reduced costs of managing and maintaining IT systems, i.e., lower total cost of ownership (TCO).
  • Scalability and agility of cloud services.
  • Business continuity in cases of natural disasters, power failures or infrastructure breakdown.
  • The need to develop local skills and transform existing capabilities, in accordance with emerging global trends.
  • Ubiquity of broadband connectivity and the availability of faster connectivity at lower prices.
  • Cost savings through the reduced costs of updating or replacing legacy software.
  • Mobility and the ability of employees to work remotely.
  • Business innovations that require new digital capabilities
  • Increased collaboration and efficiency through the cloud.

Inhibitors

  • Limited skills across most local organisations.
  • Data residency requirements within some organisations, particularly those that handle certain forms of personal information e.g., financial institutions, is limiting the uptake of cloud services.
  • Discomfort with the adoption of new technologies by end-users.
  • Concerns around potential security issues related to personal and company information being managed by a third party.
  • Latency associated with connectivity to data centres offshore and relatively slow connectivity speeds. (These constraints are being alleviated.)
  • Perception by smaller organisations that cloud services are meant for large corporates.

Microsoft’s Customer Experiences for Data Centre Migration

Microsoft SA highlighted various customer experiences influencing the current Azure cloud migration by businesses. These are:

  • Expiry of existing data centre contracts
  • End of support for existing software
  • Quickly integrating new IT infrastructure acquisitions
  • Software and hardware refreshment and upgrade
  • Urgent capacity upgrading
  • Cost optimisation
  • Business innovations requiring new digital capabilities
  • Unsupported legacy IT infrastructure
  • Security protection of business assets and customer data
  • Increased focus on core business operations

These drivers of cloud migration by Microsoft’s customers are closely related to the digital transformation currently being undertaken by these businesses in SA.

Key Vertical Sectors

While the cloud market in SA is currently in the growth stage, some verticals have emerged as early adopters of cloud solutions.
The public sector is a key sector demonstrating the biggest potential for cloud adoption in SA. This has been mainly due to the limited IT skills within most government departments. As such, most public entities are looking at outsourcing their IT infrastructure through cloud services.

Early adopters:

  • Banking/financial sector
  • Healthcare
  • Manufacturing
  • Mining
  • Public sector

Microsoft’s Partnership with the South African Rugby Union (SARU)

In February 2019, Microsoft SA formed a cloud partnership with the SARU. This partnership is aimed at transforming SA’s rugby through the use of cloud capabilities to unlock new opportunities.

To develop its new platform, SARU partnered with Accenture and incorporated various technologies.

Technology used by SARU uses GPS to track player performance during a match. This technology compiles performance statistics such as the number of shots and tackles achieved, as well as the distance covered during a match. Subsequently, SARU uses software, provided by Microsoft, to analyse player performance to identify areas of improvement.

This analysis helps SARU prepare for upcoming matches and helps identify weaknesses in the opposition players, allowing for development of strategies to improve their performance on the field.

Microsoft’s Partnership with Team Dimension Data

Since 2014, Microsoft has partnered with the professional cycling team Team Dimension Data for Qhubeka in the Tour de France, using the Office365 package as the collaboration platform for the cycling team.

This platform is used to manage its global team through a central repository to communicate, collaborate, share information and manage the team’s operations.

In addition, the Office365 package enables the team members to communicate with each other via Skype during racing events, as well as maintain communication with the administration bodies.

Further, they are also able to access emails with event updates and time changes, which is aligned to their events calendar. The OneDrive application allows them to save data and information which they can share with other team members.

Microsoft’s Partnership Network

Microsoft SA leverages a broad network of partners located both locally and internationally. This network is characterised by a vast network of independent software vendors (ISVs) and systems integrators (SIs).

In 2018, Microsoft SA had 6 000 registered partners, of which 1 200 were registered during the same year. Furthermore, 470 partners were classified as either gold or silver partners. The number of partners that attained gold or silver partner status increased by 31% in 2018.

During the same year, the number of data centre migration certified partners amounted to 24. These are the partners tasked with modernising and migrating Microsoft’s customers from the traditional legacy infrastructure to the modern Azure cloud infrastructure.

As such, partnerships have been key to Microsoft’s operations in ensuring smooth migration to the latest Azure cloud infrastructure.

Typical Cost-Savings through Azure Cloud Adoption

According to Microsoft, the adoption of Azure cloud has resulted in tangible benefits for businesses, with most companies reporting various cost savings from the migration to the cloud services.

Some of the benefits that could be realised through the adoption of the Azure cloud services include:

  • 15% reduction in total cost of ownership (TCO): the migration to cloud services could result in a 15% reduction in the total direct and indirect costs of acquiring and operating IT infrastructure by organisations.
  • 25% cost-reduction from reserved instances: Reserved instances (RIs) are reservations in resources and capacity within a particular region for future usage. RIs are generally cheaper than on-demand purchases, therefore resulting in significant cost savings.
  • 25% cost-reduction from exact IT requirements: By purchasing the exact IT infrastructure and avoiding excess capacity, some organisations have been able to achieve up to 25% cost savings on IT infrastructure.

Summary

During the recent launch of Microsoft’s Azure cloud data centres, key drivers were highlighted that influence cloud migration. Most businesses have started realising the cost benefits that result from cloud adoption, which include approximately 15% reduction in TCO and 25% cost reduction from reserved instances.

However, inhibitors remain in the market. These include limited skills availability across most organisations and data residency requirements in some sectors, such as the financial services and public sectors. Nonetheless, the landscape is shifting as more organisations in both government and financial services start embracing cloud data centre migration in accordance with their digital transformation initiatives.

Central to Microsoft’s cloud data centre migration has been the formation of partnerships with various players, including independent software vendors (ISVs) and systems integrators (SI). In 2018, Microsoft SA had approximately 6 000 registered partners, of which 470 were classified as either gold or silver partners. Twenty-four of these companies are data migration certified partners, who will play a critical role in migrating customers to the Azure cloud infrastructure.

Various sporting disciplines have partnered with Microsoft, including SARU and the Team Dimension Data for Qhubeka, allowing them to enhance their performance and achieve more efficient information sharing.

This is a demonstration that Microsoft’s cloud solutions will not only be critical in the work space, but also provides vital services to sporting disciplines.

More Information

Please contact Derrick Chikanga (derrick@africaanalysis.co.za) for further information about the data centre and cloud markets.