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Backhaul Bottle-Necks Expose SA's Digital Economy

New sources of work are needed as the youth-to-adult unemployment rate hits historic peaks and average wages remain notably lower in emerging economies.

28/04/2017 03:58 SAST | Updated 28/04/2017 03:58 SAST
Findfreewifi.co.za
Free Wi-Fi spots display rural-urban digital divide.

A significant proportion of residents outside of South Africa's big cities are in urgent need of becoming familiar with the Internet so that the opportunity it offers benefits them and the nation's GDP.

Urban centres contain the economic opportunities, healthcare and services mostly absent from many smaller towns and rural areas. This helps explain why two-thirds of South Africans live in cities. The ability of new urbanites to work towards a better life in the city is hamstrung by not being equipped to use services urban centres have to offer.

ICT skills needed to transact in the digital economy

To a large degree, this could be remedied by better and more convenient access to the Internet. Ironically, the Internet enables distance working and participation in the digital gig economy, which in turn, could mitigate urban migration to some degree. "New sources of work are especially needed as the youth-to-adult unemployment rate hits historic peaks and average wages remain significantly lower in emerging economies than in developed economies," Professor Mark Graham states in the new report The Risks and Rewards of Online Gig Work At the Global Margins.

But what is preventing rural South Africans from becoming familiar with the Internet? Currently about 40 percent of South African households have Internet access, and the vast majority use a smartphone to get online. As the recent #datamustfall campaign suggests, mobile data is not only prohibitively expensive by local standards, but also when compared to international prices.

Costs force users to limit exposure to opportunities

This leads to what Jonathan Donner calls 'the metred mind-set'. Most users of pre-paid mobile data pay a premium for a set amount, and use it for focused searches. This prevents regular browsing and the opportunity to become familiar with the Internet. The result is those who could benefit most from accessing the wealth of knowledge online, are least enabled to do so.

Technology may displace some jobs, but on the whole, generates many more new demands for labour. As Deloitte research indicates: for every 10 new internet users, "one person gets lifted out of poverty and one new job gets created", says Facebook's Mark Zuckerberg. World Bank research show that for each 10 percent of national Internet access penetration the GDP increases by 1.34 percent. For those who work online, or who are part of the 'gig economy', the production and time efficiencies that very fast exchange of information enable through Internet connectivity translate into financial gain.

And the rural youth must become key beneficiaries of this fourth industrial revolution. Just as the industrial revolution used water and steam to power mechanisation, and as electricity was used to fuel mass production, now the use of information and communications technologies is catalysing digital economies across the globe. But job seekers drawn to the bright city lights need to be ready and able to compete within the digital economy using the required ICT skills.

Meaningful Internet access starts at 1Gb per month

This digital readiness results from the freedom of burning through at least 1Gb of bandwidth each month, estimates the Association for Affordable Internet (A4AI). Of the 50 percent of South African households who possess a smartphone, the opportunity of individual family members to afford frequent use is limited – not least by too-high mobile data costs. On average 1Gb costs more than 17 percent of household income across Africa.

The reality is worse for South Africans, as our official unemployment rate is about 27 percent, and our society is deeply unequal, with only 10 percent of the population owning at least 90 percent of all wealth. The Western Cape Digital Readiness Assessment reveals that many households spend approximately 27 percent of their income on ICT costs. "The high cost of mobile Internet relative to monthly household income limits the value of the mobile phone as a piece of technology that can bridge the digital divide," conclude Luci Abrahams Kiru Pillay in the Right2Know's The Lived Costs of Communication report.

Links in the connectivity value chain

The Internet supply chain has many links, often increasing further from urban centres, with few access providers owning the entire connection journey from device to international internet. As a recent report from Caribu Digital, a digital economy consultancy, explains, "the Internet has always been built on complex 'peering' arrangements with different tiers of service providers and inter-connection agreements to link various networks and services."

"Depending on what layer of connectivity the service in question provides, it will rely on providers above or below to complete the connection, and thus its service will be restricted by the availability and scope of agreements it can arrange with the other layers. For example, services providing 'last-mile' connectivity will rely on backhaul and/or 'middle-mile' pipes from other providers, resulting in dependencies on pricing and performance availability.

Similarly, some backhaul providers (connecting the Internet Service Provider (ISP) to the international Internet), such as satellite services, will depend on local providers to connect users and manage the customer relationship, restricting the backhaul provider's reach to only those areas (or customer segments) for which the local providers have established last-mile service. Therefore, a service provider's ability to scale is likely to be constrained by the available complementary providers it will have to partner with to offer full end-to-end connectivity to users."

The links in the Internet access value chain often increase the further the town or area is from an urban centre. A large proportion of this value chain is the backhaul, Steve Song pointed out during the NGON Africa conference.

Competition drops backhaul pricing

Previously Telkom's domination of backhaul infrastructure enabled them to keep costs high to protect their monopolies in the local markets by suppressing competition, explained Johan Kruger, CEO of Potchefstroom ISP Safricom Telecoms, "This resulted in the mobile operators and other larger ISP to build national backhaul as Telkom's ageing and unreliable network was too expensive."

These new players were able to build better and cheaper networks to provide their own backhaul. Besides forcing Telkom to drop their price, it invigorated the market allowing more local ISPs to buy connectivity and sell access at reasonable prices. Competition solved the problem.

"Today Safaricom pays R180 for each megabyte per second in backhaul capacity. Four years ago we paid about R1000 for the same. While we are able to buy increasing amounts of bandwidth at wholesale pricing, and terrestrial and International bandwidth pricing continues to sink, our better pricing mostly results from there being several fibre cables going through Potchefstroom."

In South Africa, Dark Fibre Africa (DFA) have direct access to two major undersea cables and customers can buy absolute dark fibre or a managed network service, Reshaad Sha, DFA Chief Strategy Officer commented in an interview with me. "More than 100 ISPs use DFA so we feel that we have the price point right," he said.

National government has tried to improve efficiencies in the telecommunications sector with the introduction of a state-owned enterprise focusing on increasing the market's access to backhaul, namely Broadband Infraco (BBI). BBI is currently in discussions to purchase an Individual Electronic Communications (I-ECS) license and so also sell capacity directly to small Internet service providers. This will further stimulate the growth of unlicensed SMMEs outside of urban centres, the firm said in response to my questions. Market forces have encouraged BBI to become a better, more competitive partner, notes Kruger.

Last mile now the final frontier

Backhaul, he says, is no longer the main barrier to access, but rather the pricing of the 'last mile', the final stage of connectivity – between your phone and the ISP. To assist in last mile access in the Western Cape, the provincial government ensured that when contracting Neotel to build and operate a fibre roll-out throughout the province that at least one provincial building in each ward would be connected, no matter how remote.

The high proportion of fibre used in this network ensured the stability and capacity to transmit high volumes of bandwidth at a fraction of previous pricing options. Besides Neotel being able to offer more stable backhaul to the provincial government as a result, they also offer public Internet access via Wi-Fi broadcast off provincial buildings. The focus of this public Wi-Fi project was to ensure affordable Internet access across the province.

Any user at an active "NeoHotspot" is able to access 250Mb per month and buy more access starting from R5 for a day (limited to 700Mb) to R45 for a month (limited to 5Gb). Part of the idea is increase the opportunity for local ISPs to buy connectivity and sell access, using Neotel's fibre network.

But what happens after access?

For local communities to benefit from having a NeoHotspot, Cape Digital Foundation (CDF) has been created to ensure that public access, especially in those rural settings, translates into digital literacy and the ability to use the Internet productively.

"Mobility (the ability to use mobile devices) has huge socio-economic, educational, commercial, societal and individual significance. Emerging economies have been hugely resourceful in using mobility in socio-economically important ways, to empower micro enterprises," says newly-appointed Cape Digital Foundation Executive Director Emma Kaye.

Radical digital economic transformation

A radical digital economic transformation will take place when it is easier for South Africa's small town residents to get online, and make money doing so.

This article was originally published on Fin24 here.