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Rising electricity costs hit African data market

Operators expected to pass on higher costs to users

Increases in electricity rates by African power utility companies are raising fears that data-center operators will soon pass on the higher costs to end users.

Telecom operators have set up data centers in order to serve a need for services in the region, but the hike in electricity tariffs is now threatening the growth of the market.  Africa's subscriber base for voice communications is still expanding but the growth curve has began to flatten in the region's more mature markets, including South Africa, forcing operators to compete more aggressively on the provision of data services.

The rise in data usage has mainly been caused by a number of undersea cables servicing the region. The cable companies are competing for customers and have lowered wholesale broadband pricing to mobile operators. In some cases, operators providing data services are also investors in the cable systems.

Operators have invested in data centers in Zambia, Kenya, Nigeria and South Africa in a bid to ease the region's reliance on Europe and the U.S. for data backup and broadband services.

Africa's second-largest telecom market by investments, South Africa, has hiked electricity tariffs by 25 percent while Kenya has hiked rates by 18.5 percent. In Zambia, rates are being increased by over 10 percent, pushing up the cost of running data centers and data service provision.  Tariffs increases for 2012 and 2013 respectively have already been approved by the three countries.

"Data companies will certainly have no any other options but to pass on the cost to customers should the tariffs become unbearable for them because they have to continue operating or will be operating at a loss," said Andrew Makanya, managing director for Internet Solution Zambia.

The power utility companies claim that the increases are necessary to help them upgrade aging power stations and in some cases invest in new power projects to meet the growing demand for power in the region. The Zambia Electricity Supply Corp. (Zesco), a government run power company, said it's currently undertaking costly projects around the country aimed at increasing power generation and supply to keep pace with economic development.

Several countries in Africa including Zambia, Nigeria, Namibia, Malawi and South Africa are faced with power shortages due to lack of investment in renewable energy and electricity power generation.

Many African governments are currently facing the challenge of raising funds to invest in power generation to ensure the region has sufficient power to support the growth of the telecom sector.

This has affected the roll out of ICT projects and has forced mobile operator MTN South Africa to increase investments in renewable energy technologies. The company said it plans to roll out 150 green base stations this year alone.

MTN data that cost $30 would be enough for a whole month of use for Amon Tembo, an MTN data service customer. "But my worry now is that this is likely to change due to the high cost of electricity," Tembo said.

The rise in data usage in the region has been causes by mobile Internet services that allow customers to browse and use social networks. This has forced operators to introduce bundled offerings at reduced data prices. In Zambia for example, 10M bytes of MTN broadband costs as low as $1 but now the cost is expected to go up due to the electricity rate hikes.


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