Kenya’s Wananchi closes $140m funding for broadband rollout

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Company aims to deploy fixed-line infrastructure across most of sub-Saharan East Africa.

Kenyan broadband Internet infrastructure developer Wananchi Group Holdings has closed on $140 million as part of a push from investors to bridge the digital divide in Africa and to sell services to the new consumer class emerging among the continent’s high-growth economies, LBO Wire has learned.
For the past decade, telecommunications and information technology in Africa has been dominated by the mobile phone industry, but as businesses and consumers confront the limits of what mobile technology can accomplish, they are increasingly looking for the higher speeds that wireline infrastructure provides, according to investors on the continent.
The problem has been that the terrestrial infrastructure for high-speed Internet on the continent has been nearly nonexistent even after investors began connecting Africa with the rest of the world via undersea cables that have the capacity to carry massive data streams between continents.
With a $68 million equity commitment from its existing investors, which closed last week, and a $72 million debt investment from the Overseas Private Investment Corp., Wananchi Group is hoping to expand its high-speed Internet services across most of sub-Saharan East Africa, according to Wananchi Chief Executive Richard Bell.
The company’s investors include Liberty Global Inc.; Oppenheimer Funds Inc.; Sarona Asset Management, a Canadian emerging markets fund manager; and African investment funds Emerging Capital Partners and East Africa Capital Partners.
Over the past five years, investors have spent billions to upgrade the entire telecommunications system in Africa, building the undersea cables needed to bring high-speed Internet to the continent. Wananchi’s investors are looking to expand its business to bring this new high-speed infrastructure onshore.
In May, the West Africa Cable System, one of five undersea cable systems that link western sub-Saharan Africa to the rest of the world, became operational. WACS was financed by a consortium of European, Asian and African state-owned telecommunications companies. Another cable operator, Seacom, is partially owned by an arm of the Aga Khan Fund for Economic Development, and African investment firm Convergence Partners.
Most significant for East Africa was the East African Marine Systems, Mr. Bell said. Developed in collaboration with the Kenyan government and seven local telecom operators, investors in the 1.2-terabit cable split the capacity coming off the cable to provide equal access and create a more competitive market for Internet services, according to Mr. Bell.
“The last evolution was the arrival of several undersea cables,” said Mr. Bell.”[Now] we’re the first company to deliver fixed-line infrastructure over the last mile.”
African countries are already seeing steady economic growth, but the expansion of broadband has the potential to further boost their economies, according to a report from Convergence Partners.
“Africa faces a deluge of broadband capacity flooding the continent, the start of which was the landing of more than nine [terabits per second] in the two years between 2009 and 2011, with an additional 11 TBPs of submarine fiber expected by 2013,” reads the April 2012 report.”These developments will expose the bottlenecks in the system,” according to the report. Those bottlenecks are in the transmission of data once the data reach the continent.
“As African consumers spend a greater portion of their incomes on communications than those in developed countries and with the growth effects of broadband more pronounced in developing markets than developed ones, affordable broadband will indelibly alter African society and people’s livelihoods,” according to the Convergence report.”The World Bank estimates that for every 10% increase in the penetration of broadband services, there is an increase of 1.3% in economic growth with this growth effect more pronounced in developing countries than developed economies.”
Wananchi already has approximately 100,000 customers in Kenya, Uganda and Tanzania, and the company will be expanding into Malawi, Zambia, Ethiopia and Rwanda, Mr. Bell said.”It takes time to build fixed-line infrastructure but we expect to cover all the major cities in the region over the next few years,” he said.
In 2011, Wananchi raised $57.5 million in financing from its investors as it began to develop an infrastructure that, according to Mr. Bell, is leapfrogging all of the other regions in Africa.