Update on Wiring Rwanda to the World

Stephen DeAngelis

July 25, 2007

Last August I wrote a post about Greg Wyler, an American tech entrepreneur who had big dreams about connecting Rwanda to the rest of the world [Wiring Rwanda to the World]. His company, Terracom, planned on selling Internet access to Rwandans for $80 a month. That would be expensive in America, but it’s an astonishing amount for a country where the average annual income is around $200. Compared to the $1000 a month for broadband connections that Wyler found when he arrived, however, $80 per month looked like a bargain. One of Wyler’s schemes was getting local entrepreneurs to establish a series of Internet cafes that would be the training grounds for the tech illiterate local populace. The plan seemed like good business. It reduced costs (because Terracom wasn’t going to underwrite independently owned cafés), it increased customers (since every café visitor was a potential new client), it spread the risk (because the failure of one café did not necessarily impact the success of others), and, it introduced technology in an affordable way (since the $80 per month cost was going to be shared by hundreds of users, who would pay about 20 cents for 15 minutes of connection time in Terracom Internet cafés. Just as importantly, if successful, this business strategy promised to help generate a new entrepreneurial middle class on which Rwanda’s economy could successfully build.

 

As I noted in the earlier post, Wyler met the chief-of-staff for Rwanda’s president, Paul Kagame, at a wedding and the chief-of-staff invited him to visit his country. Wyler accepted the invitation and once in Rwanda met with Kagame. President Kagame, knowing that Wyler had made his fortune in the tech sector, asked him for his opinion about a $50-million project to bring Internet service to Rwandan schools via satellite. Wyler’s advice: Don’t do it. Satellite service is costly, slow, and unreliable. “I told him,” Wyler recalls, “if he wanted real infrastructure, he needed fiber.” Kagame scuttled the satellite plan and urged to Wyler to take on the project of wiring the schools with fiber. Wyler accepted. It looked like a win-win situation. Unfortunately, Ron Nixon reports that the expected benefits have yet to materialize [“Africa, Offline: Waiting for the Web,” New York Times, 22 July 2007].

“Mr. Wyler’s company, Terracom, was granted a contract to connect 300 schools to the Internet. Later, the company would buy 99 percent of the shares in Rwandatel, the country’s national telecommunications company, for $20 million. But after nearly four years, most of the benefits hailed by him and his company have failed to materialize, Rwandan officials say. ‘The bottom line is that he promised many things and didn’t deliver,’ said Albert Butare, the country’s telecommunications minister. Mr. Wyler says he sees things quite differently, and he and Rwandan officials will probably never agree on why their joint venture has been so slow to get off the ground. But Terracom’s tale is more than a story about a business dispute in Rwanda. It is also emblematic of what can happen when good intentions run into the technical, political and business realities of Africa.”

In my earlier post, I wrote that it looked like Terracom’s venture would be successful, because it embraced some of the principles I’ve been trying to promote with the Development-in-a-Box™ approach. They are principles I believe are widely applicable in addressing the needs of failed and failing states:

 

  • Start with security. When Kagame seized control of Rwanda, he tried to establish a coalition Tutsi/Hutu government that would make all citizens feel more secure. Were a civil war still raging in Rwanda, Wyler’s venture would never have gotten off the ground.
  • Use accepted standards and best practices when establishing infrastructure. Wyler transplanted technologies and standards used in the U.S. to ensure that once his system was in place it would work properly.
  • Create a customer base. Wyler tries to make every customer a sales person for his services. By selling cheap Internet access in small increments, Terracom has hundreds of thousands (if not millions) of potential customers. Wyler also showed others how they could be entrepreneurs themselves by selling Terracom products.
  • Establish a community of practice. By starting with schools, institutions, and small businesses as well as working with the government, Wyler concentrated on building a community of practice that could help him succeed in his venture. They became virtual owners of the project, because their future success in some measure would be determined by Wyler’s success.
  • Seek alignment among all players. When Wyler found it difficult dealing with the government-owned monopoly, he bought it. When that avenue is unavailable (which it rarely is), a way must be found to align government and business policies so that unnecessary conflicts don’t stymie progress. Wyler didn’t enter the Rwanda market out of altruism. He expects to make money. The government understands that profitable companies pay better wages, pay more taxes, invest more in their infrastructure, etc. The goals of one enterprise (though different than the goals of the other) are different but complementary. Complementary strategies among players can generally be found and they should be a priority.

 

Before telling more about the story in Rwanda, Nixon talks about the sad state of connectivity throughout the African continent. Because of numerous challenges, there is a real risk that globalization will outrace the continent for decades.

“Attempts to bring affordable high-speed Internet service to the masses have made little headway on the continent. Less than 4 percent of Africa’s population is connected to the Web; most subscribers are in North African countries and the republic of South Africa. A lack of infrastructure is the biggest problem. In many countries, communications networks were destroyed during years of civil conflict, and continuing political instability deters governments or companies from investing in new systems. E-mail messages and phone calls sent from some African countries have to be routed through Britain, or even the United States, increasing expenses and delivery times. About 75 percent of African Internet traffic is routed this way and costs African countries billions of extra dollars each year that they would not incur if their infrastructure was up to speed. … Africa’s only connection to the network of computers and fiber optic cables that are the Internet’s backbone is a $600 million undersea cable running from Portugal down the west coast of Africa. Built in 2002, the cable was supposed to provide cheaper and faster Web access, but so far that has not happened. Prices remain high because the national telecommunications linked to the cable maintain a monopoly over access, squeezing out potential competitors. And plans for a fiber optic cable along the East African coast have stalled over similar access issues. Most countries in Eastern Africa, like Rwanda, depend on slower satellite technology for Internet service. The result is that Africa remains the least connected region in the world, and the digital gap between it and the developed world is widening rapidly.”

President Kagame and Greg Wyler still share a dream –- connecting Rwanda to the rest of the world so that its people can enjoy the benefits of globalization — so what’s going on? Nixon continues:

“Rwandan officials were especially interested in wiring primary and secondary schools, seeing information technology as crucial to modernizing the country’s rural economy. Some 90 percent of the country’s eight million people work in agriculture. But as of mid-July, only one-third of the 300 schools covered in Terracom’s contract had high-speed Internet service. All 300 were supposed to have been connected by 2006. Over all, less than 1 percent of the population is connected to the Internet. Rwandan officials say the company seems more interested in tapping the more lucrative cellphone market than in being an Internet service provider. (In November, Mr. Wyler stepped down as chief executive of Terracom, saying he wanted to spend more time with his family; he still serves on the board.) In a telephone interview from his home in Boston, Mr. Wyler said he would not address the government’s criticism, saying he did not want to be quoted as saying anything negative. But he said there were some things he had not anticipated, particularly the technical challenges of linking Rwanda’s Internet network to the rest of the world. The only way to do it is to buy bandwidth capacity on satellites, but there are not enough satellites to meet demand. Mr. Wyler also says he believes that Terracom suffers from unrealistic expectations. ‘Terracom has done everything it can,’ he said. ‘Because of the technical challenges, the Internet service is as good as it’s going to get. But given what we started from, I still think we have accomplished a lot. In the beginning there were a few people with Internet service; now there are thousands.’ The Rwandan government had hoped that the number of Web surfers would be much higher by now. Rwanda, which is about the size of Maryland, has little industry, and its infrastructure is still being rebuilt after being left in shambles by a 1994 genocide in which 800,000 to a million people were killed. ‘We have almost no natural resources and no seaports in Rwanda, which leaves us only with trying to become a knowledge-based society,’ said Romain Murenzi, the minister of science, technology and scientific research.”

Rwanda’s plight underscores why connecting Africa is so difficult. It can’t be done one country at a time or without the help of significant outside resources. What a year ago looked like a promising business venture now looks more like a soap opera.

“[Rwandan] Officials saw Terracom’s investment as crucial to its transformation. Unlike many African governments, Rwanda’s was eager to privatize the national telecommunications company, which had outdated equipment, high prices and few subscribers. But from the start, government officials say, there were problems with Terracom. Mr. Butare, the telecommunications minister, said the government had trouble getting basic information from the company. Complicating the situation, Mr. Butare said, was that Mr. Wyler tried to run Terracom from the United States, visiting Rwanda just a few weeks at a time. He left day-to-day management to a poorly trained staff, Mr. Butare said. ‘There were spots where they did some things here and there,’ Mr. Butare said. ‘But over all they have failed to do what they promised.’ Internet rates have been lowered, from about $1,000 a month when Terracom arrived in 2003, but most people still can’t afford it. The average Rwandan makes about $220 a year, and a fixed-line Internet hookup costs about $90 a month. Basic wireless Internet is about $63 a month. Those rich enough to pay the fees complain about poor service. Government officials say the company has spent more time marketing and signing up cellphone customers than on expanding Internet service. According to government figures, Terracom has 30,000 to 40,000 mobile phone subscribers and about 20,000 Internet customers. The situation came to a head late last year, when government officials contended that Terracom secretly tried to trade its shares in the Rwandan telecom to GV Telecom, a regional African telecommunications company incorporated in the British Virgin Islands. Rwandan officials were furious, saying this was a violation of the contract signed by the two parties. The plan was scrapped and Mr. Wyler was widely criticized. In June, the government fined Terracom nearly $400,000 for failing to comply with its licensing obligations, failing to provide information about its operations and failing to pay several fees.”

As Nixon tells it, this story is not about good guys and bad guys but about unrealistic expectations on both sides. Fortunately, the story is not over in Rwanda, where Terracom is still in business and under new leadership.

“Terracom said it has paid the fines and is working with the government to meet all of its obligations. … Christopher Lundh, Terracom’s new chief executive and a former executive of Gateway Communications in London, has worked in several African countries. He now lives and works full time in Rwanda, and many government officials say Terracom’s performance has improved under his leadership. Mr. Lundh acknowledged that there were problems with the company’s operations in the past. ‘The former management did make some promises that they were not able to keep,’ he said. ‘That’s why I was brought in to professionalize things.’ He also said that the company could have better handled the matter with GV Telecom but that he thinks the government overreacted. He said the Rwandan government is to blame for some of the delays. ‘We would get to schools that don’t even have electricity or computers,’ he said. ‘That is not our fault.’ In addition, he said that many of the complaints about the company concerned things beyond its ability to control. Getting adequate bandwidth remains a constant challenge. Like most telecommunications companies in eastern Africa, Terracom depends on satellites for Internet service. Satellite service is much slower than cable because of delays in the signals. Satellites also provide less bandwidth than cable. Adding to the problem is that most of the satellites serving Africa were launched nearly 20 years ago and are aging or going out of commission. A satellite set to go into service last year blew up on the launching pad. Power is also an issue, as intermittent power failures in Rwanda hamper efforts to provide a steady electricity source. Despite these limitations and earlier setbacks, Mr. Lundh says Terracom is moving ahead with plans to give Rwanda the most advanced Internet infrastructure in Africa. A nationwide wireless connection should begin operating near year-end, he said, about the time a nonprofit group, One Laptop Per Child, based in Boston, is to introduce a $100 laptop in the country [see my earlier post Connecting the Poor for more about One Laptop Per Child]. And Terracom is continuing to lay fiber optic cables to connect Rwanda to several other African countries, eliminating a need for phone calls and Internet traffic to be routed via European or American networks. The government, meanwhile, is moving forward with its own plans to build a fiber optic network. It also has granted Internet service licenses to South African companies and plans to issue several more.”

Internal connectivity, Lundh points out, is not the problem. You can lay all the fiber optic cable you want within Africa, but without connectivity to the rest of the world, the benefits of the Internet will not be achieved. The more users you add to existing connections the slower the performance. This remains a big problem and the developed world should place getting the continent connected along side other priorities for helping it emerge from poverty. This effort should probably be led by the Europeans since they have proven far better at providing broadband connections than the U.S. according to Paul Krugman [“The French Connections,” New York Times, 23 July 2007].