Remote broadband internet solutions
Remote broadband internet solutions
Business Model Description
Develop broadband solutions to provide internet connectivity to rural communities.
Expected Impact
Increase access to the internet and positively enhance economic and social activity.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Kenya: Rift Valley
- Kenya: Eastern
- Kenya: North Eastern
Sector Classification
Technology and Communications
Development need
According to the SDG Report 2020, SDG 8 - Decent Work and Economic Growth is a major challenge in Kenya, especially in terms of the proportion of the population using the internet.(1) There is an immediate need to digitize services given COVID-19 restrictions are a considerable obstacle for service providers and businesses.(2)
Policy priority
Information and communications technology (ICT) has been identified as a key foundation sector under Kenya Vision 2030. The government wants to support its development due to high sector growth and cross-cutting impact on the other sectors.(3)
Gender inequalities and marginalization issues
According to Kenya's Digital Gender Gap Scorecard for ICT, women in Kenya are 50% less likely to be online than men, and 30% - 50% less likely to use the internet for economic empowerment.(15)
Investment opportunities introduction
The ICT sector is a backbone of Kenyan gross domestic product (GDP) growth. The total value of telecommunications and digital services in Kenya is expected to reach USD 6.6 billion in 2020.(4) The high penetration of mobile subscriptions (115 per 100 people) and internet subscriptions (83 per 100 people) offer a high market potential for investing in ICT.(5)
Key bottlenecks introduction
Unreliable grid power, ineffective internet infrastructure and an underdeveloped innovation ecosystem present bottlenecks.(6)
Internet Media and Services
Development need
To achieve universal access to good-quality broadband in Africa by 2030, an aggregate investment of USD 100 billion is necessary. This entails connecting 1.1 billion new unique users.(7)
Investment opportunities introduction
The rising demand for data transmission can already be observed as total utilized bandwidth reached over 2.7 million Mbps (megabits per second) in 2019 (almost 2.5 times the number recorded in 2018). Total broadband subscriptions reached 22.1 million.(8)
Key bottlenecks introduction
One bottleneck is the cost of data, which is restricting access to the internet for poorer citizens. In Kenya, the average cost of 1GB (gigabyte) of data in 2018 was equal to 4% of the gross national income per capita, twice as high as the development target of the UN Broadband Commission.(8)
Internet Media and Services
Pipeline Opportunity
Remote broadband internet solutions
Develop broadband solutions to provide internet connectivity to rural communities.
Business Case
Market Size and Environment
> USD 1 billion
Kenya's telecommunications market is expected to generate USD 3.49 billion in revenue by 2022, with demand for mobile data being the key growth factor.(4)
The rising demand for data transmission can already be observed as total utilized bandwidth reached over 2.7 million Mbps (megabytes per second) in 2019 (almost 2.5 times the number recorded in 2018) and total broadband subscriptions reached 22.1 million.(5)
Indicative Return
15% - 20%
Benchmark statistics for the subsector estimate cost of equity ranges between 14.6% and 18.6%. This rate is a benchmark calculated as a cost of equity with a country risk premium, reflecting an average return required by investors active in the subsector.(9)
Investment Timeframe
Long Term (10+ years)
Developing broadband can take 10-20 years with 15- to 20-year payback periods.(10)
With respect to cost and return on investment, the first layer or passive layer comprises civil works and dark fiber. This layer can account for 70 - 80% of the overall investment and has a payback period of approximately 15 years.
The second layer is the active infrastructure layer, which concentrates the intelligence of the network. This layer has a 5- to 7-year rate of return on investment.(10)
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Problems on the demand side related to affordability and digital literacy
Impact Case
Sustainable Development Need
Broadband is the backbone of economic development of Africa. According to the International Telecommunication Union, a 10% rise in broadband penetration in Africa will increase gross domestic product (GDP) per capita will increase by 2.5%.(11)
In 2016, broadband coverage was not universal. According to the Communications Authority, 8% of sub-locations had less than 50% coverage of basic 2G network and 2% had no coverage at all. For 3G, 31% of sub-locations had access below 50% and 17% had no access.(12)
Gender & Marginalisation
The cost of data is restricting access for poorer citizens. In Kenya the average cost of 1GB (gigabyte) of data in 2018 was equal to 4% of gross national income per capita, twice as high as the development target of the UN Broadband Commission.(8)
According to Kenya's Digital Gender Gap Scorecard for ICT, women in Kenya are 50% less likely to be online than men, and 30% - 50% less likely to use the internet for economic empowerment.(15)
Expected Development Outcome
New business opportunities
Increased knowledge sharing via the internet
Increased speed of information sharing
Gender & Marginalisation
Increased digital connectivity for women
Primary SDGs addressed
4.4.1 Proportion of youth and adults with information and communications technology (ICT) skills, by type of skill
4.a.1 Proportion of schools offering basic services, by type of service
N/A
N/A
N/A
N/A
8.1.1 Annual growth rate of real GDP per capita
2.27% in 2017 (16)
At least 7%
9.b.1 Proportion of medium and high-tech industry value added in total value added
9.c.1 Proportion of population covered by a mobile network, by technology
15.03% - the proportion of medium and high-tech (MHT) industry value added as a percentage of total manufacturing value (16)
86.15 per 100 people (16)
N/A
100 per 100 people
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Indirectly impacted stakeholders
Corporates
Outcome Risks
Environmental degradation resulting from broadband infrastructure development
Negative impacts of the digital divide (disparities and segregation) on sectors such as education or economy
Negative externalities of internet use such as addiction, impacts on cognitive development, information overload and hindered social relationships may become a risk.(13)
Impact Risks
Gender inequality and/or marginalization risk: Stakeholder participation risk - If the rates are too high, there is a risk that women will be unable to access the internet.
Impact Classification
What
Expanding broadband is likely to have a positive and important impact because the spread of fast internet will contribute to overall development and create new opportunities.
Risk
Although the investment is market proven, the high requirements for patient capital and rapidly changing technology may require specific investors.
Impact Thesis
Increase access to the internet and positively enhance economic and social activity.
Enabling Environment
Policy Environment
National Broadband Strategy 2023: This strategy aims to increase access to broadband coverage of 3G to 94% of the population by 2020. It also aims to increase digital literacy in schools to 85%, expand broadband to the 47 counties and especially to have 50% digital literacy among the workforce.(8)
Education Broadband Project: This project aimed to facilitate broadband connectivity to all public secondary schools in the country. In the 2017-18 financial year, the Kenyan Communications Authority had connected 896 public secondary schools.(8)
Government proposes 3 ways of implementing broadband: public-private partnership (PPP), design-build-operate (DBO) or public-private community partnership (PPCP). The second option (DBO) is recommended.(12)
Financial Environment
Financial incentives: According to the National Broadband Strategy, the government will need to create reasonable investment incentives (tax reliefs, deductions etc..) to boost investment in broadband.(8)
Fiscal incentives: Newly listed companies receive preferential corporate tax rates, depending on the percentage of listed shares. (The normal rate is 30% for resident corporations and 37.5% for non-resident companies.) Commercial buildings receive a 25% capital deduction in developed areas.(14)
Regulatory Environment
The Constitution of Kenya 2010, the Kenya Communications Act 2009, and the Kenya Information and Communications (Amendment Act) 2013 provide the main framework for regulating the communications sector in Kenya.
Consumer Protection Act and Access to Information Act: The National Broadband Strategy mentions the Consumer Protection Act No. 46 of 2012 and Access to Information Act No 31 of 2016 as important for developing broadband.(8)
Marketplace Participants
Private Sector
Zuku, Safaricom, Telekom Kenya, Airtel, Faiba
Government
Kenya Urban Roads Authority (KURA), Kenya Rural Roads Authority (KERRA), Kenya Pipeline company, Kenya Railways corporation, Kenya Power and Lighting Company (KPLC), Government of Kenya, Information and Communication Technology (ICT) Authority
Multilaterals
World Bank, Africa Development Bank (AfDB), International Telecommunication Union (ITU), and Africa Telecommunication Union (ATU), International Finance Corporation (IFC)
Target Locations
Kenya: Rift Valley
Kenya: Eastern
Kenya: North Eastern
References
- (1) Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G., Woelm, F. (2020). The Sustainable Development Goals and COVID-19. Sustainable Development Report 2020. Cambridge: Cambridge University Press.
- (2) World Bank (2020). Kenya Economic Update - Turbulent Times for Growth in Kenya.
- (3) Republic of Kenya (2018). Third Medium Term Plan 2018 – 2022 Transforming Lives: Advancing Socio-economic Development Through The 'Big Four'.
- (4) Frost and Sullivan (2018). Digital Market Overview: Kenya. A White Paper.
- (5) Kenya National Bureau of Statistics (2020). Kenya Economic Survey 2020. https://www.knbs.or.ke/?wpdmpro=economic-survey-2020
- (6) Ministry of Information, Communications and Technology (2019). National Information, Communications And Technology (ICT) Policy. Republic of Kenya. https://www.ict.go.ke/wp-content/uploads/2019/12/NATIONAL-ICT-POLICY-2019.pdf
- (7) Frost and Sullivan (2018). Digital Market Overview: Kenya. A White Paper.
- (8) Republic of Kenya. The National Broadband Strategy. http://icta.go.ke/pdf/The_National_Broadband_Strategy.pdf
- (9) PwC analysis based on Prof. A. Damodaran data, 2020.
- (10) United Nations Economic Commission for Africa (2017). Towards improved access to broadband in Africa.
- (11) Broadband Commission for Sustainable Development (2019). Connecting Africa Through Broadband A strategy for doubling connectivity by 2021 and reaching universal access by 2030.
- (12) Kenya Communication Authority (2016). ICT Access Gaps Study Final Report.
- (13) Quaglio, G. and Millar, S. (2020). Potentially Negative Effects Of Internet Use. European Parliament. https://www.europarl.europa.eu/RegData/etudes/IDAN/2020/641540/EPRS_IDA(2020)641540_EN.pdf
- (14) KENIvest. Investment Incentives. http://www.invest.go.ke/starting-a-business-in-kenya/investment-incentives
- (15) World Wide Web Foundation (2016). Women's rights online: Report card - Kenya. https://webfoundation.org/docs/2016/09/WF_GR_Kenya.pdf
- (16) SDG Tracker (2021). End poverty in all its forms everywhere. https://sdg-tracker.org/no-poverty
- (17) BRCK (2021). About BRCK. https://brck.com/about/