Data is expensive, but whodunnit?

The rallying cry of the Zambian internet user ” Data is expensive”. We all occasionally whimper is “it is slowwww”, but this piece is about big, squeaky cries; picture nails on a blackboard. I would like to have a closer look at why the internet is expensive, yes technically you cannot buy the internet but if you could, what would it cost? That is a question for another day. In this piece, I want to try to piece together why we pay what we pay. Who is to blame for the cost of data?

Before the mystery is unravelled, a quick run through data 101. The internet is a collective of bytes who move from place to place as a collective of bits. Data at rest on your hard drive is measured in bytes but data in motion is measured in bits. 1 byte is equal to 8 bits, if you are technically inclined 10 bits including stop and start bits, for this piece we will ignore them. The data transfer indicator on your computer or phone uses bytes but the download speedtests use bits. To put this in conceptually relevant terms:

• 1MBps (megaBytes per second) is equal to 8Mbps (megabits per second)
• 0.125 MBps (megaBytes per second) is equal to 1 Mbps (megabit per second)

The internet is purchased using a collection of pipes or links from service providers to the outside world. Since we do not make much internet in Zambia we import most of it, much like our fruits and vegetables. There is a simple law to the internet, being a landlocked African country makes it expensive. Is that enough, should the article end here? Whodunnit solved? No, let us peer behind the obvious.

The next section serves to unpack the building blocks behind the cost of the internet, and what providers are currently paying. Remember we are talking about bits at this stage. The internet for Zambia lives in Europe, or within a content data network (CDNs) cloud, including popular websites like LusakaTimes. The table shows the cost of the internet at the border with Tanzania. The cost of $84.87 is calculated using a relatively small wholesale bundle of 155Mbps. With the bigger bundles expect the cost to drop to well below half that figure.

Now that we have the internet at our doorstep, some clues about whodunnit start to show themselves. With the internet at the border waiting for its stamp, let us understand what it needs to pay for. Firstly, an apology to everyone at our border towns, but the internet is consumed in Lusaka, full stop. The Copperbelt have an internet salad, but the buffet is Lusaka. As with all other things consumed, only certain people have the right importation licenses. In Zambia, the following companies have the licenses

• Airtel
• CEC Liquid
• MTN
• Zamtel
• Zesco

All the other ISPs must buy their internet through the companies listed above. The reason I used the word through is because the ISPs tend to negotiate directly for the non-Zambian part ($84.87 per Mbps) and have a dumb pipe carry it from the border to their office. Dumb pipe, think a lorry, it adds no value except having wheels and being able to move. Each entity in the chain will add a markup for the transportation services. Costs upon costs. We have started.

Now that the internet is at the ISPs point of presence (PoP), it is useless for everyone except ISP staff. The ISP has to find a way to sell and distribute the internet. There are 2 primary ways of doing this; wirelessly or using a cable. Both are expensive. Cable (fibre or copper) tends to have a far longer lifespan but a higher upfront cost. The current rates for civils (fibre trenching) are north of $8,000 per kilometre. That is the cable burial cost only, no tombstone or adornments in that figure, it is not yet capable of transmitting a signal let alone the internet. For a wireless solution, the transmission equipment on the towers costs are north of $20,000 per tower. Once again, the equipment is not capable of a sensible babble, let alone a transmission. The hardware is physically hidden but it is expensive. Least we forget the service providers equipment had to run the ZRA gauntlet. According to ZRA there is no gauntlet, it is as simple as 3 bullet points:

Customs Duty Levy/tax charged on imported goods at the following rates:
0-5% Capital Equipment and Raw Materials
15% Intermediate Goods
25% Finished Goods Customs Duty is charged on the Customs Value (CIF)

Import VAT Collected on behalf of the VAT Division and taxed on imported goods that attract VAT VAT is charged on the Taxable Value i.e. Customs Value + Customs Duty (+Excise Duty, where applicable) at the rate of 16%

With the exception of commonly imported cables and radios, everything else is not at 5%. Good luck explaining to ZRA that this is a switch or a router. I wish I could definitively state the average tax rate for hardware required to run an ISP, but this is ZRA, undefeated in all border crossings except Kasumbalesa. Maybe we should hire the traders to cut the costs? With that e-philosophical issue up for trolling, I will sip my tea.

The hardware input requirements are far too varied, too complicated and rapidly changing to be adequately defined and covered by a tax code. Clue number two. Let us re-write the tax code to reflect our national ambitions to empower the future growth engines. The tax breaks given to mining must be extended to the internet and companies supplying it. “No import duty on equipment to be used in the manufacture or distribution of the internet“, simple if I do pat myself on the back.

Now that we can transmit coherently, that is to send a beam of light down a zero-rated import duty-free link (what a sentence, what ambition), we are ready to look in the bathroom. Starting with the medicine cabinet, we find the typical mess, a litany of unlimited packages, scratch cards, data bundles and voice minutes. This is where the magnifying glass meets the obvious clue. A catalogue of packages:

A quick inspection reveals the packages are from mid-2016. Old and stale I whisper to myself. But a little voice in my head reminds me that I am no better, who can keep up with all the bundles, sub-bundles, promotions, competitions and giveaways? Back to the work at hand.

The plethora of internet wrappers reveal that the victim was paying on average K130 per GB. At $13.00 per GB its medication costs were on par with similar services in the region:

• 1GB with Vodacom R149.00
• 1GB with MTN SA R160.00 (with 500MB free)

We are definitely not more expensive than South Africa. However, savings can be made. The current fiscal budget has set excise duty at 17.5%, that is almost a 5th of the cost goes to the government, just as excise duty. If the government decides to zero rate airtime the cost for 1GB will plummet to K107.25! If you buy a 10GB bundle the excise cost component alone jumps to K122.5. If the government views the internet as an engine for growth why the high tax burden? A World Bank report on the relationship between broadband and economic growth states

The study concludes that a 10 percentage point increase in fixed broadband penetration would increase GDP growth by 1.21% in developed economies and 1.38% in developing ones.

That is the easiest 1.38% growth ever! That growth is good, but we have to set our feet in reality. A Toyota VX LC200, the vehicle of choice for decision makers, has a fuel consumption rate of 14.5 litres or a data consumption rate of 1.5G per 100km. If that data is calculated based on the excise component only, the 100km of travel then jumps to 10GB! When calculated using the scratch card value a Toyota Vitz consumes 6.7 litres per 100km or

• 3 x 300MB
• 3 x 20MB (free WhatsApp)

Vitz drivers know how to squeeze value out of the sub-bundles!

The government should either remove the excise duty or drive Vitzs, the country as a whole will get more GB per 100km. We need every metre.

Clue three. The internet to a typical user is a collection of domains, www.somethingyouwant.com. A domain is a shop front, a window to a person’s mind, a library, a workshop and so much more. Domains are the foundations of a digital business. Registering a domain is easy but only if it is not a .zm. You can skip over to GoDaddy, search, fill in your card details and for $1.99 you have a .com website. Nice, easy and simple, the calling cry of the millennial. On the flipside, to register a .zm is about grit, determination and waging a world war with a provider. That world war requires the following armaments

• Physically filling in a form
• Having a prior service with the provider
• Parting with north of $10 for a domain
• Playing hopscotch with the technical and sales department for your MX, A and CName records

If you survive all that you have a domain. Nothing more. Next, you have to purchase hosting for your web presence. At times you feel like getting your website hosted locally is Russian roulette, with a 6 shooter. The bad luck is it has more than one bullet

• Poor infrastructure
• Zesco
• No backup
• Poor logical security
• Expensive running costs

You have a 1 in 6 chances of getting of out the game with an always on, affordable website. Good luck. To solely lay blame on the providers is to do them a disservice. The regulator should create a separate license for value added services with the understanding that these services are to be priced extremely low, sub $20 per year. What is the benefit of this you ask? A little extrapolation, starting with LusakaTimes (the most popular Zambian website)

• Landing page is on average 250KB
• They get about 600,000 views a month
• Total data 146GB
  • Cost using 1GB bundles K18,980.00 per month

As a country, we can buy a Vitz every single month with the amount data we use to read LusakaTimes. A simple move to bring all our Zambian websites from the diaspora will significantly reduce the cost of our internet bundles. More locally hosted websites give the providers a better blend of traffic allowing Zambian traffic volumes to drive down the cost of internet. A regulator that sees its role, not as a builder of towers and data centres but rather policy formulator, would reduce the costs associated with data.

So whodunnit?

Key figures on the crime scene include

• ZRA
• ZICTA
• Ministry of Finance
• ISPs

But, honesty….