Reaching for the clouds: Capacity upgrades are paving the way for development in new areas

The expansion of Nigeria’s international fibre-optic capacity is easing long-standing constraints on high-speed internet connectivity, which in turn is attracting the attention of global cloud computing service providers eager to gain a foothold in one of Africa’s most promising markets. Disaster recovery services, remote back-ups and the provision of software-as-a-service (SAAS) all have potential in this market.

Banks and telecoms operators are often the key early adopters of private clouds in most emerging economies, however, in Nigeria the majority continue to rely on data warehouses offshore. Yet, a number of initiatives to build local cloud capacity have been gathering steam. The administration’s efforts to establish a central government platform for emails, servers and software provision will be the key impetus for the development of Nigerian cloud capacity, and these public sector efforts will also improve access to government services through e-government.

Nigeria’s estimated 47m internet users, roughly 28% of the population, in 2012 (according to the newly-established Ministry of Communications Technology) will have to wait for much-needed upgrades in last-mile broadband connections – both fixed and mobile – before adopting cloud computing solutions. Indeed a majority of users access the internet through mobile phones, with only an estimated 6.1% of the population having fixed-line broadband internet access, and then again often at speeds below those required for reliable connections to remote servers. Blue-chip corporations mostly based in Lagos however will benefit much sooner from a growing number of alternatives for their data warehousing needs.

EASING BANDWIDTH CONSTRAINTS: Cloud computing was the fastest-growing segment of the global IT market in the past two years, and is expected to grow 48.7% year-on-year in 2012 to reach a value of $5bn, according to market research firm Gartner. “The adoption of cloud computing is behind, but there is the most potential here. Cloud adoption will be a clear business strategy requirement for most firms over the next three to five years,” Richard Edet, the West Africa managing director of the enterprise application software firm SAP, told OBG.

However, an oft-overlooked constraint on the provision of data warehousing services is the bandwidth required to use it. The concept of outsourcing the operation of server capacity and software platforms to third parties is thus particularly appealing in a country beset with chronic power shortages (the main expense in running data warehouses) and security threats, both online and offline. However, the speed at which users – both individuals and corporates – can access their remotely stored data is the crucial factor in such outsourcing decisions. With historically only one sub-sea fibre optic cable linking Nigeria to the global internet backbone, SAT3 (backed by France Telecom, South Africa’s Telkom Group, AT&T, NITEL and others), the idea of relying on offshore data centres for operations was a non-starter for all but affluent customers able to afford a satellite internet protocol (IP) connection.

LAND HO: The wholesale bandwidth market changed markedly in July 2010 when the first of three new sub-sea cables – Main One – was completed, with a landing station in Lagos. The 1.28 TB ps Main One Cable linking the West African coast to Portugal brought about a 30-fold drop in bandwidth prices, according to Nigerian internet service provider (ISP) ipNX, while reliability and speed increased. Crucially the $240m Main One Cable is backed by investors independent of major telecoms operators, thus providing an open platform for bandwidth sales.

A competing cable linking the region to the UK launched by Globacom, also in 2008, advertises its capacity at 2.5 TB ps. While originally due to come online in 2009, repeated delays postponed the cable’s commercialisation to 2011 – ISPs still complained of unreliable service in 2012. The third new cable completed in May 2012 is the $650m West Africa Cable System (WACS), advertised at 5.12 TB ps and backed by 11 network operators including MTN, Vodacom, Telkom South Africa, Cable & Wireless and others.

“The arrival of new fibre cables in 2011 makes cloud computing more feasible,” Rex Mafiana, the country manager for Nigeria and Ghana at computer storage and data management firm Net App, told OBG.

LIMITATIONS: Yet while international connectivity is vastly expanding, terrestrial connections and last-mile broadband connectivity continue to lag. With all three cables’ landing stations in close proximity to Lagos, urban areas in the commercial capital have been the first to benefit from faster connections. Yet even here the roll-out of urban fibre networks has been slow in the face of challenges such as difficulties in gaining right-of-way and incidents of sabotage and accidents. End-user broadband services continue to be dominated by GSM operators MTN and Airtel, CDMA operator Multilinks (which is facing financial difficulties) and Phase 3 Telecom, a fibre backbone provider. Price competition on retail data has lagged behind the wholesale market, while infrastructure sharing amongst operators remains in its infancy. “The industry is slowly but surely moving towards more infrastructure sharing,” Steven Evans, the CEO of Etisalat, told OBG. “We are now doing one to one swaps and have started leasing some fibre and base stations.”

According to Funke Opeke, the CEO of Main One Cable, this could be sped up with the government’s help. “The government should intervene to accelerate the pace of wholesale fibre access and roll-out. We need to agree to a commercially viable framework for infrastructure sharing with incentives for the incumbentsto share their proprietary networks,” he told OBG. Nonetheless the commercialisation of the new cables has attracted strong interest from foreign firms seeking to cater to growing demand for server and application hosting on the part of corporates, the first to benefit from more reliable broadband connections offered by the sub-sea cables.

CLOUDS OFFSHORE: With roughly 90% of email addresses hosted on servers outside Nigeria, including a majority of civil servants, Nigeria has long depended on international connectivity. Yet services requiring heavy bandwidth usage, such as remote back-ups and SAAS have been hampered by slow speeds. Since 2011 however telecom operators and global cloud computing providers have sought to promote growth in demand for hosting services for corporates. Cloud-based services reduce operational costs for firms that outsource this requirement, providing the option of subscribing to software rather than buying the product. “Cloud computing is a major cost-saving strategy,” Obinna Agwu, the managing director of CommuniGate Systems, an IT firm planning to launch cloud services like e-libraries in Nigeria in 2012, told OBG. “With this platform you don’t need to own any hard equipment or to invest in personal storage facilities – this is definitely the future.”

The majority of SAAS offerings in Nigeria rely on hosting offshore: the Lagos-based AppZone provides SAAS based out of the US-based Go-Grid cloud for instance. It has been marketing its banking platform to microfinance banks, providing a more affordable payments and banking platform used by commercial banks through subscriptions to the software service.

Global data centre operators have flocked to the market, particularly since 2011, with the likes of Google’s cloud platform aggressively marketing their services to corporations, for instance. US software giant Microsoft launched its global Office 365 cloud solution in Nigeria in June 2012. Dell’s global CEO visited Nigeria in July 2012 in a bid to promote Dell’s data centres, as well as to promote Dell servers or local data warehousing initiatives. Gateway Communications, a pan-African service provider with the largest Multi-protocol Label Switching cloud in Africa and bought by Vodacom in December 2008, introduced its cloud computing services to the Nigerian market in late 2011. However, while the majority of domestic demand continues to flow to cloud services abroad, local cloud services hosted in Nigeria will be key to reducing latency and improving cloud-computing penetration.

The Ministry of Communications Technology estimates that approximately 300 data centres will need to be built in coming years to support low-cost internet services and software, helping to crack down on software piracy. At a cost of roughly $20m to $30m per data warehouse at global standards, this requires investment of approximately N900bn ($5.76bn).

LOCAL DEVELOPMENTS: Many big corporates in the hydrocarbons, telecoms and banking sectors have opted to develop their own private clouds locally, developments which global software giants like Oracle are keen to support. Yet local start-ups have also been getting a piece of the action. Nigerian-owned Inlaks Computers has designed a number of private clouds for clients like First Bank, United Bank for Africa, the Central Bank of Nigeria (CBN) and telecom operator Multilinks. Airtel opened its new 1858 sq metres Lagos data centre in May 2012 to cater to its subscriber base. Third-party provision of private clouds is set to gain traction in coming years, particularly driven by regulatory pressure on banks, traditionally early adopters of cloud platforms. IT security firm Symantec, which already covers 60% of telecoms companies and half of all banks in Nigeria, is keen to cement its lead by migrating its security offerings to the cloud. In the midst of implementing International Financial Reporting Standards (IFRS) for banks in September 2011, the CBN announced plans that require lenders to maintain independent servers within Nigeria to manage their data. While larger banks like First Bank and UBA have the scale to build their own private clouds, smaller lenders will need to seek out public clouds hosted locally. This move will be supported by the CBN, which has already announced its desire to cut banks’ operating costs by pooling resources such as power and some IT systems. All banks’ chief information officers (CIOs) have formed a working group, the CIO Nexus, which was awarded a $510,000 grant from the US Trade and Development Agency in September 2011 for technical and operational capacity building. One of the aims is to develop a shared disaster recovery centre for financial institutions. “Currently, local clouds are led by telecoms operators hosting services locally,” Mafiana told OBG. “Starting in 2013, banks are likely to come online and build and merge operating infrastructures.”

LOCAL CAPACITY: Such moves are encouraging the development of domestic cloud-hosting capacity, with local firms looking to partner with global vendors with experience in cloud system development. The local internet Solutions West Africa invested N1.65bn ($10.5m) from 2009 to 2011 in building two data centres in Lagos covering a combined 125 sq metres, upgrading and expanding the Victoria Island location at a further cost of N225m ($1.44m) in 2011. Another local IT firm, Resourcery Nigeria, established its own Cisco Unified Computing System in January 2012 targeting telecoms companies and banks. Its first customers include Vodacom’s Gateway Communications, keen to expand its local footprint, and Main One Cable’s data centre, which in turn provides colocation and disaster recovery services to companies. A third local firm, TTC Technologies, is partnering with the Obafemi Awolowo University of Ile-Ife to build private clouds for corporate customers.

GOVERNMENT DRIVE: The establishment of clouds is also receiving a strong push from the federal government and among some states. The Obasanjo administration established the Galaxy Backbone in 2006 in a bid to expand broadband access and jumpstart an e-government initiative. Having connected some 450 agencies to the public sector OneGov.net domain, with over 3000 nodes throughout the country by 2012, the basic infrastructure is in place. Some 86,089 email addresses and 250 government websites under the “.gov.ng” domain had been established by May 2012. The initial aim was to avoid excessive duplication in IT spending across the sprawling bureaucracy of federal government. Yet the remit was widened to providing services to schools as well as opening up services to third parties on a commercial basis.

Yet authorities admit to continued overlap in expenditure: “There are still too many instances of individual ministries, departments and agencies (MDAs) deploying ICT infrastructure that is better deployed through a more effective pooling of financial and human resources,” Omobola Johnson, the minister of communications technology, told the fifth Public Sector ICT Forum in Abuja in November 2011. Indeed aggregate IT spending plans by 2014 on the part of the 800 MDAs total N4.5bn ($28m), according to the ministry, which is pushing for such services to be centralised through the Galaxy Backbone platform.

CLOSED CLOUDS: One of the largest examples of such closed clouds is that established by the Nigerian National Petroleum Corporation (NNPC), opened in July 2012. Inlaks Computers built the Tier+3 data centre, which the oil company expects to save it some $5m annually by centralising operations like its procurement platform NIPEX, SAP, its Intranet, Microsoft Exchange email service and others. More prosperous states are engaged in subnational initiatives. Rivers State’s governor launched the RivCloud cloud in April 2012 with support from MTN and Globacom. The platform provides storage, application hosting and SAAS to both public and private sectors, and will migrate services like tax filings online. While Nigeria still lags behind regional peers like Kenya, a concerted effort under a more focused Ministry of Communications Technology should expand services to citizens.

The early adopters like banks and telecoms firms will drive growth in cloud computing in the short term, while state support for e-government will likely reduce significant overlaps in public sector IT spending. In the longer term, bridging last-mile broadband access is crucial to growing penetration, driving efficiency for smaller enterprises and lowering barriers to the formal software market for consumers. The fight against piracy will benefit and in-country IT spending is likely to grow, an encouraging sign for the industry.