East Africa infrastructure boosts Altech profits

The SEACOM fiber optic cable may not have meaningfully affected the majority of East Africans but South Africa's Allied Technologies' (Altech) has called it a "resounding success" and a growth driver for the years ahead.

"Altech East Africa is showing exceptional growth and already contributes 18 percent of the Altech Group's total operating profit, proving that it has been a very successful and sound investment," said Altech CEO Craig Venter while announcing financial results for the six months ending August 31. "Altech East Africa should contribute 45 percent of Altech's total profits over the next two to three years; it is definitely the growth engine for the Altech Group."

In its financial report, the company reported that revenue increased by 4 percent, to 4.7 billion South African rand (US$634 million) and net profit is up by 14 percent, to 322 million rand.

Last year, Altech embarked on an aggressive acquisition campaign in East Africa, acquiring a stake in Kenya Data Network, the region's biggest infrastructure provider, and in Infocom, based in Kampala, Uganda.

KDN is providing infrastructure for SEACOM and The East Africa Marine System (TEAMS) as well as gateways for the majority of the satellite service providers in the region. This means that there are various ways for KDN to leverage its dominant market position.

"KDN is central to our strategy and our gateway to East Africa. Our further investment in this business is evidence of our confidence that the continent and in particular East Africa is poised for massive growth," Venter said.

Altech initially invested $39.5 million for a 51 percent stake in KDN, mainly to roll out the network that is now used by SEACOM to provide service from the landing station in Mombasa to the rest of the region. Two weeks ago, Altech announced that it had acquired a further 9.8 percent equity holding share in KDN from a minority shareholder, for about $3.3 million, raising its ownership to 60.8 percent.

Altech has also acquired bandwidth capacity on the Seacom undersea cable system. The deal gives it bandwidth access to the equivalent of 5G bps with the option to upgrade within three years to double the capacity. Through KDN, Altech acquired 8.5 percent of TEAMS for $11 million.

While Altech has not invested in infrastructure in South Africa, it has a chance to dominate the East African market because KDN has established itself as the leader in provision of commercial leased lines, constituting 75 percent of Kenya's outbound traffic.

KDN currently provides the majority of the backhaul traffic for Kenya's three cellular network operators: Safaricom, Zain and Essar. KDN has a nationwide Kenyan fiber-optic network of over 4,000 km from Mombasa to Malaba, at Ugandan border. The network extends to Kampala in Uganda and to Kigali in Rwanda.