Internet café bubble bursts

Tuesday, 27 March 2007 00:00 Written by ITWeb

iBurst`s plan to create 20 000 Internet cafés by 2010 stalls due to funding challenges. Funding problems have grounded iBurst`s plan to establish 20 000 Internet cafés by 2010, eight months after the project was announced.

iBurst, in partnership with Tradepage, outlined its plan in July, with CEO Thami Mtshali saying 100 cafés were being set up immediately, with 1 000 to be rolled out in the next couple of months. Soweto was the starting point, expanding to other townships where iBurst already has coverage, he said.

To date, 100 Internet cafés have been built. “Those were the pilot sites to prove the model is profitable,” says Mtshali.

However, funding has not yet been raised for further cafés, Mtshali says. iBurst is in negotiations with a number of potential funding institutions, including the Department of Trade and Industry and Unsobomvu Youth Fund, he says.

Business case

Mtshali previously said iBurst would operate on a “preferred partnership model” with Tradepage, an independent Internet service provider. Local entrepreneurs could expect to invest a minimum of R30 000 for a fully-equipped café.

Each Internet café would have up to 30 computers, with four to six computers per connection. The cafés would offer Web services, such as e-mail and Internet access, at R5 for a 30-minute session. Voice over Internet Protocol call services would also be offered.

MyADSL founder Rudolph Muller says such an initiative would succeed only if there is a viable business case. “Unless such a business model exists, the programme will need to trust external funding to be successful and this can be problematic.”

He adds there is a market for Internet cafés in disadvantaged areas, but it will not be a lucrative enough business to make people rush to invest.

It will have to be run on a small budget, and some support from government or companies like iBurst may initially be needed, he says. Successful Internet cafés generally charge fairly high per-hour rates to remain profitable, but in disadvantaged areas low hourly rates are needed to create interest, he adds.

However, an industry insider argues that while users` socio-economic circumstances provide a solid argument for charging R5 per half hour, there is a risk of operating at a loss.

Download danger

[PICTURE]There is a danger that a user could download large amounts of data, such as music or a video, and use up the Internet café`s data allocation, the insider says. The business will not only get a pittance for the data the customer used, it will also be unable to continue operating until such time as new data is allocated, he adds. “Control it by the amount of data you download, not how long the user is online.”

A member of the MyADSL forum, who planned to set up an Internet café in previously disadvantaged areas, argues that users in these communities are not Internet-savvy and are unlikely to consume large amounts of data.

The speed could also be limited to about 120Kbps per computer, ensuring limited data transfer.

Development Bank of Southern Africa`s ICT specialist George Finger notes multi-purpose centres have proven to be profitable for all parties involved. The container-based centres provide telephony and Internet services, depending on the model. Vodacom, MTN and Cell C rolled out the centres in underserviced areas, as part of their social responsibility obligations.

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