South Africa’s telecom sector drives the most advance networks of the continent in terms of technology and services provided. Vodacom, MTN, Cell C and Telkom SA are the four operators competing for market share in the country.
The telecommunications market is regulated by ICASA, a statutory organisation established, according to The Independent Communication Authority of South Africa Amendment Act of 2000. It is a merger of telecoms regulator South African Telecommunications Regulatory Authority (SATRA) and Independent Broadcasting Authority (IBA), according to the Department of Communications of the Republic of South Africa.
Key regulatory matters are shaping the market. Mergers and acquisitions, the licensing of WiMAX and LTE spectrum as well as 'digital dividend' spectrum, the unbundling of the local loop, and the reduction of interconnect charges are some of the issues, reports Peter Lange, analyst at BuddeCom.
On the possibility of mergers and acquisitions among operators in the country, Mpho Moyo, analyst in Sub Saharan Africa at Analysys Mason said that “there are likely to be fewer operators in future, a trend that has been seen in a number of other countries as broadband and Internet markets have matured.
“A merger of Telkom Mobile and Cell C has been mooted occasionally, but seems less likely given Telkom’s recent network sharing deal with MTN. There is certainly activity — MTN acquiring ISPs, Vodacom buying Neotel, Telkom acquiring BCX, and Vox Telecom on the block — but it is mostly about consolidation and filling in service gaps,” she continued on the mergers.
“The telecoms market has been consolidating over the years and this has resulted in an industry that is more mature. As a result of this consolidation, operators have differentiated themselves in the market through network performance, innovative product offerings and competitive pricing,” noted Larry Annetts, chief marketing officer at MTN SA.
With a population of 52.98 million in 2013, according to the World Bank, South African mobile SIM card penetration is approximately 142%. Operators’ main revenue driver is voice, in 2013 retail mobile voice revenue stood at $6.95 billion. “Revenue from data over a voice SIM is greater than revenue from data only SIMs. Mobile handset data and mobile broadband revenue stood at $770 million and $750 million respectively in 2013,” noted Moyo.
“MTN is using technology and business model innovation to shift its focus. Technology is increasingly helping us resolve traditional limitations of fixed line internet access. Some examples include our focus on high speed 3G, LTE so as to enable our customers to leapfrog into the digital realm such as wider geographic reach and real time access. Financial services, particularly is another area that MTN is investing in by enabling the majority of South Africans to access banking services via their mobile devices,” Annetts commented on the shift from voice to data revenues.
There are currently four LTE networks that are operational in South Africa. Vodacom, MTN and Telekom mobile have commercially launched operations. Cell C is still conducting trials and Neotel is offering a FWA LTE service. “LTE is a niche service in South Africa and deployments are limited to the main cities. Operators note that LTE coverage is restricted because of regulatory delays in the release of critical spectrum in the 700MHz and 800MHz [range]. The cost of LTE enabled handsets is prohibitively high and it’s important to take into consideration handset refresh cycles. Typically a post-paid contract runs on a 24 month basis. The LTE market will change gear when the government gets behind it and releases spectrum,” said Moyo.
Annetts believes that customers are ready for this technology, although he acknowledges the challenges. “While there are several LTE offerings at present, there is insufficient spectrum made available to provide a comprehensive national service. There has been a significant uptake in the high value segment driven by innovations in the smartphone and tablet industry. LTE handset availability at affordable prices remains a challenge, we believe that this could further drive customer take up in the future,” Annetts said about the coming challenges.
South Africa’s Internet and Broadband market has taken off after years of stagnation due to several factors. An expensive operating environment created by Telkom SA’s dominance in the fixed-line and international bandwidth market and the lack of direction from government. According to Moyo, this last reason is a more likely “culprit” as there have been five ministers in charge of the sector since 2009 and the process to award new spectrum for LTE has been stalled since 2011.
Analysys Mason forecasts mobile broadband (medium and large screen) connections to grow from 4.5 million in 2013 to 8.6 million in 2018 at a CAGR of 13.9% 2013-2018.
The consultancy firm also expects mobile broadband revenue to increase from $750 million in 2013 to $1.26 billion in 2018 at a 12.6% compound annual growth rate (CAGR).
“Pervasive mobile broadband requires substantial investment in fixed backhaul and backbone capacity. There is also a requirement for additional spectrum. MTN is focused on investing in its fixed line fibre, “self-provisioned” network, in addition to other investment on our infrastructure such as fibre to home, fibre to the site and microwave backhaul,” said Annetts.
The government created Broadband Infraco, which has offered carrier services to licensed operators since 2010. It has encountered numerous challenges that mean it has struggled to fulfil its mandate. “Its entry certainly did cause prices to fall, and it continues to offer low prices, but low prices are not all that credible operators are looking for. The emergence of privately funded long-haul networks after Infraco entered the market suggests customers are looking elsewhere,” said Moyo. South Africa’s Department of Public Enterprises will reportedly no longer have oversight over state-owned telecoms operator Broadband Infraco, according to Techcentral.
Expanding operator’s portfolio to the enterprise market is a key priority for operators, according to Moyo. “Operators are buying systems integrators, for example, Telkom South Africa plans to buy BCX. Operators need a decent fixed line service to combine with their mobile service offerings in order to address the enterprise market eg. the Vodacom, Neotel merger. Vodacom aims to play a bigger role in the fixed market. The company announced that it intends to invest $245.2 million in FTTx services in 2014.
She commented that internal investment in platforms to deliver digital services including mobile money, e-education, m-health, and external investment is needed. “Most mobile operators in South Africa have international presence and are focused on international expansion plans due to the slow-down in the mobile market growth e.g. Pan –African operator MTN has stated that it expressed an interest in expanding its footprint further across the African continent.
Annetts noted that the rapid uptake of smart phones and mass deployment of 3G opened up immense possibilities in data and telemetry services such as m-commerce data and video.
There is a converged licensing regime that has created hundreds of companies licensed to offer Internet services, such as Dark Fibre Africa, which operates a carrier neutral, dark fibre network to transmit metro and long-haul telecommunications traffic in South Africa, for telcos, ISPs, government and business customers.
“The ECNS licences permit companies to build national networks and compete directly with fixed and mobile operators in the market. Therefore regulation is no longer the reason not to start a business. Dark Fibre Africa is a runaway success story and would not have existed without a licence,” said Moyo.