The recently released National Integrated ICT Policy White Paper 2016 of South Africa calls for convergence of information and communication technologies as a means to facilitate inclusive socio-economic transformation of South Africa. Given the maturity of the market, proper consolidation can go a long way to bring the country to the forefront of digital innovation.
South Africa has inevitably been one of the most advanced telecom markets in the African continent. According to IDC, the market measured up to be just below $ 12billion for 2015 with mobile comprising just over 73% of the total market.
South Africa is the largest telecom market in Africa and only second to Saudi Arabia in the MEA region ahead of Turkey, according to George Kalebaila, senior research manager at IDC. He adds: “This is largely attributed to well-built mobile and fixed infrastructure and high penetration of telco services. This is not surprising because South Africa is the largest economy in Africa with comparably high ICT maturity.”
The current infrastructure market, particularly in relation to broadband, is characterised by fundamental market problems of ineffective competition, infrastructure sharing bottlenecks, unnecessary duplication of infrastructure, and inefficient use of scarce resources, according to the National Integrated ICT Policy White Paper 2016. Multiple networks have been rolled out across the country, with deployment skewed towards urban areas where infrastructure duplication is prevalent. Competition, in particular in the mobile broadband market, is limited by the number of players that have access to scarce frequency spectrum resources. This market structure and the policy approach that has enabled it, increases the costs of broadband provision and thus limits broadband access by end users. The key to overcoming these challenges is openness.
Babak Fouladi, chief technology officer, MTN SA tells CommsMEA: “Minister Cwele has said that the approval of the paper paves the way for the start of a legislative programme that will amend laws where necessary, and set up the new proposed structures or institutions.”
In terms of regulation, the regulatory environment is maturing but like in other regions, dominant players are seen to still exercise some degree of control on the regulator. However, as Kalebaila says: “overall, regulatory affairs are conducted in an open and inclusive manner although the continuing uncertainty over the spectrum auction process due to differences between the regulator - ICASA, and government - department of telecommunications, is causing anxiety in the industry”.
The market continues to be subdued due to the stagnation in the economy impacting negatively on consumer spending. Results have been mixed, whilst Vodacom recent results show 7.2% revenue growth, MTN SA has experienced marginal growth with services revenue growing only by 0.7%. Telkom reported 14% revenue growth up to March 2016 on the back of a successful 3-year turnaround strategy. “Data continues to drive much of the growth as both fixed and mobile voice continues to decline. All the operators’ margins are under pressure and all are employing different cost containment strategies as they look to improve profitability”, says Kalebaila.
Government remains a major consumer of telecom services and all major telcos have significant business with government. Government is pushing the broadband policy via the SA Connect project that is aimed at making broadband ubiquitous especially in rural and peri-urban areas. However, the process has been delayed due to funding issues.
Kalebaila says that the telecom market remains a critical component of the economy contributing an estimated 3.8% to GDP in 2015. It also is a major source of employment and contributes to infrastructure development. “South African telcos continue to play a significant role in the development of telecoms market on the continent with MTN, Vodacom and Internet Solutions present in various African countries. MTN has operations in 17 countries in Africa with Vodacom in four countries excluding those that are directly under Vodafone group. In addition, these telcos also provide enterprise services to support South African companies operating on the continent.”
Data is driving much of the growth in the saturated mature market. Data ARPU for 2016 is estimated to average $31 and is expected to grow at 6% until 2020, according to Kalebaila. “Voice ARPU is higher at $64 but will continue to decline at 7% over same period.” Flexibility and transparency in the pricing structure optimised for data can drive usage and increase spend. Smaller players such as Cell C and Telkom have started acting in this regard already.
Data growth invariably is leading to an increased demand for LTE services. However, LTE deployments are restricted to metro areas mainly due to lack of spectrum. Kalebaila says: “Telkom and Neotel both have major chunks of LTE spectrum but they remain small to make an impact. Telkom and Cell C have both introduced exciting data packages, FreeMe and Pinnacle respectively which are quite competitive and optimised for data. MTN and Vodacom are responding with their own data packages. Telkom’s Fixed LTE offering is quite popular especially in the SoHO & SME segments.”
“MTN has already developed a modern, high performing and reliable mobile network for the people of South Africa providing a population coverage of over 98.7% for GSM voice and data services and over 93.3% for 3G voice and mobile broadband services”, says Fouladi. “MTN continues to invest in developing its network to provide leading edge mobile broadband and voice services using the latest 3G and 4G LTE technology developments. MTN launched its 4G LTE mobile broadband services using 1800MHz spectrum, providing a better mobile broadband experience for its customers which is also more spectrally and cost efficient. To date, MTN has over 47.3% population coverage for 4G LTE services.”
Lack of spectrum for rollout out of LTE networks continues to remain a big challenge. Moreover, fluctuation of the local currency against the dollar affecting capital investments. Kalebaila remarks: “Stagnation in the economy affecting consuming spending. Increasing labour costs and declining margins as well increasing competition all contributing to the challenging operating environment. This is expected to continue in the near to medium term.”
Fixed broadband especially fixed wireless access and Fttx are experiencing strong growth as demand for high bandwidth in the consumer segment continues. Adoption of cloud and datacentre services is driving growth for fixed data services especially Ethernet and Managed VPN services. “There is also continued strong growth in M2M services and these are expected to morph and create foundation for adoption of IoT services”, says Kalebaila.
Unlike in several other African economies, Mobile Money has failed to take off in South Africa mainly due to high penetration of traditional financial services. Both Vodacom and MTN have since discontinued their mobile money services. Kalebaila says: “The financial sector is a highly regulated market making it very difficult for non-financial players to provide financial services. There was also little incentive for banks to partner with telcos as they also had interest in expanding their services to capture low end of the market that could have been the target for mobile money services. Mobile Money will remain a niche market.”
Fouladi echoes that MTN SA is currently decommissioning the platform for the current Mobile Money solution. “The product has seen good uptake but the structure has proven to be inefficient and costly. Also, the growth in retail and banking remittance products, has resulted in a saturated domestic remittance market.” MTN SA is currently exploring the extended options available on a Mobile Money platform that would “add value to the lives of MTN customers and will be relaunching the product with value added options available”.
The growth in the enterprise market is mainly being driven by strong growth in fixed data, mobile data and IT services. According to Kalebaila, the enterprise market is dominated by the big telcos such as Telkom, Internet Solutions, Neotel, Vodacom, and MTN in no particular order. All the major telcos are also offering IT services either through services partnerships or through acquisition as has been the case for Telkom which recently acquired BCX.
The M2M/IoT market in South Africa is characterised by a wide range of services at differing levels of maturity. “Telemetry based services such as vehicle tracking and fleet management are quite mature in the market whilst medium to high bandwidth services such as CCTV and telemedicine are nascent”, adds Kalebaila. In terms of volume, traditional M2M services which are predominantly low bandwidth and low ARPU still account for the larger portion of the market whilst emerging high bandwidth services present the biggest opportunity in terms of revenue.
The M2M/IoT market is at an exciting stage in South Africa as the country braces for digital transformation across public, consumer and business sectors. This presents a huge opportunity for growth but will require enabling and tapping into the potential of specific verticals such as automotive, manufacturing, and security and surveillance. “The convergence across different digital ecosystems such as enterprise mobility and IoT will unlock the latent potential and enable new business models. Therefore, service providers that illustrate the art of the possible with innovative solutions that seamlessly integrate across the digital ecosystem will dominate the space”, Kalebaila says. Nevertheless, success will only come by moving up the value chain and becoming the partner of choice by leveraging capabilities of specialist vertical solutions providers.