South Africa telecoms market
South Africa stands somewhere between a developing and highly developed telecoms market; it has a thriving mobile market with healthy competition, a 103.7% wireless penetration rate and trials of LTE which started last year.
Its fixed-line market is still trying to shake off the hold of incumbent, Telkom SA. This year will see several important changes to South African regulations allowing the market to open up, including the lowering of fixed and mobile termination rates, the unbundling of the local loop and the auctioning of WiMAX and LTE spectrum. There has also been a continued effort to lay subsea cables to enhance the country’s connection on a global scale. The South African market was liberalised in 2002 but real competition to Telkom SA didn’t appear until 2006 in the form of private operator Neotel. Despite the competition, however, in September 2010, South Africa’s broadband penetration rate was still only 6.6% and in March 2010 fixed-line household penetration had fallen to 26.5% from 26.9% the previous year. Because of Telkom SA’s control of fixed lines and the success of mobile operators, wireless networks are quickly becoming the most favourable mode of broadband connection.
The reduction to mobile and fixed-line tariffs implemented this year is set to have a significant impact on all aspects of telecoms in South Africa. The Independent Communications Authority of South Africa (ICASA) called for fixed termination rates for fixed lines and mobiles starting in March 2011 and lowering the prices every year until targets are reached in 2013, claiming that call rates were too high due to lack of competition. Dr Brian Armstrong, senior managing executive on enterprise from Telkom SA, says that the reductions to fixed termination rates were not widely expected: “The change to fixed termination rates has a strong impact on us as the incumbent by giving our competitors more scope to attack our price. We have been formulating responses but the fixed termination rate (FTR) changes have been a big challenge for us.” Telkom SA’s new mobile business, 8ta, which launched last October, could be hindered by the reduction of calls from 89c to 40c at peak times by 2013.
The proposed unbundling of the local loop this year is a major milestone for South Africa’s telecoms because it will finally free up the market and create real competition among operators. Mike van den Bergh, CEO of African carrier Gateway Communications, says that the unbundling of the local loop should accelerate competition in the market if successful, but it is a very compli-cated process: “It’s one of the most complex areas to deregulate and an area where the incumbent always resists; it is the one thing that guarantees them a lingering competitive edge.”
Van den Bergh predicts that the deregulation of the market will also lead to a sudden influx of cable capacity into the market. Since the east coast cable SEACOM was launched in 2009, several submarine cables have been laid up the east and west coast of South Africa, connecting it to the rest of the continent, Europe and the Middle East.
Dobek Pater, an analyst from Africa Analysis, says the introduction of the EASSy cable in 2010 “pretty much revolutionised the market and introduced a paradigm shift by offering lower cost bandwidth.” South Africa is also getting connections along its west coast and onto Europe with the new WACS cable that will be finished this year. The cable will provide a bandwidth of 5.1Tbps for all participating countries and is predicted to lower wholesale capacity pricing by 10 times.
There have also been several recent partnerships between telcos to build their own fibre networks in-country and rival Telkom SA’s dominance of the market. One of the most significant is the government-owned Broadband Infraco, created in 2008. Consisting of the telecoms assets of Eskom and Transtel, it was created to lower national bandwidth costs because it was deemed Telkom SA was charging too much. Its success has been limited, except in its connections to the borders and into South Africa’s neighbouring countries. Pater says: “By the time it finally launched commercial services in the market (Q4 2010), the market had become more competitive and will become even more competitive.” A debate in the industry is now whether Broadband Infraco will be allowed to enter into retail services. Neotel signed a deal with MTN and Vodacom in 2009 to deploy a 5,000km fibre-optic cable, and work began in March 2009 with the aim of finishing by the June 2010 World Cup.
Unfortunately the deadline was missed, with the consortium blaming regulation boundaries. In November, Cell C, Dimension Data division Internet Solutions and Convergence Partners also formed a partnership called FibreCo, planning to build a fibre-optic network spanning 12,000km costing $725.93 million.
Despite the radical changes that face the South African market over the next year, Pater predicts there is still more to come: “We’re going to see a lot more cloud services provision and going on from that a lot more infrastructure built.”