SA's changing telecoms landscape

		SA's changing telecoms landscape By Brian Neilson for ITWeb Market Monitor The South African telecommunications regulatory environment can be defined as being in the ‘second wave of sector reform’, a stage that is normally characterised by a more vigorous move towards greater sector liberalisation.
Over the past few years there have been significant movements with regard to the implementation of the Electronic Communications Act (ECA). Licenses for incumbent operators were converted to ECNS and I-ECNS, and on 16 January 2009 through Government Gazette 31803, the regulator announced the completion of the entire licence conversion process. Many of the outstanding liberalisation objectives, which are embodied in the ECA, are being addressed, and during 2008 ICASA issued no less than 10 draft regulations for discussion. 2009 was no less significant regarding implementation of some of the regulations, and 2010 has seen a plethora of regulations issued for comment and implementation. A significant development in the 2009 market was the High Court's ruling that service providers, formerly classified as ‘value-added network services’ (VANS), can self-provide facilities; this after Altech had taken ICASA and the Department of Communications to court on the issue as the 200 or so VANS licences were being converted by ICASA into I-ECNS licences. Even though this is a significant victory towards further market liberalisation, there remain doubts on both the financial ability and the will of most of these companies to roll out a significant network infrastructure of their own. What remains critical is the finalisation of wholesale pricing and essential facilities regulations so as to enable those that remain primarily ECS players to access the facilities of the incumbents at more favourable rates than those currently experienced in the market. Even when they do achieve the benefits of wholesale pricing, based on global experience, facilities-based competition is regarded as being a far more effective driver of achieving higher levels of competition in the market, with corresponding levels of cost reduction. Mobile virtual network operators (MVNOs) can also benefit from services-based competition enablers, although the jury remains out on whether this will in fact materialise with any significant impact in SA. The level of competition is expanding on a number of levels. Broadband services proliferated with corresponding price decreases, with the trend set to continue in 2010. Cell C has also announced its W-CDMA/HSPA based services with an innovative and competitive pricing structure. Telkom unveiled its own mobile operation under the name 8ta. Some of the new broadband services and related price and performance improvements have been facilitated, at least in part, by the advent of SEACOM in 2009, and related competitive moves by Telkom on SAT-3/SAFE. Further competition on international submarine cables is an ongoing trend; including the landing of Eassy in 2010, of national long distance fibre backbones and of metro networks, with Neotel already playing a key role at all three of these levels. Metro fibre competition is also being stimulated by the appearance of private sector players like Dark Fibre Africa and Metrofibre Networx, which are seeking to achieve critical mass in signing up multiple licensed service providers on routes in which they are deploying ducting. In the market forecast scenario presented below, the total telecommunications market is projected to grow at a CAGR of 3.4% over the forecast period, with similar growth in the fixed and mobile segments.  Growth in both categories is being sustained by data services, as voice markets are rapidly maturing.

The South African telecoms market is becoming highly competitive on all levels, and even the major mobile operators are facing maturing markets for their staple voice services, and are having to consider ways of managing their costs rather than simply pursuing further growth – although the mobile data services market remains a source of substantial growth, along with its own price-based competition.

The race remains on to sign up customers for data services, while taking care to manage profitability in this market, including reviewing channel strategies and pruning back unprofitable channels. Mobile operators are also targeting lower spending subscribers for the next wave of growth in mobile data usage.

Competition in voice services is also on the increase with all the major mobile operators having released packages and tariffs that offer considerable discounts across all networks.

It remains to be seen how quickly further decreases in termination rates will flow through to retail tariffs, as operators’ margins are further impacted as a result.

The voice market remains extremely fluid, posing a significant challenge to all the players in the market – whether PSTN, mobile operator or alternative voice service provider – in that it increasingly difficult to plan for the future.

Smaller ‘alternative voice players’ have to adjust their business models, partnering relationships and product suites on almost a month-to-month basis, in an effort to remain relevant and profitable.

This instability makes it very difficult for investors to make sound decisions, affecting company valuations and making new investments unattractive due to the uncertainty.

While all players will play the arbitrage game as long as necessary, they are all secretly hoping for the situation to stabilise, so that they can plan their businesses and return to a semblance of normality.

In light of the generally heightened levels of competition at all levels, further market consolidation is likely, as more telecoms businesses operate unprofitably or lack a clear strategic future.

Market leaders’ desire to consolidate market share is a key driver for this, as evidenced by MTN’s previous acquisition of Verizon Business, and strong indications of likely future acquisitions among other players.

There is also a strong likelihood of heightened participation in the local market by international entrants, for example NTT’s pending deal with Dimension Data group (including Internet Solutions)

 - ITWeb Market Monitor