Tapping potential

South Africa's telecoms sector is entering an interesting phase as it begins to feel its way in a potentially progressive and liberalised regulatory environment.

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By  Administrator Published  July 1, 2008

South Africa's telecoms sector is entering an interesting phase as it begins to feel its way in a potentially progressive and liberalised regulatory environment.

South Africa's telecommunications market has seen massive growth in the last few years and is by far the most mature sector on the African continent, explains Lindsey McDonald an ICT industry analyst, Frost & Sullivan.

A bird's eye view of the sector exhibits strong governmental and regulatory policies that exist within the sector, encouraging the growth and uptake of telecommunications in the region, especially in historically under serviced areas, she explains.

Both Vodacom and MTN have knowledgeable experience in niche high end and vast low end markets giving them a competitive advantage against new market entrants. - Lindsey McDonald

In recent years, policy regulations within the sector have made way for a more liberalised telecommunications sector.

The introduction of the Electronic Communications Act (ECA) which has replaced the defunct Telkom friendly Telecommunications Act of 1996 is set to change the sector by rolling out more technology neutral converged services based licences to bidding communication companies, according to Denis Smit, MD of BMI-Techknowledge.

The ECA legislation potentially encourages a service based, level playing field among telecoms players, paving the way for greater competition, as opposed to a vertically based market that has existed in the past.

The Act has started the ball rolling in creating a more liberalised playing field, according to McDonald.

Although the regulatory landscape has started to open up the market, much of the policy implementation is slow, which is bottle necking the industry, says Andre Wills, MD Africa Analysis.

Sector overview

In the fixed line sector, the promulgation of the ECA led to the licencing of a second national operator, Neotel which offers advanced voice and data services. The fixed line sector has been dominated by the incumbent Telkom.

The creation of a second national operator was inevitable after the incumbent Telkom had been criticised for its high interconnection fees which have inhibited economic growth through local and foreign investment, as well as poor provision of basic communication in the rural areas.

The historical lack of competition in the fixed line arena has created a poor fixed line teledensity of just 4.8 million fixed lines among a population of 48 million, according research done by market intelligence group BMI-Techknowledge.

Market expert Stephen Dolk, of NUS consulting says that the latency by the regulator to licence the SNO regulator has tripped up potential growth within the sector.

Neotel's entry into the market is expected to bring a boost to the fixed line sector, committing a US$ 1.52 billion boost into network infrastructure over the next ten years. Local media reports that Neotel aims to take around 15% of Telkom's fixed-line revenue in the first few years of operation.

South Africa's mobile telecommunications sector on the other hand is fairly well established and like most African mobile telecom markets, the country has shown strong growth over the past few years. The ratio of mobile to fixed connections is 7:1.

At the end of 2007, mobile subscriptions stood at around 40 million people in a population of 48 million. According to research at BMI-Techknowledge, the country has yet to reach saturation point: penetration reached 93% in 2007 and will only just pass the 100% mark at the end of 2008.

Forecasts predict 58 million subscribers by 2012 - a figure that will represent 114% penetration.

The mobile sector consists of four players: Vodacom and MTN who have been operational for over 15 years, and Cell C and Virgin Mobile South Africa (VMSA) which entered the market more recently.

South Africa media reports reveal the last two mobile entrants have struggled to gain a substantial market share against pan African rivals Vodacom and MTN.

McDonald says that both Vodacom and MTN have knowledgeable experience in niche high end and vast low end markets giving them a competitive advantage against new market entrants.

However VSMA has given itself a five year time period to gain around a 10% share through its MVNO partnership with Cell C.

Middle Eastern based mobile operator Zain has expressed an interest in entering the South African market which would create an interesting challenge for MTN and Vodacom on their home territory.

The converging nature of the telecom landscape has given mobile operators the chance to successfully provide wireless broadband services to offer an alternative to the ADSL service provided by Telkom.

The mobile coverage by Vodacom and MTN is practically countrywide creating voice communication and in some instances data services to many under serviced rural areas where fixed line (ADSL) infrastructure is lacking.

Three cellular operators have secured enhanced GSM licences (which are formally permitting them to offer dual-band GSM 900/1800 services.)

Although Telkom has more ADSL subscribers at present, cellular 3G/ HDSPA subscribers are set to overtake this number this year, according to BMI-Techknowledge analysts.

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