30 June 2014
In South Africa, it’s not surprising to see a street dug up in quick
succession by three different telecoms network providers, all laying their own
fibre optic cables. There’s no sharing here. Not even of installation costs.
Dark fibre is very expensive to install. Pricing reflects that cost. On
top of that, network providers add high margins. This makes broadband prices
very high - too high for most. But even if it was affordable, lack of broadband
infrastructure beyond the metros makes access impossible.
The upshot: in South Africa, fixed broadband penetration is at 2.2% - we
rank 111 out of 183 countries globally.[i]
While mobile broadband penetration is better at 26%, research puts
individuals using the Internet in South Africa at just over 16 million
individuals (41%). However, only 25.5% of households have Internet access. The
upshot: in the midst of Information Age, our data travels (for the most part) not
along superhighways but ox waggon trails. We lag behind in terms of
connectivity, with everything that implies for economic growth, empowerment and
It is something we can ill afford.
While the march of technology continues globally, unemployment remains
high in South Africa and our growth rate is slowing.
Officially, unemployment is at 25%, but broader unemployment is closer to
40%. With a young, fast growing population, more young people are entering the
job market all the time and youth unemployment is thought to be over 50%. Gross
domestic product (GDP) growth is stagnant at between 1.5 and 2%. An increase in
broadband penetration can help change this. The World Bank has found that in
low- and middle-income countries every 10 percentage point increase in
broadband penetration accelerates economic growth by 1.38.
A wake-up call is needed.
Globally, but especially in Europe, telecoms infrastructure sharing is
the norm. Tier-1 players “rent” infrastructure to Tier 2 telecoms providers. As
these providers do not have to recoup the costs of acquisition, installation
and maintenance, pricing becomes more affordable. With more players in the
market, competitiveness increases and prices come down. In addition, smaller
players may well be more interested in servicing niche markets, creating
services and tailoring products to suit different market sectors, making
pooling resources to install technology in remote areas that connects to the
grid more feasible.
In the present telecoms market, this scenario will only be possible if
major players can shift their focus from short and medium-term profiteering, collaborating
to create a more sustainable long term business model that expands broadband
access -- geographically and demographically -- to grow the market and the
economy, creating a future for their businesses, the country and all
WHERE WE STAND
The big network providers in South Africa – MTN, Vodacom, CellC, Telkom
and Neotel -- have shareholders. They are commercially driven. When legislation
was passed allowing them to build their own networks, there were no clauses
that obligated them to expand infrastructure to underserved areas. This has
been left to NGOs and the academic community, complemented by some weak
attempts by the public sector. Is this a responsibility government should be addressing?
The challenge for Government is that it retains a sizable investment in Telkom
who, in turn, maintains a stranglehold on infrastructure, most particularly the
gateway that local loop unbundling will provide to greater connectivity. While
the Department of Communications is planning various programmes to drive
connectivity, government is perceived to be playing both sides, and a confused
message is being sent to the market.
And while the obvious response is to lay the challenge of network
expansion and modernisation across rural and remote areas of South Africa at
ICASA’s feet, the reality is that political will alone won’t move this
mountain. Money talks.
Waiting is not a strategy
Waiting for the market to mature and pricing to drop sufficiently for it
to become feasible to roll out infrastructure to rural and remote areas of
South Africa is not a strategy. Our neighbours on the continent (Kenya,
Tanzania and Namibia) understand the urgency, as do India, China and other
FINDING A SOLUTION
Wholesale vs retail
What is needed is a single infrastructure layer with a stack of services
layered on top, accessible via a number of service providers. While a semblance
of this model exists in South Africa – witness Telkom’s rental of
infrastructure to Tier 2 players, and similar agreements struck between the
bigger cellular network providers and Tier 2 players – there has been no clear
distinction made between wholesale and retail offerings. Tier 2 players must
compete with Telkom’s retail offering and that of the other network providers.
This makes competing difficult, which slows market growth.
New models are arriving to fill the gap.
Big players taking fibre to the
MTN, Vodacom and a number of ISPs in collaboration with technology
providers are circumventing Telkom’s domination of the local loop by rolling
out fibre-to-the-home (FTTH) and fibre-to-the-business (FTTB).
These solutions, aimed at gated communities and in business parks,
respectively, are designed to maximize returns. They service high demand, high
income market segments; they do not reach those who most need connectivity.
Smaller players are rolling (out)
In Europe, smaller players are building infrastructure and renting it
out. Thus we find shopping malls, office block and business parks owning their
own infrastructure and renting it out to network and service providers who
offer their services to tenants. This is also beginning to happen in South
Here ownership is driven by expediency: mall and facility owners do not
relish network providers crawling through ceiling space and disrupting business,
or being held to ransom by underperforming service providers. Infrastructure
ownership also offers the opportunity to attract tenants, earn additional revenues
and drive up service levels. While infrastructure owners cannot operate the
networks they build if they do not have a license, they can rent the networks
out to those with licenses.
In the metropoles there is currently huge duplication of infrastructure,
some of which is fully utilised, some not. There is opportunity in rural and
remote areas to limit duplication and grow reach. Collaboration between Tier 1
players, or between Tier 1 and Tier 2 players, or even between these players
and other private sector and non-governmental organizations could see some
innovative and potentially disruptive solutions brought to market.
While it will take a considerable mindshift for these players to work
together, a common objective could assist these organisations to develop
appropriate business models, laying the groundwork for success. This approach
is backed by a globally emerging trend that sees businesses from different
sectors address development sector issues through the creation of partnerships
that leverage the strengths of each role player to deliver mutual benefit.
Another driver is the shift to integrated reporting and disclosure. Listed
companies – and the big telecoms players are all listed in South Africa – can
be called to task by investors. That is you and I.
New technologies to drive
opportunity, new business models
As Telkom dominates the ‘copper’, wireless is becoming the new access
technology, assisting customers to get onto networks. For backhaul, expensive
microwave and fibre optic technologies remain necessary, however. New
technologies may provide a means to overcome expensive fixed infrastructure
LTE technology is being piloted by all the major players in South Africa
with services available in the metros. As spectrum is released, the opportunity
to install the movable and more affordable LTE towers in outlying areas will
arise. Again, however, release of spectrum holds up the process.
Government’s National Broadband
A recent speech,[ii]
the Minister of Communications noted that it was moving on broadband, but
needed to be faster. We agree. It is holding a conference on the faster
implementation of the SA Connect Policy, which includes its Broadband
Implementation Plan. This plan aims to ensure that:
- By 2016, 50% of the population has 5Mbps access;
- By 2020, 90% has 5Mbps access and 50% has
100Mbps access; and
- By 2030, 50% of the population has 100Mbps
If you are committed to doing business responsibly, we challenge you to
be ready to participate.
The opportunities in this market are tremendous. The smart visionary moves
forward with a solid business case, however. While this opportunity will
require traditional players to step out of their comfort zones and strike up
dialogue with organisations and role players not previously considered, common
ground can be found – and the prize is nothing less than a better future for
their companies and the country.
Jasco delivers telecommunication solutions to enable core, access and
last mile communications. The company delivers solutions to many Tier 1 and
Tier 2 players in the telecommunications sector, and delivers innovative
solutions to enterprise customers, enhancing their communications.
Eckart Zollner, Head of Business
Development, the Jasco Group.
Eckart Zollner, an electronics engineer by trade, started his career in
the Telecommunications industry at Siemens in 1986. Here he was involved with
the deployment of the first digital switching technology (ISDN) for Telkom SA.
His responsibility then moved onto the rollout of the first analogue mobile
network, and after that, the first GSM networks in South Africa, Namibia,
Uganda and Tanzania. During the global boom of GSM networks between 1996 and
2008, Eckart headed up Sales and Marketing for the South African company Psitek
which locally developed and manufactured solutions such as least cost routing
and public GSM based community phones. Psitek’ s solutions reached exports
right across Africa, Asia and Latin America. After a short period of running
his own consulting business for 3 years, Eckart joined the Jasco group in 2011
on a permanent basis.