25 December 2008
THE BRAVE NEW WORLD South Africa's telecommunications market has been waiting for will finally be ushered in on 19 January when regulator Icasa issues service providers with infrastructure licences and goes about making key new pro-competitive regulations. It's currently difficult to predict how the market will take shape thereafter. However, there's consensus that issuing infrastructure licences won't see a flood of new entrants rolling out national networks to rival Telkom. William Stucke, treasurer for industry body the Internet Service Providers Association (ISPA), estimates an operator would need R15bn in start-up capital and probably R35bn in total to roll out a network spanning 100 towns. John Holdsworth, CEO of one prospective new electronic communications network services (ECNS) licence, says the possibility of another SA player - including Internet Solutions, Vodacom, MTN or Neotel - replacing Telkom's more than 100m circuit kilometre network is unlikely. Rather than attempting to do so Holdsworth says current operators and emerging operators should focus on forcing Telkom to share its network with new entrants on competitive terms rather than trying to recreate it. Ant Brooks, GM of ISPA, says it will probably be able to count the new network entrants on one hand. Others predict a few more or a few less. But Brooks says what you will see is the old value-added network services (Vans) licensees leveraging the fact they have the option to build their own networks to get a better deal from the incumbents. And in areas where Telkom can't provide them with the capacity they require, they can roll out their own. Brooks doesn't believe that will see prices dropping significantly. Rather, it will be a case of consumers getting "more bang" for their buck, with bandwidth caps coming down or evaporating in some cases. Perhaps the most key determinant of bandwidth price reductions in 2009 will be the opening of Seacom's undersea cable up the east coast of Africa. Seacom president Brian Herlihy said at the recent MyBroadband conference the project would be complete by 27 June 2009. Richard Came, CEO of Dark Fibre Africa, says 2009 will see the major operators intensifying the pace of their infrastructure rollouts as a result of competition and uncertainty about the strategies of the newcomers. Infrastructure sharing - which is what Dark Fibre facilitates - will become more prevalent. Came says new, niche entrants will become more visible later in the year but won't initially have much impact. Those will be led by companies focusing on fixed and mobile voice solutions, followed by multimedia (security and metering) applications. Came says 2009 will see initial deployments of fibre to the home. In addition, the overall spend on telecoms as a percentage of disposable income will increase, driven by broadband and mobile data, while corporate spend on telecoms will increase at above inflation rates. In addition, Came says, there will be consolidation between fixed and mobile operators, Internet service providers and mobile service providers. He says at least one international operator will enter the market, probably via an acquisition - for example, Zain or BT.
Holdsworth says 2009 to 2010 will see the beginning of the end of the toll bypass or cellular least cost routing (LCR) era and the emergence of Internet protocol-based next generation networks licensed to provide full service telco offerings in direct competition to Telkom and Neotel. The most important benefit of having an ECNS licence, Holdsworth says, is not the fact the former Vans can build their own networks but that they can compete on a more level playing field. That includes obtaining geographic numbers, non-discriminatory interconnect rates and participating in fixed line number portability trials with Telkom and Neotel. One key regulation that will be decided on early next year - with deadlines for industry feedback and oral hearings scheduled for 21 and 22 January - relate to carrier pre-selection. That will enable subscribers of one operator to elect another operator to carry their calls. Holdsworth describes carrier pre-select as the "single biggest enabler" of deregulation in all the international markets where it's been introduced. In SA it will be the first time anyone can attack Telkom's retail base. He promises price cuts for residential customers the day carrier pre-select is introduced, with per second billing from the first second. ECN is targeting shifting 1m of Telkom's 4m subscribers within two years of the introduction of carrier pre-select. Another player that wants to take advantage of carrier pre-select is PrimeTel, another former Vans operator. CEO Michael Alter says carrier pre-select has the potential "to reduce consumer prices for national and international phone calls probably more and faster than any other regulation that Icasa may introduce". Alter predicts prices will fall considerably more and be more readily available to all subscribers, including residential customers and, due to increased competition, quality of service will also improve. However, Alter says the regulations are complicated and the current draft has "a lot of holes in it". Holdsworth also says there are positives and negatives in the proposed regulations. On the positive side is the fact that the mobile operators have also been included. On the negative, Icasa proposes introducing indirect carrier pre-select, where users have to punch in a prefix to change their carrier every time they make a call. Expect fierce campaigning from the alternate telcos "for" the regulations and "against" by the incumbents.
Another can of worms is going to be the proposed licence fee regulations. Dominic Cull, ISPA's regulatory adviser, says it's unlikely Icasa will finalise those regulations by the end of first quarter 2009. Industry comment was due on 5 December. He says Vans will have to get used to the fact there will be some sort of equalisation process between the incumbents - who paid significant amounts of money for their licences - and the Vans, which will see theirs converted into the same class of licences at no upfront cost. The question is how much is "fair" in terms of annual licence fees. Some Vans might be unable to afford to keep their ECNS licences. Icasa proposes charging a percentage - up to 3% - of gross turnover. ISPA treasurer Stucke says that represents a double taxation on the industry, because whatever comes in over and above what it costs Icasa to regulate the industry - around R250m/year - goes straight back into SA's national coffers. A key question against the backdrop of a liberalising market is how much market share the incumbent will lose. Views are mixed, but it's not likely to go unscathed. Telkom knows that, which is why it's accelerating its next generation network rollout, working on improving service levels and implementing a mobile strategy after the sale of its stake in Vodacom. Holdsworth says, based on the experience of incumbent fixed line operators in Europe, it's likely Telkom's retail arm will lose around 35% to 40% of its market share over the next three to five years to new entrants. The introduction of cost-based pricing and mobile carrier pre-select could also see the mobile operators losing 10% to 15% of their market share over the same period, he says. Alter predicts a market share loss of around 30% in 12 to 18 months following the introduction of regulations such as carrier pre-select. In addition, the incumbent would also have to reduce prices, improve service levels and spend money on marketing to retain the remaining 70%. Over the coming year, Came reckons market shares won't change dramatically unless access to radio spectrum for the last mile is opened up. If so, it could lose 15% to 20%, mainly on large corporate accounts and the new operators (mobile and Internet service providers) building and using their own capacity on major routes rather than renting from Telkom.