The Future of the South African Telecommunications market landscape

What is the future role of the South African telecommunications industry in the global economics?

In order to address this question one needs to look at the geographical location of South Africa in relation to the world economics and clearly identify the following factors:

1.  Business growth opportunities globally

2.  Competitors, clients, suppliers and partners

3.  Risk and opportunities

4. Understand the impact of macroeconomic developments

5. Infrastructure requirements

Business growth opportunities globally

Understanding the market trends that are driving changes in  technology are the starting point in identifying global business growth opportunities . The explosion in social networking means consumers are  looking for reliable connections with fast, hassle-free downloading.  Organisations want simplicity too – dedicated, end-to-end solutions with  24/7 support, and above all, they want complexity managed for them, so  they can get on with running their business. That means opportunities are emerging globally for telecommunications companies to form partnerships  with a flexible, can-do approach that matches their business plans, now  and as they change. The role played by the so-called global carriers has become a significant player in global economics, carrying billions of transactions on a daily basis.

Today these transactions are carried by global carriers such as Cable and Wireless (C&W); Verizon; British Telecoms (BT); Telkom SA; Pacnet; Level 3 and TATA Communications to mention but a few. The bulk of telecommunications are carried in undersea cables as opposed to satellite links. Most undersea cables are in the northen hemisphere, the bulk of which is controlled by TATA Communications. These cables formerly owned by Tyco (TyCom Global Network (TGN)),  whose sale to TATA Communications ended Tyco’s failed experiment with operating cables. Tyco, now TE-Subcom, a leading supplier of undersea cable equipment, spent more than $2.5 billion laying more than 37,000 miles of undersea cable connecting three continents.

Pacnet owns and operates the leading pan-Asian submarine cable network that lands in 21 cable landing stations and extends from India to the US.

At the heart of Pacnet is EAC-C2C, Asia’s leading state-of-the-art fiber optic submarine cable network spanning 36,800 kilometers between Hong Kong, China, Korea, Japan, Taiwan, the Philippines and Singapore. EAC-C2C has a design capacity of 17.92 terabits per second (Tbps) to 30.72 Tbps to and from each of the landing countries, with continuous upgrades underway.

The integration of EAC and C2C into a single system – with multiple landings and Points of Presence (PoPs) in key markets – has strengthened Pacnet’s position as the region’s leading provider of next-generation communications solutions, offering unsurpassed flexibility, resiliency and route diversity. Unlike consortium cable systems with multiple owners and often contrasting interests, EAC-C2C is wholly-owned by Pacnet. Having control over a private cable network means Pacnet is able to maintain the highest level of performance for their customers, which they back up with the industry’s most competitive Service Level Agreements (SLAs).

For customers, this means they are buying directly from the owner, and avoid the extra cost and complexity of purchasing through an intermediate vendor. Direct access to the network also means they can provision services faster, identify and fix problems quicker, and respond to customer requirements in real-time.

This is the model to be followed by the TTD cable, sponsored by Techteledata which will be luanched in 2015. The cable runs from Mtunzini to East London, Port Elizabeth and Cape Town, with 6000m2 data centres in Mtunzini and Yzerfontein for local and international peering and content providers.

It emerges that local operators need to send and receive their traffic using global carriers. In South Africa there is a consortium cable, called WACS (West Africa Cable System), which extends from Cape Town (Yzerfontein) to London (Telehouse North, using the TATA network). The WACS consortium consists of 12 member companies, namely:

• 1. Vodacom
• 2. Togo Telecom
• 3. Telkom (South Africa)
• 4. Telecom Namibia
• 5. Tata Communications/Neotel
• 6. Portugal Telecom/Cabo Verde Telecom
• 7. Office Congolais des Postes et Telecommunications
• 8. MTN Group
• 9. Congo telecom
• 10. Cable & Wireless Worldwide
• 11. Broadband Infraco
• 12. Angola Cables

There is also SAT3 (South Atlantic 3) in Yzerfontein and SAFE (Southern Africa-Far East) in Melkbosstrand owned by Telkom South Africa. These cables are not open access and through their limited capacity, WACS was born. An opportunity has become apparent to close the gap between the eastern cables, namely SEACOM, EASSy and TEAMS and the western cables, namely WACS and SAT3. Many industry players have seen this opportunity and various initiatives are being driven by several companies, of which Techteledata is one with its TTD cable proposition.

TTD has at this point secured definite funding for the TTD cable and a press conference is schedule for later this year (2013) to inform the industry and introduce the investors to the general public and stakeholders to open pre-sales for off-takers.

Competitors, clients, suppliers and partners

As South Africa looks to implore opportunities for economic growth, telecommunications is one of the drivers and the enabler that is the vehicle to create the economic vehicle for large corporates and SMMEs alike. Global telecommunications companies and others are looking into Africa as the next investment haven. African governements are refocussing their fiscal muscles to improve telecommunications infrastructure as a means to facilitate business transaction in the global economic environment.

The result is the renewed focus for competitors, clients, suppliers and partners to create reliable connections with fast, hassle-free downloading and promote ICT convergence. Governments are now realising the need to, albeit slow in reaction, unbundle the local loop and deregulate the monopolies that have existed in the state owned telecoms infrastructure.

The critical principle of cost orientation on pricing for access to the local loop implies that telecommunication services have to be priced on an individual basis such that prices are aligned with costs, experienced from many limitations. The tendency for the incumbent operator is to charge out all costs and to overstate costs and charges. This also inflicts a profound information load on the regulator in the sense that the asymmetric flow of information between the regulator and the incumbent is the main hindrance.

In South Africa the market has seen the emergence of four mobile operators (Vodacom, MTN, Cell C and 8ta) and one virtual mobile operator called Virgin Mobile. There is a great war of prices among the four operators, which has helped in lowering prices to the consumer. Cell C in an effort to gain more market share in the market has dug deep in their innovation tank to introduce various measures to draw customers and this seems in the short term to be paying early dividends. There is however a school of thought that says there is still room for another operator and a further drop in prices to boost the economy. This will be achieved in part through ICASA’s drive to compel the operators to eliminate the inter-connection fees for terminating mobile calls among the competing entities.

On the fixed infrastructure side, the incumbent, Telkom is still holding all the cards, although consortia, such as NLD (National Long Distance, consiting of consortium members MTN, Neotel and Vodacom) and a joint venture, FibreCo, consisting of Cell C, Convergence Partners and Internet Solutions. The progress of rolling out these terrestrial fibre networks is frought with huge challenges, both regulatory and environmental which sadly has hampered the progress so desperatley needed to liberate the infrastructure and reduce broadband prices to the end consumer.

However on the bright side, Telkom, as of the 1st of February reduced the ADSL prices and uncapped the traffic for their subscribers and also drammatically reduced the prices on unshaped traffic. This led to MWEB being irked and fighting back with its own new products.

This is what South Africa needs, this is healthy and this trend should continue. The introduction of the TTD cable by Techteledata will add to this trend and intensify the need to further reduce the prices for broadband internet access to the end-user customer.

Risk and opportunities

Globally, risk and opportunities are crucial to global economic environments.

Global risks can provide new business, equally, the risk of pandemics, increased by globalization opportunities for those who seize the advantage and the associated mobility of people, goods and first services, and the risk that biological weapons will be used by terrorists, have opened up new opportunities. Successful businesses will be those prepared to react  and businesses that can excel in the early detection and quickly react to new risks or, even better, anticipate them well  in the identification of diseases, (Economic World Forum).

The current economic downturn is such that companies are weary to invest in infrastructure in various projects that have a significant degree of uncertainty and this is what has put a lot of projects in a lurch. This has given rise to young entrepreneurs and a new breed of investors that truly want to change the status quo and define new ways of conducting business such as Techteledata. Techteledata is one company that was formed from pure grit, resiliency and the will to succeed under trying circumstances in order to contribute to the ICT industry of South Africa. Today Techteledata has received recognition from highly acclaimed institutions in South Africa who realise the dream and the future of South Africa in global telecommunications.

The opportunity that exists and need to be exploited here is that of developing South Africa to become a Southern Hemisphere global hub of international traffic, resulting in reduced latency of traffic around the southern hemishpere. This can only be possible if BRICS together with SAEx combine in a collaboration effort to build from Cape Town to India; Russia and Singapore (BRICS) and from Cape Town to Brazil (SAEx), with Techteledata building the TTD cable from Mtunzini to Cape Town via East London and Port Elizabeth.

The risks are the failure to collaborate among the players and price wars that would develop if there is failure to collaborate, thus undermining the investment already made by these companies. Companies involved have to go for win-win andavoid jeopardising each other, as it is obvious that each of these aspirants want to build rather than buy, so collaboration will not only save on Capex, but awill also ensure success for all.

Understand the impact of macroeconomic developments

Trade policies should support broad macroeconomic developmental policies as one policy in a range of microeconomic policies, says nongovernmental research institute the South African Institute of International Affairs trade expert Peter Draper.

The economies of countries are underpinned by four services that enable business to be conducted in the entire economy. Infrastructure is part of the four network services, namely transport, energy, telecommunications and financial services. The more these services become available to consumers, and the more cost effective these services are, the better they will enable an economy to thrive, he explains.

These network services are expensive to construct and individual countries in the Southern African region often do not have the resources to develop these services on their own, Draper says. Therefore, it makes sense for countries to adopt a regional approach and the developed infrastructure then forms part of what economists call regional public goods, he adds.

Currently, there is fairly active trading of energy among a number of countries in the Southern African region as part of the Southern African Power Pool, though signigicant challenges loom on the horizon. There are still problems with infrastructure in the region but projects and plans are in place to attempt to deal with these problems. There are developments in the telecommunications sector, with undersea cables bringing unprecedented international connectivity to the region, and there are similar developments in road networks.

It is imperative that the South African telecommunications network infrastructure is very well advanced as it carries the rest of the SADEC region as is poised to carry intercontinental traffic in the southern hemisphere from carriers such as Bharti Airtel, TATA Communications, Verizon, British Telecoms and others. Companies such as Techteledata have positioned themeselves to significantly contribute to fullfil this mandate through the TTD project.

Infrastructure requirements

As stated above, there is still a huge demand in the SADEC region for the infrastructure and telecommunications being the pivotal part together with the road transport infrastructure. The need to bridge the gap between Mtunzini and Cape Town is a glaring one for reason already covered. The need for extensive  terrestrial infrastructure by complementing rather than competing entities is an obvious one to release the potential of broadband access free from exorbitantly high prices that throttle broadband access.

The challenge is that these cost an arm and a leg, through enforced and sometimes unreasonable regualtory enforcement by regulatory authorities. Alternative means to trenching fibre conduits need to be thoroughly examined in an effort to lower costs of infrastucture. Alternatives such as co-building, fibre colocation and neat overhead fibre etc need to be examined, as currently, approximately 80% of terrestrial fibre infrastructure consists of labour trenching, currently estimated at R5000 per metre.

Conclusions

The future of telecommunications in South Africa and Africa as a whole will depend on unbundling the local-loop, freeing access to the existing infrastructure through open access and lowering the cost of ownership of the the optic fibre networks. The African continent can explode with broadband usage which would in turn lead to upward trend in economic opportunities through SMME economic spin-offs. One other important factor is the content creation or availability within the African content. This is the reason why Techteledata is hard at work to facilitate content creation and localising the content from around the world for faster access and reduction of cost and latency, through the building of the state-of-the-art 6000m2 data centres in Mtunzini and Cape Town. These data centres will be carrying live traffic in 2015.

Article by Musa Phungula, Managing Director, Techteledata

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