R/€ = 13.54
R/$ = 12.08
Au 1182.09 $/oz
Pt 1141.00 $/oz
Jan 28, 2005
Unshackling of the linesBack
© Reuse this February 1 rings in the much- anticipated liberalisation of the local telecommunication industry. On the other side of the line, South African consumers are eager to answer the call and take advantage of the benefits of deregulation. This coming Tuesday, six of the seven provisions announced by Minister of Communications Ivy Matsepe-Casaburri on September 3, come into effect.
The six provisions – which allow for fixed-line self-provision and greater choice for mobile network operators; provision of public payphone services by companies other than the incumbent operators; the use of voice over any protocol to provide telecommunications; self-provision of facilities by value-added network services (Vans); the leasing, ceding or subletting of telecommunication facilities by Vans; and the leasing, ceding or subletting of spare capacity and facilities by private telecommunications networks – bring an end to many of Telkom’s exclusive rights.
The seventh provision, which entitles public schools and public further education and training institutions to a 50% discount on all costs associated with the provision of Internet services, came into effect on January 18.
While the ministerial provisions create an environment in which more competition can immediately be introduced into the market, analysts and industry stakeholders predict that change will be evolutionary, instead of a big-bang event.
Research company BMI-Tech-Knowledge director Brian Neilson says that there is a big gap in the local market – compared with other, more liberalised markets – and this has to be bridged, particularly in the lowering of prices for tariffed voice services and wholesale data transmission. “Competitors will launch new pro-ducts immediately come February 1.
“Some have not bothered to wait, particularly renegade wireless Internet service providers that offer alternative wireless Internet access facilities.
“VoIP (Voice over Internet Protocol) traffic – both legal and illegal – has been carried by corporates for quite a while already, but it will take time for the full impact of the provisions to be felt in the market,” Neilson adds. He says that, in addition, Vodacom has to some extent stolen a march on would-be additional fixed wireless facilities providers by aggressively rolling out new access infrastructure.
Further, the company has adjusted its service packages, aimed squarely at business users with laptop PCs initially, to make it easier for the majority of the less-demanding broadband users to adopt.
Regulating authority, the Inde-pendent Communications Authority of South Africa (Icasa), councillor Tracy Cohen says that the organisation has received more than 170 applications for Vans licences, and that many of these companies will probably provide VoIP services.
According to Cohen, it is expected that greater choice will have a two-pronged effect and will reduce costs, while simultaneously improving consumer choice and, ultimately, quality.
Besides VoIP, a number of other services are being introduced into the market, including new broadband technologies, such as WiMAX, by Telkom and iBurst, by WBS, which are competing with established products, such as Sentech’s MyWireless and Telkom’s ADSL and ISDN dial-up services.
Neilson anticipates that real competition will eventually bite and that prices will decrease across the board for all types of voice and data services. “We expect wholesale and retail bandwidth costs to be 50% lower in three years from now, for the same amount of bandwidth. “Alternatively stated, the average business customer may elect to get twice as much as before, but pay the same bill each month. “Further, entry-level residential services may be half what they cost today. “In addition, voice tariffs (per minute) will fall at a similar rate, especially for the more price-sensitive calling patterns,” he says.
Neilson also envisages that service levels will grow as competition intensifies, resulting in a similar service culture to that in countries such as the US. “A wider choice of service offerings will emerge, and these will be creatively bundled for specific customer groups. “Eventually, flat-rate pricing will emerge in place of tariffed-voice services, for example, bundled with Internet access, over a single broadband ADSL line (or wireless equivalent), for residential customers.” However, initially, the market sector that will benefit the most from the introduction of new telecommunication services will be big business.
According to the VoIP in South Africa 2005 survey published earlier this month by research company World Wide Worx, voice communications using Internet standards will be the fastest-growing technology application among South African operations in 2005.
World Wide Worx director Arthur Goldstuck says that more than half of the organisations interviewed for the survey indicated that they intend to use VoIP for the first time this year, on top of a third that already use the technology.
Besides the fact that it enables low-cost voice communication within the private networks of companies, the technology is attractive to users with high international call bills as it will result in savings of between 80% and 90% on these calls, and between 30% and 50% savings on long-distance trunk calls.
However, because it will take some time for all users to move on to Internet Protocol (IP) networks there will be little savings on the cost of local calls in the short term.
Co-author of the VoIP survey John Joslin says that VoIP is fast becoming the dominant technology in the telecommunications industry as the IP language on which it is based offers seamless interoperability between different kinds of media. He explains that the global communication system is undergoing a rapid transformation from telephony on a circuit-switched network to a multimedia and multiservice broadband network with voice, data, video, photos, instant messaging, TV and radio running on a seamless interconnected wireline-, wireless-, mobile- and satellite-network, which is based on Internet protocols.
“IP allows for all these technologies to interconnect on the same platform – which cannot be said of circuit-switched networks.
“This allows for true convergence and also provides a clue to the dramatic uptake of IP networks worldwide,” Joslin says.
Goldstuck adds that, in the corporate world, it has become obvious that it is cheaper and better to run telephony on the corporate local area network, instead of running two networks.
As a result, IP PBXs are used in-creasingly and VoIP is readily integrated into communication solutions.
According to the VoIP survey, international trends indicate that companies with circuit-switched networks, such as Telkom, will have to replace almost their entire telephony infrastructure in the next five years to keep up with the demand for convergence. Hence, Goldstuck says that Telkom has some serious decisions to make in the coming years.
Nevertheless, the survey indicated that, in the short term, the company will be one of the most successful suppliers of VoIP, as respondents named it as the second-most-common preferred provider of the service. As the only company that owns and operates extensive fixed-line infrastructure in South Africa, Telkom will continue to play an important part in providing cost-effective telecommunications in the country. International research organisation Gartner’s telecommunications analyst William Hahn says that the extent of the ministerial provisions implies far-reaching changes for Telkom. “A crucial component to this impending business transformation is the realisation that new entrants are not simply threats to market share, but customers for managed and wholesale services. Hence, there are significant opportunities here which the incumbent can seize to help diversify its product offerings, without needing to surrender major fields of retail provision,” Hahn adds.
He maintains that liberalisation will only make true progress once the second network operator (SNO) is launched. According to Hahn, the SNO will not only serve as a competitor in its own right, but it can play a vital role as an alternative source of services to new entrants in the VoIP market, a unifying factor for back-office needs and a potential partner for full service deployment to end-users. “Without another player to turn to within the network, the impact of scores or even hundreds of new entrants offering VoIP will be minimised, and this is the essence of competition. “However, if the SNO is empowered and launched soon, the prospects for rapid uptake of VoIP and its extension into underserviced areas could be quite good,” he notes.
Hahn adds that whether the con-ditions for such a launch – internal and external to the SNO itself – will be met, remains to be seen.
Cohen says that it is Icasa’s duty to issue the licence that the Minister of Communications has granted to the SNO when agreement has been reached between the consortium members. She tells Engineering News that, subject to pending court action, the licence will be issued when the out- standing matters have been resolved. “However, Icasa will still subject the application – including shareholding, business and technical plans, financial viability, empowerment and gender equity – to rigorous scrutiny to ensure that the SNO meets its mandate and offers real and sustainable competition to Telkom,” Cohen says.
Neilson agrees that, despite the sweeping changes brought to bear by the ministerial provisions, the reality is that there is still no full-service telecoms company of Telkom’s stature that can create competition at all levels and have a significant impact on wholesale pricing. In the absence of the SNO and to stimulate competition in the first two to three years of liberalisation, Telkom’s prices will still be subject to regulation by Icasa according to the price cap mechanism.
“If competition is introduced aggressively into the market we would review this policy, should the need arise,” Cohen comments.
Icasa has been working fervently behind the scenes to complete the new regulations required to bring the ministerial provisions into effect.
It embarked upon a widely consult-ative process with industry stake-holders last year, which included a colloquium, written and oral present-ations, as well as public hearings. The authority has not requested any legislative amendments.
However, it has formulated new regulations pertaining to Vans, PTNs (Private telephone networks), pay-phone operators, facilities leasing and interconnection, which will be finalised during February and March.
“We welcome competition into the market, because it relieves a lot of pressure on the regulator to police the exclusivity. “Icasa does not want to micro-manage the sector or businesses and our approach going forward will be one in which, as far as possible, we can engage in light-touch regulation.
“We want to regulate as little as possible in a competitive environment which is reasonable and which is proportionate, but at the same time, we will also look out for the interests of consumers,” Cohen says.
One of the issues that the authority is planning to tackle is the prices public payphone operators charge per call unit.
Currently, these prices vary from vendor to vendor, and Icasa is consider- ing one proposal that per-unit profits should be capped at 30% above the retail price.
Besides consumer interests, the regulator also aims to advance universal access and affordability by awarding a second round of licences to provide telecoms in areas with less than 5% teledensity. With such low telephony and Internet penetration levels, Cohen says that that there are enormous opportunities for new entrants to develop niche markets that can corner the millions of underserviced and unserved con-sumers in South Africa.
Indications are that liberalisation will not only provide the impetus to broaden the base of consumers by making telecommunication more affordable, but will also serve as a catalyst for job creation and widespread economic growth.
For instance, it is estimated that, in a deregulated environment, conditions will be favourable for the creation of a hundred thousand additional jobs in the local call-centre industry.
In South Africa, fixed-line tele-phony is now growing in the region of 5% per year, while mobile growth is even higher, resulting in a combined market growth rate of about 10% a year.
High local prices to date have meant that the country is currently spending a greater percentage of its GDP – a total of about 8% – on telecommunication than countries abroad. However, according to Neilson, the contribution to GDP can shrink as the effects of deregulation become evident, and South Africa starts to more closely mimic the global norm.
Hahn believes that government must learn to step back and take the longer view that a healthy and vibrant market which is free from government management will be to the ultimate benefit of South Africans, and certainly more important than the captive revenues derived from that ownership in recent years. “Liberalisation is a cultural step, somewhat at odds with the mixed-state philosophy which the government has expressed to date, and will require careful handling to assure success,” he says.
Edited by: Helene Le Roux© Reuse this Comment Guidelines (150 word limit)
Other News This Week News
Recent Research Reports
Steel 2015: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2015 report provides an overview of the key developments in the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon...
Projects in Progress 2015 - First Edition (PDF Report)
In fact, this edition of Creamer Media’s Projects in Progress 2015 supplement tracks developments taking place under the Renewable Energy Independent Power Producer Procurement Programme, which has had four bidding rounds. It appears to remain a shining light on the...
Electricity 2015: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2015 report provides an overview of State-owned power utility Eskom and independent power producers, as well as electricity planning, transmission, distribution and the theft thereof, besides other issues.
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
This Week's Magazine
Mercedes-Benz will launch ten plug-in hybrid models by 2017, says the German automaker’s parent company, Daimler. Following the launch of the S 500 plug-in hybrid, March saw the introduction of the C 350 e, the second model to feature the drive-train concept. Under...
Energy Minister Tina Joemat-Pettersson's recent unveiling of something of a road map for an upscaled and accelerated deployment of independent power producer (IPP) capacity has been widely welcomed. Besides plans to accelerate and expand the hitherto successful...
South African Airways (SAA) acting CEO Nico Bezuidenhout has firmly denied reports that a stake in the airline was going to be sold to Air China. “Categorically, SAA is not in any talks with any airline to sell itself at the moment,” he stated at a media briefing at...
Russian State-owned nuclear group Rosatom has confirmed that it is in talks with Nigeria about the construction of nuclear power plants (NPPs) in that country, but has denied that any agreement has been signed. This follows a recent report in the Nigerian media that...
Gas products and services company Afrox has launched a pilot programme to deliver its range of Handigas liquefied petroleum gas (LPG) to domestic consumers to fill a gap in the market, thereby expanding its direct contact with end-users.