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South Africa - Telecoms, Mobile, Broadband and Forecasts

142 Pages Paul Budde Communication Pty Ltd April 10, 2013 SKU: PBC5017913

South Africa - The continent’s leading telecoms, IT and digital media market

South Africa’s telecom sector boasts the continent’s most advanced networks in terms of technology deployed and services provided. In a virtually saturated voice market, four mobile networks – Vodacom, MTN, Cell C and Telkom SA – are competing for market share in the next growth wave, mobile broadband. 3G/HSPA mobile broadband services now rival available DSL fixed-line offerings in terms of both speed and price, and have consequently taken the upper hand in terms of subscriber numbers. Commercial LTE services (also referred to as 4G) were launched at the end of 2012, delayed by the regulators inability to allocate frequency spectrum.

While emerging as the country’s leading broadband providers, the major mobile operators are also branching out into fixed services, fibre backbone networks, international fibre connectivity, mobile banking and entertainment in a rapidly converging environment. Fixed-line incumbent Telkom SA has reacted by launching its own 3G mobile network and the country’s first commercial WiMAX service, but various competitors are hard on its heels rolling out the same technologies, including second national operator Neotel.

Following years of delays with its licensing, second national operator (SNO) Neotel is gaining market share in competition with Telkom. This, in combination with other sweeping liberalisation measures – also delayed by years – has changed the country’s telecoms landscape fundamentally and brought prices down. In addition, the government has created Broadband InfraCo, a national infrastructure company to provide cheap backbone network capacity to service providers. Despite the significantly increased competition between different service providers, many municipalities in South Africa, including the country’s largest cities, are implementing their own metropolitan fibre and wireless broadband networks.

Under a converging regulatory regime, hundreds of alternative service providers are pushing into the market with converged services. The legalisation of VoIP Internet telephony in 2005 marked the beginning of a fundamental change in the country’s telecoms landscape. Billions of dollars are being invested into IP-based next-generation networks (NGN) that are capable of delivering converged services more efficiently. Telecom carriers and ISPs are moving into delivering audio and video content over their networks, while in turn the traditional electronic media carriers have discovered the potential of their infrastructure for telecommunications service delivery. Triple play offerings are available that combine voice, data and IPTV services.

Key regulatory events currently shaping the market are the licensing of WiMAX and LTE spectrum as well as digital dividend spectrum (released by the migration to digital terrestrial TV, DTT), the unbundling of the local loop (ULL, or LLU), the staged reduction of interconnect charges, and a review of the broadcasting regulatory framework. The migration to DTT is scheduled to be completed by 2014/15.

All of the major players are involved in various international submarine fibre optic cables that have reached the country in the past few years, despite regulatory hurdles. Following the end of Telkom’s monopoly in this area, the arrival of Seacom as the second international cable in 2009 has brought down the cost of international bandwidth dramatically. A third international cable, EASSy landed in 2010, followed by WACS in 2011. Several additional terabit cables are scheduled to go live in 2014, connecting Africa directly to the Americas.

South Africa’s Internet and Broadband market has finally taken off after years of stagnation due to an expensive operating environment created by Telkom SA’s dominance in the fixed-line and international bandwidth market. The new converged licensing regime has created hundreds of companies licensed to offer Internet services. There has been consolidation in the sector which is expected to continue.

With its relatively well developed and diverse infrastructure, South Africa is also taking a regional lead role in the convergence of telecommunication and information technologies with the media and entertainment sector, promising reductions in telecommunication costs and better availability of information and services. Digital media and social media have reached a level of development that is fostering an associated advertising and marketing industry. The FIFA World Cup held in the country in 2010 has boosted these developments. While South Africa lags behind other countries on the continent in the development of e-government, e-health and e-learning applications, it is a regional leader in the areas of online retail, electronic banking, mobile banking, social media and cloud computing.

Market highlights:

First commercial LTE services launched, more to follow;
Strong growth in smartphone and mobile broadband adoption;
Rapidly growing online retail, online media and internet advertising sectors;
Very competitive mobile banking sector;
Delayed licensing of LTE, WiMAX and digital dividend frequency spectrum;
Major mobile network infrastructure outsourcing deals;
Many national and metropolitan fibre network rollouts;
Cost of international fibre bandwidth has collapsed since monopoly ended;
SNO performance improves while incumbent struggles;
New international fibre optic submarine cables planned for 2014;
Innovative wireless broadband services amidst spectrum allocation delays;
FttH and VDSL2 deployments enable better IPTV and triple play services;
Maturing VoIP services are delivering corporate productivity gains and fostering a rapidly growing call centre industry;
Switchover to Digital Terrestrial TV (DTT) in 2014/15;
Emerging cloud services.

Estimated market penetration rates in South Africas telecoms sector – end-2013
Market | Penetration rate
Mobile | 151%
Fixed | 7.8%
Internet | 28%
(Source: BuddeComm based on various sources)

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