With 168% penetration, one of the major challenges that the telecom players face in the country is expanding its user base. While the companies have been finding out ways to operate in a mature and saturated market like South Africa, policy, regulatory and infrastructural constraints continue to drag the industry in the country.
Delay in the auction of radio frequency: Lack radio frequency has been the biggest roadblock for the telecom sector to expand its 4G/LTE reach. This hasn’t been helped either by the delay in auctioning of these radio frequencies.
February last year, telecom regulator ICASA deferred the auction of the high-demand broadband spectrum without giving a timeframe of the auction in future.
This delay has been stopping telecom players from expanding their broadband networks in the marginalized areas of the country. It is also holding back telecom firms from making investments in the telecom infrastructure in the country.
For a country like South Africa, this investment is significant as a Huawei’s Global Competitive Index report suggest that every additional $1 invested in telecom Infrastructure could bring a return of up to $5 in GDP from 2016 to 20254.
In the Huawei’s GCI, South Africa is placed 31 among 50 countries.
High data tariff: Despite mobile broadband being popular in South Africa, high data tariff remains a major hurdle in telecom companies efforts in increasing their average revenue per user (ARPU).
According to ICASA, the average mobile broadband connection in South Africa is 74 persons per 1005. Yet it is one of the markets with most expensive data tariffs in Africa. A report by Research ICT Africa (RIA) shows that data tariff in South Africa is one of the highest in the top 6 African markets2. In South Africa’s, the average data tariff is $7.6 per GB, which is much more than that of the second most expensive market Kenya (at $4.9 per GB).
Vodacom and MTN, the two largest palyer with over three-quarter market share, charge over R150 for one GB of data (MTN charges R160 and Vodacom R150). Telkom, which is partly state-owned, has slashed its data tariff substantially, offers the cheapest data services at R99 for one GB data.
Even at R99 offered by Telkom, data tariff in the country is too high for most consumers comfort. In RIA’s Africa Mobile Price Index6, even the Telekom’s cheapest R99 per GB tariff ranks 16th (out of 47 countries) most expensive.
Telecom players blame low availability of radio spectrum for high cost of data tariff in the country.
There are other challenges like power shortages and low ARPU holding back the growth of the sector.
Persistent and long power outages hamper service providers from offering a wider coverage and seamless services. In absence of continuous power supply, telecom operators fall back on the use of generators, which increases their daily operational costs.
The average revenue per user (ARPU) in South Africa is lower compared to other countries. Operations at such low ARPU is difficult to sustain given that cost of setting up and maintaining operations in the continent is very high. Increasing the tariff beyond a limit, though, is not an option for the service providers. For example, MTN’s ARPU in dollar term in South Africa is around $7 and that of Vodacom is $9 in 2016. This is lower than the average global ARPU of $10.25 in 20157
Despite its many challenges, South Africa telecom industry continues to offer opportunities for healthy business growth and profitability, especially in the data services space.
Multiple uses of SIM cards remains one of the biggest reasons for the high level of mobile penetration in the country — 168%. However, there are only 38 million unique subscribers in the country or 68% of the population8. This population still needs to be covered.
Growing data services offers the biggest business opportunities for the telecom companies. According to ICASA report on ICT sector 2017, mobile data traffic in the 12-month period ending September 2016 increased significantly by 55.0%. Mobile data revenue for the 12-month period ending 30 September 2016 increased significantly by 25.4%, while mobile voice revenue decreased by 5.9%. Mobile broadband connections (subscriptions) per 100 people increased by 10% in 2016.
Despite slow growth in new users, high growth in data traffic is a clear indication where telecom players should keep their focus.
Technology upgrades – 3G to 4G and 4G to 5G services – are another area of opportunity for the incumbent players. While the country is fully covered by the 3G network, only 75% of the country is covered by the 4G network. Already, both MTN and Vodacom have started trials for 5G services in the country.
Fixed line broadband is another area where companies may invest heavily as demand for data continues to grow.
Despite slow growth prospects of South Africa in near future (IMF has cut the country’s GDP growth target by 0.9% in 2018 and 2019, South Africa remains one of the richest countries in the region and as such would continue to attract investment in the telecom sector.
According to a Huawei report, South Africa is expected to have the highest information, technology, and communications spend across the Middle East, Turkey and Africa (META) regions in 2017. “It is expected to lead the way among the regions with a $10.5bn spend in 2017 as technologies such as cloud, big data, social, and mobility become investment imperatives and dominate the ICT decision-making agenda,” says the report.
The country is all set to step into next phase with likely roll out of 5G services by 2022 as telecom players start a trial of these services.
However, the key to the roll-out of big investment plans is how soon the government goes ahead with the auction of radio frequency. This is the biggest roadblock as far as the country’s elevation to the next level in telecom revolution.
- Vodafone Group Plc annual report 2017
- MTN Annual Report 2017
- ICASA report on ICT sector 2017 (https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjR7rDM-NvYAhUB57wKHadwC1wQFggmMAA&url=https%3A%2F%2Fwww.ellipsis.co.za%2Fwp-content%2Fuploads%2F2017%2F05%2FICASA-Report-on-State-of-SA-ICT-Sector-2017.pdf&usg=AOvVaw1bJm79fFh7stRi9XYqwEYU)