The telecom industry in South Africa is at an inflection point. Though the industry has reached a saturation point in terms of growth in the subscriber base – the country, which has a population of 55 million, already has 92 million mobile phone subscribers1, a 168% penetration – new growth areas are emerging, data being one of them.
High telecom penetration in the country is primarily because of two reasons – use of multiple SIM cards and popularity of broadband services on mobile phones. Industry figures estimate that 95% of the internet usage in South Africa is through mobile phones.
The thirst for data, despite very high tariff, is the key driver for the telecom sector and mobile telephony in the country. According to ICASA report on ICT sector 2017, mobile data traffic in the 12-month period ending September 2016 increased significantly by 55.0%.
Most mobile telephone players are, therefore, investing in improving connectivity and data services to make good for declining voice revenue.
The fixed-line players, on the other hand, are struggling to protect their market share to mobile players. According to Independent Communication Association of South Africa (ICASA), the number of fixed line subscriptions has decreased by 8.6% from 3.85 million on 30 September 2015 to 3.5 million on 30 September 2016. Fixed-line voice revenue and fixed internet and data revenue have decreased significantly by 13.1% and 7.5% respectively in 2016. ICASA’s ICT 2017 report says that in 2015, only 11% households in the country had landline connections compared to 12.8% in the previous year.
Though a saturated market remains the biggest challenge for telecom firms in South Africa, infrastructural and regulatory issues are also some of the other significant challenges. Despite these challenges, major telecom players see a healthy growth in the near and mid-term because of likely consolidation in the sector and a continuous double-digit growth in data revenue.
In the mobile space, it largely has four major players — Vodacom (with 41 million subscribers), MTN (31 million), Cell C (16 million) and Telkom (4.4 million) — with the top two players cornering 78% of the market1.
Vodacom, a subsidiary of Vodafone Group Plc, is the leading telecom player in the country with 44.5% of the country’s subscriber base. The company registered a modest 5.6% revenue growth in 2016. Its data revenue saw a growth of 20% even as voice revenue fell by 3.7% during the year. It has 99% 3G coverage and 76% 4G coverage (with 6 million 4G subscribers).3 Vodacom has recently partnered with Nokia for trial of the country’s first high-speed 5G internet service.
MTN, though the second largest telecom player with 31 million subscribers, remains an important player in the telecom space with its root entrenched in the country’s history and culture. Though Nigeria has become a major market for the company, South Africa – with 27% of its EBIDTA coming from the country – remains a big market for it. MTN’s South Africa Revenue grew by 4.7% in 2016 driven by higher handset sales and data revenue, which benefited from improved network quality, particularly in the second half4.
Cell C (started operations in 2001) and Telkom (2010), both late entrants in the South African market, account for 22% of the market player. Both Vodacom and MTN entered the market in 1994.
In the fixed line space, Telkom and Neotel are the only players. Till 1997, state-owned Telkom had a monopoly in the fixed line space. The government has since then divested its holding in the company, but it still holds 39% stake in Telkom. In 1997, Neotel entered the fixed line space. It has been acquired and rebranded as Liquid Telecom in 2017.
On the next page: Challenges, opportunities and outlook