After months of legal wrangling and delays, over 400 value added network service providers (VANS like IS, Altech, Vox and ECN) now have electronic communications network service (I-ECNS) licences in hand. This means these companies have virtually the same rights as incumbent Telkom. They can build networks as they choose. The irony is that VANS effectively now have the same rights as Neotel, which paid R100m for its licence.
But how will they choose to compete?
The biggest service provider in the country (barring Telkom), Internet Solutions “won’t go out and build a network”, according to MD Angus MacRobert. It will continue leasing and will endeavour to drive its input costs lower.
Obviously, he adds, it may make sense to selectively build small portions of a network. “There may be a case for taking fibre to our top 50 customers and also to our PoPs [points of presence]. A national network… probably not.”
MacRobert also confirmed that he expects IS’s capex budget to increase by 20-30%, so one can expect the company to build some capacity fairly quickly.
And, with self-provisioning (what the likes of Vodacom, MTN, Dark Fibre Africa are doing), MacRobert believes we will see prices of leased capacity coming down.
Even after competitor Altech’s legal challenge, IS’s MacRobert says that (in terms of building a network) he doesn’t think “Altech will do anything with its licence”.
Industry watchers and analysts agree that Altech, flush with over R1bn in cash, would likely have the resources to build a fairly sizeable network. Plus it has the experience of building a network, considering the fibre backbone it’s deploying in east Africa.
The official line from Altech CEO Craig Venter is that: “Strategies stemming from the issuance of the licences will be put in place which will significantly benefit the business and enhance shareholder value. We will announce details of these strategies in due course.”
But these analysts also agree that there’s very little wisdom in rolling out a substantial network, unless the diversified telecommunications company makes a conscious decision to be an infrastructure player. There’s a large amount of fibre being installed across the country, which means there’s realistically very little competitive advantage to actually owning a network.
This view is echoed by IS’s MacRobert. He says IS competes (and has always competed) on services, and not necessarily on a network.
CEO of converged telecoms provider ECN, John Holdsworth points to the over 100m looped kilometres of network that incumbent Telkom has. “You won’t be able to replicate that,” he says. Holdsworth adds you could build for the next five years and only end up with a quarter of that.
That said, he expects one or two large infrastructure contenders to emerge. Holdsworth confirms that ECN will continue with its strategy of doing a “considerable amount of leasing”.
In a wide-ranging interview with Moneyweb, Holdsworth confirmed ECN had applied to Icasa for wireless microwave spectrum. If it is successful, one could expect the operator to deploy a fairly sizeable microwave network to carry some of its traffic.
ECN is the second largest terminator of voice minutes in the country, after Telkom, so its needs for capacity are understandable. Holdsworth also says ECN will look to commissioning “fibre spokes and spurs” to connect some of its bigger corporate clients to its network.
While the rights enshrined in the new licences are important, the industry is still waiting for clarity from Icasa about licence fees.
Currently networks like Telkom and Neotel pay 0,1% of their net invoiced public switched telecommunication service (PSTS) revenues as the annual licence fee. Mobile carriers MTN, Vodacom and Cell C pay 0,5%. But under the new ECNS and I-ECNS licences, Icasa is proposing fees of 3% of revenue, a figure that’s clearly enraged the industry. The world average is around 1,5%, and most players polled have told Moneyweb they’re expecting fees of around 0,5-1%.
Are the new licences enough though?
ECN’s Holdsworth thinks not. He argues that carrier pre-select now becomes vitally important. Basically, carrier pre-select means subscribers whose telephone line is maintained by one company, can choose to have some/all of their calls automatically routed across a different phone company’s network.
Holdsworth says this is the “single biggest enabler of deregulated telecoms”. In its request for submissions, Icasa has proposed implementing carrier pre-select in two phases. The first would require users to key in a prefix before a call to ensure it is routed on the network of choice. The second means automatic carrier pre-select, but calls from mobile phones are excluded from this phase, something which Holdsworth finds ridiculous.
“90% of calls [in SA] are made involving mobile phones,” says Holdsworth. “Why would you want to exclude these?” He says implementing the regulations in the current form would be a “complete waste of time and money”, much like the way in which number portability was implemented.
Holdsworth also believes we should move straight to phase two.
“That said, Icasa seems to be driving this process hard,” Holdsworth adds. Realistically, these regulations may be promulgated as soon as May, although if there are delays, this could stretch to year-end.
He also argues that carrier pre-select can’t be dealt with in isolation. High interconnect prices, facilities leasing and local loop unbundling also need to be considered.
Icasa’s dealing with the first and it’s begun making noises around local loop unbundling. Will it be able to drive these regulations through in the next 18-36 months?
Holdsworth and his competitors are holding thumbs.