STRIKE UP THE BAND
Various factors – a lack of competition to Telkom being the main one – have kept telecommunications prices in SA artificially high. Now, change is coming fast.
One of the most important developments is the East Africa Submarine System (Eassy), which will compete with the Sat-3/Wasc/Safe cable that links SA with Western Europe and the Far East. Unlike Sat-3/Safe, Eassy will be an "open access" system, which means any company licensed to carry international telecom traffic can get access to it.
Then there’s the planned introduction of faster access networks by the cellphone companies. Enhanced 3G services will be launched by MTN and Vodacom this year that will deliver access speeds almost twice as fast as the fastest fixed-line broadband product currently offered by Telkom.
Even smaller operators, Wireless Business Solutions (WBS) and Sentech, plan to step up the pace of their network roll-outs. WBS has already secured new financial backing for its network expansion and Sentech hopes to conclude a deal soon.
Both companies want to provide blanket wireless broadband coverage to SA’s urban areas.
WBS CEO Thami Mtshali says his company, which operates the iBurst network, will provide complete coverage of Gauteng within the next few months. The new base stations will all be activated by the end of March, Mtshali says. Some will go live as early as this week.
WBS is ramping up investment in its network after finding a new equity investor in the form of the privately held Blue Label Investments. Blue Label, which owns companies in the cellphone industry, plans to acquire the 40% of WBS held by US-based GTech.
GTech supplies technology solutions to most of the world’s lotteries. In SA, WBS operates the network used by the national lottery. Mtshali says it has sold its stake because WBS is no longer focused exclusively on the lottery. Rather, it has reinvented itself as a broadband telecom company.
As part of the transaction – the change in WBS’s shareholding must still be approved by the Independent Communications Authority of SA – Alan Knott-Craig Jr, the son of the Vodacom Group CEO, has been appointed as its MD and chief operating officer. Mtshali downplays any potential for collusion between WBS and Vodacom. "They are independent people," Mtshali says of the Knott-Craigs.
Anyway, he says, WBS and Vodacom don’t compete directly with one another. Vodacom’s broadband offerings are tailored more for the mobile worker, whereas most of WBS’s customers treat the iBurst network more as a fixed-line replacement. Most iBurst users access the network via modems that connect to a desktop PC whereas most of Vodacom’s 3G customers use their modems on the road, hooked up to notebook PCs. It’s a different market, Mtshali insists.
WBS plans to spend about R100m on network expansion. It will focus on Gauteng for the next three months, where it will fill gaps in its coverage. New towers will also be built in existing coverage areas to take the pressure off some of its base stations, such as Northcliff in Johannesburg, that have become overloaded. "New towers will alleviate the capacity problems."
After March, the focus will shift to Durban and Cape Town.
At the same time, WBS has beefed up its operational team with new appointments. It is also investing money in improving its help desk. Mtshali promises to improve customer service levels and reduce network faults.
Mtshali says WBS’s top priority is improved coverage. Without it, the company will not be able to compete effectively.
State-owned Sentech, which operates a rival network called MyWireless, also wants to increase its footprint dramatically. CEO Sebiletso Mokone-Matabane concedes that the biggest impediment to the wider adoption of MyWireless is a lack of coverage. Sentech’s base stations only provide access in limited areas in SA’s major cities.
The company is considering a number of options to raise the funding it needs to expand its network. It could borrow the money, it could ask for financing from government, or it could form a public-private partnership of some kind. It’s in talks with its shareholder, government, and with potential investors. Sentech estimates it would need to invest at least R1bn in its network if it is to cover 80% of the population – the metropoles, the secondary centres and many of the major townships.
It needs a cash injection soon if it’s to remain competitive with its rivals. MTN and Vodacom, for example, have already built extensive broadband wireless networks.
Telkom’s also a threat. The fixed-line operator is said to be planning to introduce new broadband products soon. It will also reduce further the price of broadband line rentals. Later in the year, the SNO is likely to put further downward pressure on prices as it begins offering services to consumers.
It’s probably too early to predict a broadband price war, but it’s not inconceivable that the big operators could slash prices to secure customers and shut out smaller operators. If Telkom begins to feel threatened by the SNO and the wireless operators, it could try to stall their growth by slashing its prices.
The cellular companies have already cut their prices to the extent that they offer among the cheapest cellular data tariffs in the world.
The Eassy project will play a key role in bringing down broadband prices further. Unlike Sat-3/Wasc/Safe, where Telkom is the only SA investor and therefore has monopoly control over access to the system, there are a number of SA companies involved in the Eassy project – Telkom, Sentech, the SNO, MTN and Vodacom. Though MTN and Vodacom do not hold licences to carry international traffic – a prerequisite for gaining access to the system – it is not inconceivable that they will be granted licences .
That may not matter, though. Sentech has already said it will not collude with other operators. It will not set its prices at a level comparable with what Telkom charges for access to Sat-3. Some Internet service providers claim that Telkom’s fees for access to telecom circuits on Sat-3 are as much as six times higher than they should be.
Eassy, which will connect 17 countries, will link to Sat-3/Safe at a landing station at Mtunzini on KwaZulu Natal’s north coast. From there, the system, which is ultimately capable of carrying 640 Gbit/s of data, will run 9 900 km to Port Sudan in the Red Sea. At its northern point, it will connect to a range of cable systems, including Sea-Me-We-3 and -4, Flag and Falcon.
Eassy project co-ordinator John Sihra says Eassy will be fully operational by the fourth quarter of 2007 and will result in much lower bandwidth costs in the countries it will connect to. It will dramatically reduce the cost of telephone calls between African countries, many of which are still routed via satellite. "We will see aggressive price competition," he predicts.
SA consumers will be glad to hear that.
(c) 2006 Financial Mail
Reproduced with permission
Loading ...