South African ADSL market size

ADSL was first launched in South Africa in late 2002, and Telkom has enjoyed a monopoly on fixed line broadband provisioning ever since.  Telkom showed strong ADSL growth over the last few years, but wireless operators are becoming increasingly competitive.

Vodacom, MTN, iBurst, Neotel and other Wireless Internet Service Providers (WISPs) are taking the fight to Telkom in the broadband space and continue to steal market share from the fixed line provider.

Telkom however appears unfazed about relinquishing broadband market share to the wireless players, something which may stem from its prediction about the potential size of the ADSL market in South Africa.

Total broadband market

One of the hotly debated issues in the local telecoms arena is the size of the South African broadband market.  The country’s low PC penetration rate and low GDP per capita in rural areas are seen as factors limiting the potential broadband penetration rate in South Africa.

According to World Wide Worx MD Arthur Goldstuck the only ceiling on the broadband market is the number of people who can afford both a computer and a broadband account.

“The present ceiling is the installed base of computers in South Africa, which is around the 7-million mark,” said Goldstuck.  “The immediate potential for fixed-line broadband growth is the current dial-up user base of around 700 000 users. They should migrate fairly fast.”

“Behind that comes the corporate user base of around 2-million, which is rapidly adopting 3G as a way of remaining connected out of the office. Eventually any office knowledge worker will be expected to be a remote knowledge worker as well.”

BMI-TechKnowledge telecoms analyst Fezekile Mashinini’s prediction is in line with Goldstuck’s estimation, and he says that there will be around 5.6 million broadband subscribers in South Africa by 2014.

“The market is large and will grow as the market matures and cheaper broadband solutions are launched by service providers,” says Mashinini.

Potential ADSL market size

While there is a fair amount of consensus on the potential size of the local broadband market, there are varying views on the potential ADSL market in the country.

Telkom’s Chief of Strategy, Naas Fourie, estimates that the total potential ADSL market is currently slightly higher than 1 million subscribers.  This is in line with the company’s targeted fixed line broadband penetration rate of 25%, which means that Telkom is planning to ‘convert’ another 550 000 of its 4,451,000 fixed lines to ADSL to have a total of 1.1 million ADSL subscribers.

This estimation of the potential South African ADSL market can be viewed as very conservative.  One industry expert even suggested that Telkom is setting low targets to ensure that they are easily met enabling them to in turn realize performance bonuses.

According to Goldstuck the ultimate ceiling for ADSL is the fixed line market of around 4.5-million, but a more realistic figure is 2.5-million “That market is shrinking all the time, so it is a descending ceiling. At the same time, a fairly large proportion of that market cannot afford computers. So we are looking at a total ADSL market of not more than 2.5-million, at most 3-million,” said Goldstuck.

Mashinini points out that there are many factors influencing the potential ADSL market size, including fixed-line penetration, service level affordability, competing technologies and the effects of local loop unbundling.

Mashinini predicts that there will be 1,391,700 ADSL subscribers in 2014, slightly higher than Telkom’s total market size estimation.

Telkom’s low ADSL market size estimation may be something which is holding the fixed line provider back in its ADSL growth plans.  Other developing countries like Morocco have seen very strong ADSL growth because of aggressive low-end ADSL pricing.

Fourie however points out that the margin on their low-end ADSL products is nearly non-existent, which may be a forewarning that Telkom will not be implementing drastic low-end price cuts in future.

This may mean that Telkom continues to lose market share to the wireless broadband providers who continue to cut prices and up the value proposition on their broadband services.

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South African ADSL market size