Government’s incompetence with spectrum is costing SA billions a year

The delay in providing South Africa’s mobile operators with LTE spectrum is costing the country billions per year, and consumers are the biggest losers.

On 17 June South Africa became one of the countries which missed the International Telecommunications Union’s deadline to migrate to digital broadcasting.

In fact, South Africa is hardly out of the starting blocks. South Africa initially planned to complete the digital migration process by November 2011, which shows just how poorly this process was handled.

Communications Minister Faith Muthambi downplayed the missed deadline, saying that South African television viewers will not face broadcasting disruptions.

Broadcasting disruptions were never the biggest issue, though – it was broadband spectrum. The migration will free up valuable spectrum, which can be used to provide country-wide LTE coverage.

It is not only the digital broadcasting migration delay which is to blame, though. The former Department of Communications and Icasa are equally guilty for the delays.

The process to hand additional spectrum to operators has been dragging on for nearly a decade, and there is no end in sight.

Spectrum assignment delays
Spectrum assignment delays

How much it is costing South Africa

The fact that spectrum is sitting unused means that South Africa is losing billions of rand each year.

It is also not a resource like gold or platinum which can be mined later – every day where spectrum is not used means that the benefit is lost, forever.

This raises the question as to how much South Africa is losing because of the delays. It is challenging to work out, but two calculations shed some light on the issue.

In November 2012 the GSMA and Deloitte released a report which stated that the doubling of mobile data use leads to an increase of 0.5 percentage points in the GDP per capita growth rate.

It further found that countries characterised by a higher level of data usage per 3G connection have seen an increase in their GDP per capita growth of up to 1.4 percentage points.

By switching on LTE country-wide, and having additional spectrum to offer higher speeds and lower prices, South Africa can double its mobile data use.

The calculation is simple: R3.8 trillion (SA GDP) * 0.5% = R19 billion per year

Another way to look at it is from a mobile operator’s perspective. Vodacom recently said it has seen a 12.6% increase in the average revenue per user (ARPU) when customers change from 3G to LTE.

With additional spectrum, Vodacom can switch on LTE across its whole network – taking its LTE coverage from 35% to nearly 100%.

This can theoretically increase the ARPU from R113 per customer per month to R127 per month. With 32 million South African customers, the difference is:

32,100,000 SA subscribers x R14 per month x 12 months x 0.65 (increased coverage) = R3.5 billion per year

Vodacom has around 50% market share, which means the loss to mobile operators may be as much as R7 billion per year.

While these calculations are debatable, it does illustrate that South Africa is losing billions each year because of the delay in using all available spectrum.

The biggest losers in all of this are consumers. They pay more for data than what they should, and are not getting the speeds which are possible through the latest technologies.

Mobile operators are forced to make expensive plans to compensate for the lack of spectrum, including re-farming spectrum and building more sites.

These costs are inevitably passed on to consumers.

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Government’s incompetence with spectrum is costing SA billions a year