Why South Africa needs high-speed fibre – Vumatel CEO

By Dietlof Mare – Vumatel CEO

In this day and age, it is difficult to argue against the importance of connectivity. Access to the Internet has enriched the lives of millions and studies have shown that access to the Internet is vital. According to the World Economic Forum (2014), each additional 10% of Internet penetration can lead to a 1.2% increase in per capita GDP growth in emerging economies.

The Internet is the foundation of the digital economy and has become a platform for education, communication, innovation, economic growth and social well-being. Many of us cannot imagine a life without the Internet. It has become so integral to our lives and a fundamental building block for a country and its citizens’ economic development.

In the Information Age, there is a fundamental distinction to be made between access to the Internet versus abundant or unlimited access. In South Africa, Internet access is relatively high, mainly due to the mobile networks, which have penetrated large sections of the population. This was largely achieved by introducing prepaid solutions to the lower-income groups.

While this went a long way to providing large portions of the population with Internet access, it has not given lower-income groups the benefit of Internet and information abundance. The cost of these services is still prohibitive relative to the data provided to the consumer. According to MyBroadband the cost of 1GB of prepaid data from the major mobile providers is around R150. The average income for a household in the lower-income bracket is approximately R3,000 per month. This means that an astonishing 5% of the entire household’s monthly income is spent on only 1GB of capped data.

This has far-reaching consequences. Consider the impact that Internet access has on one of the biggest challenges South Africa faces today – Education. The school child in Sandton working on a project due for the next day, with an uncapped high-speed connection, will be able to research the topic, watch videos, access educational resources online like Khan Academy, and so on. These online resources will greatly enhance understanding of the topic and beyond. In contrast, a child living in a lower-income area may only have access to a small amount of mobile data, if at all, and will not be afforded the same access to resources.

Without abundant affordable access to the Internet, the opportunity to learn and grow is substantially limited. Both children in this example have Internet access, but only one has Internet abundance and that difference is creating a digital divide which is extremely difficult to overcome.

This example illustrates the impact of the digital divide on education, but think what the impact of digital inequality might be on other aspects of our lives – from applying for jobs online, to finding information, to free Wi-Fi calling, to accessing online entertainment, socializing and starting your own business. All of these are made possible with access to unlimited and abundant Internet.

Abundant access to information is truly the key to unlocking potential.

One could argue that abundant Internet access is becoming an essential utility to be provided to citizens and should perhaps start to be considered as an addition to our basic human rights. As technological advancements accelerate in the age of exponential growth, the digital divide will only grow wider. The consequences of which, are far-reaching. Until we find a way to provide affordable, accessible, abundant Internet access to more people, some measure of the population will always be left behind.

How do we close the gap?

In order to combat the digital divide, we need to come up with a sustainable, scalable way to roll out broadband infrastructure to all. This is not about charity. This is about making business models work to access markets that would otherwise remain uncharted. Charity is unsustainable and difficult to scale. A working business model allows for proper service delivery, the maintenance and upkeep of the network, and the delivery of a network that goes beyond providing Internet access to the people – it provides Internet abundance.

Unless the mobile network operators change their spots and provide uncapped or very large data packages to the masses at affordable prices, the only real solution is to provide uncapped fixed-line services to as many people as possible.

The reality is that deploying fibre is capital intensive and that can be prohibitive. On the up side it is a future-proof technology (currently providing speeds of up to 1Gbps and capable of more), and the infrastructure has a very long lifespan. The amount of capital required to deploy fibre networks is largely driven by the distance of infrastructure to be deployed per customer. In other words, the higher the density of the population, the more affordable it is to deploy the infrastructure to each customer.

Europe

EU

South Africa

RSA

Traditional telecoms thinking around business models, driven by the developed markets like the US and Europe, is to have a one type of product available at a one price. These models cannot be translated into the South African market because our population looks vastly different. In more developed countries there is a large middle class and income is relatively equal.

This means that a large portion of the population can afford to purchase the same product at the same price. In South Africa, we suffer from a highly unequal distribution of income and different products need to be created to cater for different levels of affordability. At the same time, for example in Europe, the density of the population is also high and consistent which makes the cost to serve all customers, or to deploy the infrastructure, on average very similar.

This naturally lends itself to a one-size-fits-all approach to products and pricing. The differences between developed and developing countries create a pricing conundrum for a fibre telecoms provider. Introducing an “average” price into the market for a uniform product still means that a large cross section of the community will still find it unaffordable and will not be able to take up the service, which would subsequently prevent fibre operators from investing in these markets.

South Africa, however, has another type of “inequality”. Generally, in urban areas, the lower the income, the higher the population density. This, we believe, provides the key to unlocking the pricing conundrum. More customers can be reached more efficiently and affordably in some lower-income areas due to the higher density. This landscape presents the perfect opportunity for fixed-line providers to develop alternative, efficient, innovative and affordable solutions to serve this market, while still providing the Internet abundance that is made possible by fibre.

The high-speed connectivity needs in the lower-income households are no different to those in the more affluent suburbs of South Africa. The only way, in our opinion, to meet the needs of everyone is to deploy customised, cost-efficient technologies that are future-proof and satisfy the demands of households across South Africa with innovative products and price points.

We cannot, nor should we, always transpose models from international markets. It is time to innovate and develop South African solutions for South African challenges. We have seen this in other sectors of industry already. For example, in the UK you have black cabs everywhere because generally everyone can afford these. In SA we have a multitude of taxi options from Uber Black to Toyota Quantums. Both will get you from A to B but the Quantum is far more affordable.

The same need is fulfilled, but there are some differences. The products are slightly different, the experience is slightly different and a different amount of capital is required to serve the customer in each case. Therefore, these services come at a different price to the consumer.

If we want to contribute to progress in South Africa, it is important to recognise that we need unique pricing solutions and innovative product sets so that we can move away from the traditional thinking of a one-size-fits-all approach to products and pricing. It is important for South African companies to think of innovative ways to serve all sectors of the population and contribute to the growth of the economy and development of our society in the spirit of Ubuntu.

If we can move our industry’s thinking away from a single price for a single product to a fit-for-purpose product at an affordable price, reflective of the cost needed to serve the different communities, we will be able to provide Internet abundance to more people and unlock the country’s potential.

Give people unlimited access to the Internet, in their homes, at a price they can afford and watch their lives change. Watch the economy change. Watch the country change.

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Why South Africa needs high-speed fibre – Vumatel CEO