The government’s plan to implement a wireless open-access network (WOAN) in South Africa could have serious negative effects on Vodacom and MTN, according to an analysis by Fitch Solutions.
The Department of Communications recently published its policy on high-demand spectrum, which paves the way for the distribution of this valuable resource to mobile operators in South Africa.
This is great news for all mobile operators, as the industry has been starved of spectrum for years, with regulatory bureaucracy and government’s depressing attempts at making progress towards digital migration causing a drought of new spectrum to assign to networks.
The policy is not all good news for established players, however, as it includes a major focus on the WOAN, stating that it should receive the lion’s share of the new spectrum, especially that which is in high demand.
While the policy does not dictate how much spectrum the WOAN should get, it states that it will receive preferential treatment for spectrum in the 700MHz, 800MHz, and 2,600MHz bands.
Vodacom and MTN control around 50% of the local market, a fact which Fitch Solutions said has influenced the government’s decision to follow through with its WOAN plans.
“Despite significant push-back from the larger industry players, [the government] is doubling down on its plans to introduce a Wireless Open Access Network (WOAN), a relatively untested concept, with few examples of success globally,” Fitch Solutions said.
The government no longer plans to take spectrum from the two major operators to feed the needs of the WOAN, but it will ensure that the state-founded network will be the preferred choice for the resource going forward.
Fitch Solutions warned that this would not be a good strategy because of stringent government requirements and the delays usually experienced with state-funded projects.
“We caution against the risk of the WOAN receiving preferential treatment over other players in the market,” the company said.
“Moreover, we believe that the spectrum allocation process faces risk of significant delays owing to factors such as stringent local ownership and empowerment requirements for the consortium to make up the WOAN, which may limit the pool – and experience – of potential licensees.”
“Players are likely to be wary of the state’s involvement in the venture, owing to widespread instances of mismanagement of key state-owned institutions,” it added.
Fitch Solutions also noted that the risk of giving the WOAN preferential treatment is heightened by the lack of clarification or operating model given by the state regarding the network.
“We also anticipate additional delays to the formation and time to market of the WOAN, owing to a lengthy vetting and licensing process for applicants,” Fitch Solutions said.
“Our view is formed by factors such as the stalled digital migration exercise as well as the number of missed spectrum allocation deadlines since the regulator first attempted to license additional frequencies in 2014.”
Increased costs and 5G
The analysis by Fitch Solutions also found that even a functional and operational WOAN would not necessarily be good for Vodacom and MTN, as it could increase their costs.
“We believe that a functional and operational WOAN will be a positive development for smaller players, including Telkom and Cell-C. But it will raise operational costs for the larger players, owing to the conditions attached to their acquisition of the remaining spectrum assets,” the company said.
“MTN and Vodacom will have to commit to conditions such as a network rollout into rural and underserved areas before they can utilise the spectrum they acquire, in more profitable areas.”
The increased oversight over roaming agreements and facilities leasing may also result in the biggest operators taking a hit to their margins, Fitch Solutions said.
Despite the opportunity, the government chose to omit any stance regarding 5G spectrum in its policy direction, stating that it would instead offer a separate direction in 2020.
This raises the likelihood that Rain will be the first to market with a commercial 5G offering, Fitch Solutions said, adding that the government has instructed ICASA to investigate and produce a report on viable 5G frequencies.
“We are of the view that the state’s ability to adhere to this deadline would go a long way towards proving the president’s commitment to prepare the country for the Fourth Industrial Revolution, of which 5G is poised to be a key driver,” the company said.