The fixed-line future
MUCH HAS ALREADY BEEN SAID about the unbundling of South Africa's local loop, and while some have painted it as Government handing over an effective four years' extra grace to Telkom, for small businesses and consumers it's critical to the future of open competition in the telecommunications industry.
The local loop – otherwise referred to as the "last mile" – includes all the telephone exchanges and anything else in between the exchange and a customer's home or business.
Unbundling that infrastructure entails allowing other companies access to the Telkom exchange building and the provision of space inside them for other companies to install their equipment, connect them to power and incoming network links and then connect them to the line that then connects the customer to the exchange.
While Telkom would still own the buildings and all the cabling it would then rent that to its competitors at a price regulated by telecoms regulator Icasa.
It's in that area that the greatest uncertainty reigns, as it isn't clear how a price would be determined: whether Telkom will be able to set a price that might make it difficult for others to compete or one based on the real cost of maintaining the facilities, plus a margin to pay for future expansion of the network.
However, clarity has come from the submission to Parliament by SA's Communications Department of the report by the local loop unbundling (LLU) committee – an independent body set up by the minister to provide recommendations on how best to go about that process.
The LLU has recommended that Telkom set up a new separate facilities and services management entity that would own and operate all the exchanges and the infrastructure between those exchanges and the customer.
That's good news for potential competitors, for two reasons: first, because it means that there will be a clear separation between the various commercial business units of Telkom and its local loop management company, and, second, because the profitability of the unit will be dependent on the organisation quickly and efficiently giving access to new entrants hoping to offer voice and broadband services to the consumer.
Scott Morrison, research director at Garner, says this model is very similar to that implemented in Britain, after British Telecom (BT) created a new division – BT OpenReach – which is the custodian of its local loop.
Thus far OpenReach has been successful in enabling other organisations – such as Cable & Wireless, Carphone Warehouse and Sky Media – to access customers previously connected to BT.
However, Morrison says it was possible to unbundle BT's local loop for a number of years but take-up was very small until 2005, when Carphone Warehouse entered the market, being specifically focused on the voice market. Only once that happened did the market see the potential and only after that did the market start to take off.
Morrison says that even with the aggressive adoption of that facility by BT's competition the aim is only to cover 70% of Britain's population over the short term. Considering that 90% of Britain's population is urbanised it's clear that only benefits those living in higher density areas.
The SA experience is likely to be very similar, with Telkom's competitors cherry-picking the most lucrative exchanges to unbundle first but steering well clear of less profitable opportunities. Competition in the rural areas is likely not to come via the route of LLU but rather through offerings from new, more innovative, service providers that see profit in lower density areas.
SA's second fixed line network operator – Neotel – is likely to be the biggest user of LLU, with the company commenting: "LLU in its various forms is a key driver for augmenting competition in the telecoms market and has a significant effect on customer choice as well as pricing.
"The unbundling of the local loop in SA represents an opportunity for us to roll out our services faster (than current plans) to customers, while at the same time optimising the utilisation of the country's existing telecom infrastructure and therefore allowing for further realignment of pricing for telecoms services in the country.
"We're developing an entirely independent telecoms network in SA, but the availability of the local loop from the incumbent operator becomes an important part of our strategy to ensure accelerated introduction of true competition countrywide."
However, the infrastructure is likely to be opened up to other players that have the will and the financial muscle to play in the broadband space. That will be regulated by Icasa and it's still unclear how many, if any, of the current value added network service providers (Vans) will be interested or given a licence to operate their own infrastructure.
One question is why, with the current advances in wireless technology, would companies want to use fixed line infrastructure.
Neotel MD Arjay Panday says: "Wireless technologies have been growing in capabilities and are today able to deliver a wide range of services over very high data speed connections. These technologies have further evolution paths further upgrading the data speeds and services supported.
"However, similar technology developments in the wire-line arena are resulting in the ability to deliver faster data speeds even over traditional copper networks by deploying next generation equipment in the network."
Though Neotel will be deploying a wireless service in the near future using both CDMA and WiMax technologies, it aims to supplement its wireless network with the wire-line infrastructure that it will deploy independently (as well as the unbundled local loop) to deliver bandwidth intensive applications and content delivery.
Services that high capacity access links deployed over wire-line or wireless technologies will support on-demand content – such as music and video, as well as online gaming – in addition to suites of applications being developed worldwide to improve the lifestyle of the consumer.
Such applications include concepts such as "digital home," where all electronic household goods are interactive and remotely managed. It's that offering of converged services that's the Holy Grail for telecoms providers and the current, or even the next generation, of wireless technologies just can't provide either the speed or the reliability needed.
Gartner's Morrison says that in France – the European market that's most advanced in this area – there's been a continued drive to include increasingly more services in the base cost of connectivity.
"What happened initially was the market price of broadband offerings declined and then stabilised. After that the competitors began to differentiate their products by adding in more services and increasing speeds. Additional services included bundled voice minutes and entertainment services, such as video on demand or television services."
While the publicity will be largely reserved for those consumer-focused services, SMEs will also be big winners as they're the companies that tend to rely on Telkom's ADSL services for connectivity.
More competition in that market will clearly lead to cheaper and better services for such companies. Larger organisations may see benefit in providing connectivity for smaller sites but by and large they'll be the kind of companies that will have dedicated data services provided to them.
While 1 November 2011 has been mentioned as the date on which this process should be concluded, Panday says that to meet the target of unbundling up to 80% of local loops by 2011 a wide range of activities – including regulatory interventions – need to be completed much earlier.
And he says that if Icasa manages to ensure availability of the first of the local loops from the incumbent in a limited geography by mid-2008 that would be progress in the right direction.
Finweek
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