One of the six cellular licence bidders argues it can bring low-cost phone services to South Africa’s struggling rural masses, writes David Le Page
A 15c cellular phone call! Depending on who wins the third cellular licence early next year, such low-cost calls might become a reality in South Africa’s rural areas, where currently only 2% of people have access to telecommunications.
Early next year, the South African Telecommunications Regulatory Authority (Satra) is due to announce the winning bidder for South Africa’s third cellular licence. The actual decision will be taken by Cabinet, based on Satra’s recommendations.
But behind the current drama over Satra’s own credentials – at least two councillors are being investigated by the auditor general for having links to bidders, postponing the announcement of the bid winner – lies another dispute over what empowerment should mean.
The current understanding of empowerment is having shareholders representing as broad a section of society as possible. But another kind of empowerment would be that described by Satra as “universal service”, which is given a weighting of only 11% among Satra’s criteria. The low weighting is probably due to the low priority accorded a universal cellular service, rather than universal phone service per se.
But one bidder, Five Mobile Networks, argues that a “universal service” is possible. In this sense, a universal service would mean an affordable phone service available in many areas previously unreached or under-serviced by either Telkom, MTN or Vodacom.
Five Mobile Networks argues that it can deliver cellular telephony in such areas at that incredibly low rate of 15c, which would dramatically undercut Telkom’s current minimum 50c a call.
How could a 15c cellular call be possible?
The answer lies in geography, in technology and the fact that Five Mobile Networks does not plan a service that will look anything like what MTN and Vodacom currently offer.
Cellular services are generally most practical in areas of dense population, usually assumed to be urban. But there are many rural regions which are not low in population – large sections of KwaZulu-Natal and the former Transkei, for example.
Five Mobile Networks would implant in these areas a network based on the new GSM1800 standard. GSM1800, the spectrum being offered to the third bidder by Satra, is not obviously suited to rural areas. The “propagation” can be smaller than with GSM900 (MTN and Vodacom), meaning that cells (the area covered by a single base station) are smaller, and more base stations are required to cover a certain area. But certain network equipment vendors argue they can build GSM1800 cells which rival or even dramatically exceed the size of GSM900 cells.
In reality, GSM900 cells are often clustered more closely than demanded by range alone, in order to increase the number of channels available to users. GSM1800 helps here as well, offering considerably more channels per base station, which could make up for an increased number of base station requirements.
When a cellular network is rolled out, “propagation” maps are used to plan where base stations are optimally sited. One of Five Mobile Networks’ partners is local electronics company Cadnet, which has more precise propagation maps of South Africa than those used by either MTN or Vodacom. Cadnet recently surveyed Uganda for MTN, and would give Five Mobile Networks a leg-up in planning the optimal locations for base stations.
But the most important consideration is that unlike the other five bidders, Five Mobile Networks does not plan on challenging the “MTN- Vodacom duopoly”. This consideration alone should put its business plan on a firmer footing than its competitors, which are constantly revising their figures as Vodacom and MTN cut prices and become ever harder to challenge. MTN has dropped the cost of pre-paid cellular calls at least 60% since the bidding process began.
Instead, what Five Mobile Networks will end up offering is a “fixed-line alternative”, cellular phones that work mainly in and around people’s home areas. Its customers will not be Jo’burg movers and shakers; they will be rural mothers, farm labourers, small-town entrepreneurs and civil servants working to deliver services to neglected communities in areas such as the Eastern Cape. Soweto is also considered an ideal target area for the network.
It will be low-mobility, not offering the coverage of MTN or Vodacom. But it will give people a fundamental infrastructural service at an incredibly low cost. What’s more, the GSM1800 standard will support data traffic, allowing low-income communities to join the wired world online.
That membership of the wired world, with all the Internet’s potential for low-cost, global marketing, could be a formidable boost for rural innovators.
It is possible national roaming agreements could be concluded with other networks to allow Five Mobile Networks customers to have cellular services, at a cost, when travelling. It is not yet clear how such agreements might work – national roaming forced on networks by regulators has proven inefficient and unfair elsewhere, particularly in Italy. But technical experts believe there are untried solutions that could make both parties happy.
Five Mobile Networks’ international technology partner is the Israeli company GTIB, which has successfully rolled out networks in low-income countries such as Poland and Azerbaijan. In Israel, GTIB swept to success after introducing calls at 2c a minute, an almost inconceivably low cost for South Africans accustomed to being gouged for up to R2,50 a minute.
What difficulties does Five Mobile Networks face? For one thing, Telkom, despite missing its own targets for delivery in rural areas, may take exception to being challenged on that turf. If it does, the obstacles it could raise for the upstart might be overwhelming.
Five Mobile Networks’ other great weakness, at least as a bidder, appears to be a comparative lack of political connections. This does not mean that other bidders are attempting to bribe the influential. But the likes of Africa Speaks, which embraces the National Sports Council and leading empowerment group Brimstone Investment Corporation, among others, are probably better heard in the corridors of power.
Of Five Mobile Networks’ own shareholders, the rather less well-known Soweto Development Foundation is probably the most influential. Five Mobile Networks argues that delivering such a service to under- developed areas would be far more empowering than the diluted benefits of being one of 14-million shareholders in just 40% of Cell C.
It is arguably the most South African of bids, with the second-largest empowerment shareholding of all the bidders (52,5%), and another 35% held by South African companies. But having little direct investment from capital-flush foreign shareholders with lots to lose could also be a disadvantage. BOE has, however, undertaken to lead the task of raising capital should the licence be won.
At present, analysts believe the most likely winner among the remaining six contenders seems to be Cell C, the Saudi- backed consortium led by Oger Telecom.
Cell C claim to have already raised R500- million, more than any other bidder. Five Mobile Networks, like the others, argues raising capital will be easy once it has a licence. It plans to approach equipment vendors, the Industrial Development Corporation and the International Telecommunications Union.
If Cell C does win, it will probably be by default – as having offered the least obviously problematic of the several bids.
But Cell C does not plan to offer a low- cost service. “There are a number of solutions [to the problem of universal service] that are emerging on this and are becoming somewhat cheaper, but they are not of course cheap enough for such [low-income] people to be able to afford,” one of its representatives told Satra during the public hearings.
Naturally, the other bidders tend to be dismissive about Five Mobile Networks.
Abdulrawoof Ahmed of Africa Speaks believes the rural areas are unlikely to provide a sufficient revenue base. Africa Speaks has been accused of proposing an unwieldy mixture of technologies for its network, but it claims using the US-style CDMA- standard in rural areas will be more cost-effective than GSM1800, as it will require 60% fewer base stations.
One source close to one of the bidders said that Five Mobile Networks’ bid is considered “a bit silly” by other bidders. He pointed out that within the next couple of years, as new technology enables higher mobile data speeds, data services will become an increasingly large source of network revenue.
By restricting themselves to the rural areas, cutting themselves off from most likely data users, Five Mobile Networks are likely to limit their own possible revenue, revenue which could be used to cross- subsidise rural subscribers, the source said.
Andre Kruger of Five Mobile Networks points out that the licensing process in South Africa differs fundamentally from that in more developed countries, in that bidders are empowerment candidates starting out without funds, rather than paying enormous sums of money upfront to secure a licence.
To some degree, then, Cabinet will be gambling when the ministers choose a bidder from among the six candidates. What they will have to decide is whether they want to bet on a network that might truly bring telecommunications to the masses, or whether they will simply bet on another MTN.
ENDS