Thebe Mabanga
Telecommunication features prominently in any analysis of economic trends and investment issues in determining a country’s rating in the world. Business Map SA consultant Pam Sykes calls telecommunication an enabling sector that facilitates ease of operations in sectors like transport. It is also important as an industrial sector in its own right.
Jan Duvenage of the African research desk for the Standard Bank group values the sector’s influence in lowering transaction costs for a knowledge-based, service-driven developing economy. He says the sector offers returns on capital ranging from 15% to 40% compared to between 10% and 14% from other forms of investment in capital.
Duvenage then offers cold comfort by citing a 1996 study by the Institute for Social Research in Berlin, which concluded that in order for telecommunication to directly influence growth, a country needs density of 24 telephones per 100 people. Last year, South Africa had a fixed line tele-density of 12,5 per 100 people.
In 2000 the top 10 sectors attracting foreign direct investment (FDI) pulled in R13,8-billion. Of this, R1,5-billion went to telecommunication and information technology, making the sector the fourth-largest recipient of FDI.
The sector got a huge boost this year, however, with the R3,1-billion Saudi Arabia invested in Cell-C, the new cellphone licensee.
For a sector of its importance, telecommunication makes a relatively modest contribution to formal employment, a reflection of the country’s skills shortage. A survey on employment and earnings released by Statistics South Africa at the end of March indicates that the sector comprising transport, storage and telecommunication employed 209043 full-time and part-time employees, just 4,5% of the labour force in the non-agriculture formal sector. The sector is estimated to have lost 10,8% of its workers from a year earlier.
Telecommunication policy developments are often followed with interest by foreign investors. The policy directives announced by the communications department a month ago added impetus and speculation about prospects for growth and investments.
The directives came with the backdrop of a decision to postpone the Telkom initial public offering (IPO) due to unfavourable market conditions. The IPO was due to take place during the fourth quarter of this year and raise R18-billion.
The policy directives also announced the decision to license two new national, fixed-line operators instead of one as mooted in the first draft in March a decision that caught many commentators by surprise.
Sykes believes these moves will have positive spinoffs. She cites rapid expansion and lower prices as benefits to be passed on to consumers.
Franca Disilvestro, a telecoms analyst at HSBC, sends policymakers back to the drawing board by pointing out the market cannot afford two more operators, largely due to Telkom’s pricing model. The utility’s corporate clients subsidise private telephone owners. When competition opens up “we will have a price war because all the new investment will end up chasing the same customer,” she says.