There has been much hustle and bustle around the appointment of South Africa’s second network operator (SNO). The process itself has, to say the least, been fraught with delays and uncertainty.
After nearly two years, and in a process that saw no fewer than four bidders fail to make the Independent Communications Authority of South Africa’s (Icasa) grade, the government will now handle the selection process.
The Department of Communications, under the leadership of Minister Ivy Matsepe-Casaburri, has announced that the 51% stakeholder in the SNO will be known in eight weeks’ time. The minister said that until a suitable investor is found the 51% share will be warehoused.
The warehoused portion will complete the second-equity partnership share of the new entity — which already comprises a 30% stake held by the integrated state-owned enterprises Transtel and Eskom, and Nexus Connection with 19%.
No further tender processes will take place, Matsepe-Casaburri said, as there has been significant interest from new and existing applicants.
While this may be so, what will the effect on the industry, business and, ultimately, the consumer be?
“The decision taken by the government to award the SNO licence is encouraging for the telecommunications industry in South Africa,” says UUNET South Africa CEO David Meintjies.
“If one examines some of the case studies in Europe around deregulation, it shows that following this process the industry has witnessed a 35% to 40% reduction in price for services over a four-year window period, a trend which should be similar in South Africa.”
According to Brian Neilson, director of research for BMI-TechKnowledge, the delays have had a substantial effect on telecommunications equipment providers.
“A lot of equipment providers have been reliant on the SNO decision for some time now. Telkom reduced its capital expenditure on equipment quite drastically over the past year, which in turn has had a negative impact on the equipment providers.”
Neilson added that had there not been a need for telecommunications equipment elsewhere in Africa, the industry could have been in trouble. Even so, some providers have had to cut back their operations substantially
Neilson said that if an operator is selected within two months, “The [state-owned enterprises] will give a sigh of relief following the huge investment that they have already made in infrastructure, which, until now, has been lying redundant.”
Meintjies said it would make sense for the new entrant into the market to look to leverage off third generation technologies, like wireless broadband, because of the cost-effectiveness and lack of infrastructure investment that is be needed.
“It is unclear what universal service obligations will be placed on the SNO,” said Meintjies. “Telkom has been unsuccessful in fulfilling its service obligations, even with its monopoly — therefore this will be a key area of focus going forward for the SNO.”
Businesses are likely to benefit the most from the introduction of the SNO. Looking at convergence there is an opportunity for the SNO to bring forth the integration of services like voice and data, bringing further functionality and efficiency to an organisation’s communications chain.
Meintjies said: “It will help support a company’s ability to be more competitive in terms of the nature and cost of their service offerings.”
However, while CommuniTel CEO Peter Archer and chairperson of Two Consortium Dr Kwame Amuah — whose companies have both applied for the 51% stake — are quietly confident that the process will reach conclusion by the end of the year, Neilson said some industry members remain sceptical.
“A number of questions remain unanswered — in particular, who the 51% investors will be. There could be considerable legal wrangling over this matter, depending on how involved the losing bidders in the consortium that is ultimately awarded the [second-equity partnership] share are.”
Neilson said the possibility exists that the new consortium will include more direct involvement from major telecoms operators — rather than the arms-length involvement previously envisaged in the bid documents, one of which suggested the possibility of a non-shareholding relationship with MTN.
Telkom has a major shareholding in Vodacom, essentially making the partnership virtually a combined operator in itself, leaving MTN as the only other lone operator. It makes sense from a convergence perspective too.
“Combining MTN and the SNO more formally makes sense, but it obviously depends on MTN’s appetite for this potentially less lucrative business. The SNO could, however, also go for more of the high growth business on the entire African continent, as MTN, Eskom and Transtel are already doing,” said Neilson.
Unfortunately for the consumer the sentiment is that there will not be significant cost reductions and savings on the horizon.
Telkom already has a large footprint in the consumer market owing to its infrastructure. While in an oligopoly price reductions are usually realised, in reality they already have been.
Telkom’s international call costs have reduced significantly and the presence of the value-added network services (Vans) industry in the leastcost routing and international call-back spaces will make it difficult for the SNO to match the current offerings unless it partners with the Vans.
Whether the SNO process will reach fruition in the next two months is anyone’s guess. It is an exciting time for the South African telecoms market and one that deserves some attention over the coming weeks.