South Africa’s mobile operators are stretched to capacity trying to meet the rapidly increasing demand for voice and data services and are laying their own fibre-optic networks.
Until now, MTN and Vodacom have relied on Telkom to provide their fibre network needs but, with Telkom unable to meet the increasing demand quickly enough, the mobile giants are taking matters into their own hands.
In recent weeks, both Vodacom and MTN have signalled their intentions to lay fibre-optic rings in urban areas to build their own networks and bring down input costs.
This points to a terrific opportunity for South Arica’s second network operator, Neotel, which claims to have access to 23 800km of nationwide fibre infrastructure.
However, Neotel has failed to make an impact on the sector yet and, although negotiations between the company and the mobile operators are continuing, there is no indication that Neotel will come to their rescue.
The point was rammed home by Vodacom chief executive Alan Knott-Craig at the group’s annual results announcement last month when he said: ”There is a second fixed-line operator — we just can’t find them.”
Both mobile giants have acknow-ledged their networks are stretched to capacity and, although they would not admit to it, sources close to them suggest that the increased data traffic is leading to a reduction in network quality. This is reinforced by anecdotal information that suggests the number of dropped calls on the two networks has increased substantially in the past year or so.
One source from within Vodacom says that in the past, the mobile operator would have two two-megabyte links going into a bay station — the mobile equivalent of a telephone exchange — but now it uses as many as six or seven to meet increased demand.
Telkom has been doubling its fibre network, but sources close to the fixed-line operator suggest the recent exodus of experienced telecoms professionals has crippled its attempts to get its next-generation network up and running.
Vodacom has already poached Telkom’s former chief marketing and sales executive, Wally Beelders, and its former chief technical officer, Thami Msimango. Telkom has also lost its managing executive of retail marketing, Steven Hayward, and its chief executive, Papi Molotsane, both of whom resigned.
Telkom’s acting chief technical officer, Bashier Sallie, denies the spate of resignations has affected Telkom’s plans, insisting it has doubled its fibre network from six million kilo- metres to 12,7-million kilometres.
Sallie says Telkom has experienced a significant increase in demand from the mobile operators, whose demand for network capacity increased 20% to 25% in the past fiscal year. He admits that turnaround times have been a problem.
Sallie says previous demand forecasts, conducted every 12 months, were thrown out due to significant growth. Forecasts are now being done every three to six months.
One analyst, who did not want to be named, says Telkom’s problem is that there is too much demand and it cannot keep up. ”Neotel has set itself rather modest ambitions and neither in price nor services is it going any way towards giving Telkom a run for its money,” the analyst said. ”MTN agonised about being an infrastructure player with broadband ambitions right up at board level about a year ago, but decided to go for it. It has made a series of acquisitions outside South Africa that reinforce these ambitions.”
MTN’s new managing director, Tim Lowry, says the mobile operators’ plan to roll out fibre is all about looking after the future of the business. ”There is pressure in terms of volume of traffic, but that’s a great problem to have,” he says. ”However, I want to get to a situation where we can respond quicker to the increases in traffic.”
Lowry says with low fixed-line penetration and high mobile penetration in South Africa, ”mobile is going to have to do most of the heavy lifting in terms of data”. He says Telkom cannot meet the mobile operator’s demands, so it is busy negotiating with a number of potential partners.
Lowry announced recently that MTN would spend R10-million to lay a fibre cable between Sandton and Rosebank as a pilot project aimed at testing the viability of a full fixed-line network.
”It is a great initiative because it will allow us to link up our bay stations there so we can provide additional capacity in an area of high traffic,” says Lowry.
He says that by 2008 transmission costs will be MTN’s largest input cost and laying fibre will allow the mobile operator to reduce costs and increase quality. It will give MTN an opportunity to move into new business areas.
Telkom does not appear to be concerned that both Vodacom and MTN have an eye on the fixed-line market. ”Demand in South Africa is huge and we have taken a position that we don’t want to be all things to all people,” says Sallie. ”So we have no problems with this self-provision.”
Vodacom’s chief operating officer, Pieter Uys, says the mobile operator’s competitive broadband offerings have led to a huge increase in data traffic and says self-providing its network will help Vodacom to cut down input costs.
Uys says it will cost Vodacom about R7-billion to R8-billion to self-provide its entire network requirements, but the initial phase will focus on high-capacity sites. ”We have to look at self-providing. We have been in this situation for so long now [that] we can’t just wait in the hope that something will happen.”