The internet economy has arrived in South Africa.
In 2008 the country’s internet user base grew by 12,5% to 4,5-million users, the largest growth rate since 2001.
In a bid to meet this increasing demand operators are laying fibre-optic cables all over the country, as well as numerous undersea submarine cables that will deliver international bandwidth to South Africa. These moves are in various stages of development.
Telkom, Vodacom, MTN, Neotel and Dark Fibre Africa are in the process of laying fibre networks, the Seacom undersea cable is expected to land in June 2009 and the EASSy submarine cable is expected some time in 2010.
The looming 2010 Fifa World Cup has given the sector an extra shove in the right direction.
As internet users grow, there is a shift from slow dial-up internet connections to permanent broadband connections.
In 2004 dial-up subscribers numbered 1,08-million and broadband subscribers numbered a mere 51 000. In 2008 dial-up subscribers shrank to 700 000 and broadband subscribers grew 2 000% to 1,05-million.
This move has been fuelled by greater competition in the sector, which has resulted in substantially decreased prices.
In 2002 a standard broadband package would have cost the consumer more than R900 a month; now a similar package costs in the region of R200.
The market is due a further shake-up with the arrival of the $600-million Seacom undersea cable, which will be the first cable to land and will deliver a huge amount of cheap international bandwidth to the market.
Seacom will be the first undersea cable to connect East Africa to the rest of the world through links with India, England and France and it is expected to come close to halving the cost of broadband when it enters the market in South Africa.
Seacom’s president Brian Herlihy says a simple calculation would show that South Africa needs close to 50 gigabits of international capacity to service the one million broadband subscribers in the country, but it has only 10 gigabits.
It is no wonder then that the initial delivery of 80 gigabits of international capacity by the Seacom cable from June 2009 will shake up the market.
Seacom’s total capacity can be upgraded to 1 280 gigabits if there is enough demand.
Neotel and MTN announced recently that they were partnering to lay a 5 000km national fibre-optic network that will connect major centres across the country.
The first leg of the network will be between Johannesburg and Durban, so their network will reach the Seacom landing station in Mtunzini by August this year, a few months after the cable is expected to arrive.
Rudolph Muller, of consumer activism website MyADSL, says the operators are laying down fibre because they know there is a need.
“There is going to be a lot more capacity in South Africa and this will drive down prices,” says Muller.
He says the sweet spot for broadband pricing appears to be between R100 and R200 for a one to three gig package.
He says high-end users can expect to pay similar prices to what they are paying now, but they will get a lot more bandwidth for their buck.
Richard Hurst, a telecoms analyst for the IDC, says he expects broadband prices to come down between 25% and 30%, but says the biggest change will be that users will be consuming much more bandwidth.
“I don’t see a price war developing,” says Hurst. “It will become a healthy competitive sector.”
Hurst expects the increase in capacity to make dial-up redundant, as the way that consumers use the internet will fundamentally change.
“Dial-up is like going into the ocean with a snorkel, whereas broadband is going into the ocean with an aqualung,” says Hurst.
Finding Neotel
The newcomer in the telecoms market, Neotel, offers cheaper broadband and voice services than its rival Telkom.
According to mybroadband.co.za, Neotel’s NeoConnect Prime 2,5GB offering is cheaper than either Telkom or iBurst and in voice services Neotel matches or beats Telkom in price in every category.
Neotel to Telkom calls are cheaper than Telkom to Telkom calls, according to mybroadband.co.za.
Telkom’s trump card, it seems, is the free national Telkom calls offered on its Closer packages. Whereas Neotel’s NeoConnect Prime packages offer 1 000 free minutes for calls to other Neotel users, its user base is too small for customers to benefit from the service.
Neotel offers coverage for home and small business use in Johannesburg, Pretoria, Cape Town and Durban, but the services available differ from area to area and there are still many locations where Neotel is not available.
Consumer response has apparently been muted, with many people waiting for better coverage before committing to a contract.
Angus Hay, head of strategy at Neotel, says the provider is looking to extend the boundaries of its consumer services in the major metropolitan areas. He says Neotel boasts more than 100 base sites nationwide, with 30 to 40 of these in the greater Johannesburg area.
He declined to say how many subscribers the company has, but according to mybroadband.co.za, its customer base is in the lower thousands. Hay’s reluctance to disclose the number indicates that the company is not where it needs to be in terms of numbers. Hay says this is probably more perception than reality and that, in terms of its projections, Neotel is on track.
He says the provider has focused on the converged services model, offering internet and voice together in specific markets and geographies and that this has been primarily aimed at small businesses and consumers seeking a combination of high internet speeds and low prices. — Faranaaz Parker