How to reduce the high cost of voice and data services in South Africa

The high cost of voice and data services in South Africa is well publicised, notes Premeshin Naidoo, managing principal: telecommunications, media & technology, Absa.

Both the regulator, Independent Communications Authority of South Africa (ICASA), and the mobile operators have been strongly criticised for not doing enough to ensure affordable data access.

Network coverage, quality and costs are barriers to access for especially poor South Africans living outside of the main urban areas.

“A more important consideration is that the voice and data affordability issue strangles entrepreneurial innovation and may be further hampering economic growth in South Africa, which is already struggling with a myriad of other economic and social challenges,” said Naidoo.

The affordability issue is certainly evident with 80% of one operator’s data sales being for hourly, daily or weekly bundles, instead of longer term packages to ensure seamless connectivity, the telco principal said.

“While there is much debate on the causes of high voice and data prices, the debate focuses on poor competitive forces, perceived regulator ineffectiveness, insufficient spectrum allocation and pricing power in the hands of the operators however, not much has been said about capital investment efficiency in telco network investment, or the lack thereof,” said Naidoo.

Telco operators globally have long held the belief that owning the telco network infrastructure provided competitive advantage both in terms of technology and geographic coverage.

“This was certainly true for pioneer markets; however South Africa is now a maturing market where competition should evolve to be services based, as opposed to infrastructure based.

“In the fibre infrastructure space, being the first to rollout in a street was hoped to acquire strategic advantage and also dissuade competitors from duplicating the network.”

The reality is examples of multiple fibre rollouts down the same street. Similarly, there are sites where mobile towers have been constructed adjacent to each other, said Naidoo.

“Both examples are certainly not capital efficient, and do not result in economic efficiency for the country. This is not an argument for a monopolistic single infrastructure provider as we have experienced that this model does not work either,” he said.

“Duplication of infrastructure will definitely promote price competition, however it should rather work on the basis that the threat of duplication should be enough to ensure fair market pricing in a balanced mature market, where open-access and wholesale telco infrastructure providers can ensure economic efficiency in capital investment,” Naidoo said.

In recent years, local operators have spent around R20 billion annually on network capital expenditure. Much of it was unavoidable to ensure universal access to high speed broadband.

Naidoo questioned how much of this spending has been allocated to the duplication of infrastructure. “The question of capital allocation and economic efficiency across the industry is not one which is often debated or considered in the investment thesis,” he said.

Absa pointed out that the current state of the economy has made the market challenging for operators.

Spending power of subscribers has reduced, but capex is non-negotiable to maintain both the quality and competitiveness of the network, and regulatory pressure is driving down voice and data rates.

To add to the pain, Over-The-Top applications like WhatsApp facilitates the cannibalisation of ordinary voice calls while fixed wireless networks (Wi-Fi) have become prolific in suburban homes, malls and workplaces.

“The challenge for mobile network operators is one of continuing to provide high quality voice and data, while maintaining profitability and ensuring adequate returns on capital invested,” Naidoo said.

As the developed world steams ahead into 5G technology, and 5G spectrum allocations have already taken place in Europe and North America, South Africa is yet to finalise the allocation of 4G spectrum.

The lack of spectrum has raised the costs to provide a 4G broadband service to South Africans, and this issue means that the country is also falling behind the developed world.

Market forces have already resulted in operating models which verge on active network sharing (to overcome the current regulatory impediments) or network roaming to deal with a lack of sufficient 4G spectrum.

“A breakthrough will happen when operators can exploit the potential of active network sharing to enhance economic efficiency of their capital expenditure – a shared active network where capacity is more fully utilized than if each operator has to build a network which only it will use,” said Naidoo.

The concept of a Wholesale Open-Access Network (WOAN) should have economic appeal to all operators if, crucially, it is executed in the right way through market forces, he said.

“Active infrastructure sharing would then truly move telco competition to be services based with the multiple benefits of price, innovation and improved service offerings.

“The government however would like to perhaps own or have a significant stake in the WOAN, or perhaps influence who does ultimately own the WOAN, however economic efficiency requires that market forces drive both the demand and supply.”

Read: Telkom plans to build 2,000 more mobile towers as it prepares for 5G

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How to reduce the high cost of voice and data services in South Africa