JOHANNESBURG, South Africa-Competition in the South African wireless telecommunications sector is likely to be fierce this year, with two new cellular operators scheduled to enter the arena. This will delve a blow to existing operators MTN and Vodacom, which have had exclusive preserve of the cellular revenue stream, estimated at R4 billion (US$667 million) a year.
“Beginning only from the 1 June 1994, South Africa has leapfrogged its way into the fourth-fastest-growing GSM (Global System for Mobile communications) market in the world,” said Nape Maepa, chairman of the South African Regulatory Authority (SATRA). He estimates the South African cellular industry is growing in excess of 50 percent per annum.
The combined subscriber base currently stands at about 2.1 million, with Vodacom holding an estimated 55-percent share and MTN 45 percent. Revenue per cell phone is estimated at R275 (US$26) per month, with the value of cell phones estimated at R520 million (US$87million), according to Maepa.
The cellular sector boasts a comfortable pre-tax income base of more than R2 billion (US$333 million), with Vodacom having invested R300 (US$50) million to back its new Internet company Yebonet, which recently received a value-added network services license from SATRA.
Many local and international telecom operators have shown interest in breaking up this hold in the market, and up to 15 consortia patiently have been re-grouping their resources and waiting to bid. They are eager for this process to begin as the delay in issuing the tenders, originally scheduled for November and now postponed until this year, has cost them substantial capital. The government has set a deadline of July for the licenses to be issued, but the issuance could happen before then.
Their entrance into the market has been heralded by a cabinet ruling that stipulates several broad principles to which the winning bidders would have to comply.
Like the incumbents, they each will be asked to pay a one-time license fee of R100 million (US$17 million). In addition, an annual fee will be calculated based on gross turnover.
MTN and Vodacom were allowed to stagger the one-time license fee payment over five years, with interest charged; the new entrants are offered 15 years. In addition, no new entrants will be allowed for five years after the two new operators are licensed.
A thorny issue the prospective bidders will have to consider are the rules on infrastructure sharing and roaming among cellular operators.
Jay Naidoo, minister for posts, telecommunications and broadcasting, argues these should be encouraged, but not mandatory. MTN and Vodacom roamed with each other at the beginning of their services through an agreement and currently share some infrastructure.
The new entrants will be required to maintain a “legitimate and meaningful empowerment” shareholding and be encouraged to maximize technology and skills transfer. Furthermore, SATRA has given the green light for the third and fourth licensees to use third-generation cellular technology when it becomes available. (It is unclear at this point whether MTN and Vodacom will be allowed to use third-generation technology; so far the two companies have been told they can only use the 900 MHz band.)
While the existing operators are licensed exclusively for GSM in the 900MHz band, the prospective bidders are planning to introduce new technologies, including CDMA (Code Division Multiple Access) and GSM 1800, for rolling out their networks. Motorola Inc. and Qualcomm Inc. have for some time been lobbying the South African government to introduce CDMA.
The existing networks, however, are closing ranks and using the licensing delay to their own advantage. To boost their subscriber bases, they have invested considerable capital to expand their networks.
Vodacom plans to invest R5 billion (US$833 million) in its network over the next two years to meet an expected increase in its customer base that would bring it to more than 2 million users. Vodacom is investing more than R3.2 billion (US$533 million) during the current financial year ending 30 March, and another R2 billion (US$333 million) the following year.
Both networks are planning to use satellite services in 1999 to entice more customers. Iridium L.L.C. has signed up with MTN, and Globalstar L.P. has teamed up with Vodacom.
Prepaid
Prepaid packages have played a significant role in increasing subscriber numbers, and the two new cellular entrants are likely to choose this route as well.
“About 35 percent of customers applying for credit are refused, which means that about 500,000 people have been rejected since 1994,” said Graeme Victor, managing director of Vodac, a Vodacom service provider.
Vodac and Teljoy, another large Vodacom service provider, have introduced a new package for non-credit-worthy customers. They are targeting these consumers with their Guaranteed Acceptance Policy. This offers the same rates, service and benefits offered to contract customers, with the difference that they must pay a refundable deposit of between R950 (US$160) and R3,750 (US$625). Their usage is monitored, and a text message is sent to the phone when a pre-determined limit is reached. If the subscriber does not pay, the phone is barred from making outgoing calls.
Paging
The other players in the wireless telecom arena, paging and trunked radio providers, are waiting in the wings to see the effect the new entrants will have on their markets.
The growth of the paging industry was stifled earlier this year when the cellular operators introduced free voice-mail retrieval, but all is not gloom and doom.
“There are still many consumers who cannot afford cellular tariffs and will see paging as an alternative,” said Ian Wylde, chairman of the paging division for the Information Technology Association of South Africa. “There is a huge youth market out there which can only benefit from using pagers. Furthermore, we are introducing value-added services which can only assist the consumer. These include free information on sport events, weather forecasts and foreign exchange rates.
“What we see as a threat from the new cellular entrants in the market is a price war, which could drop the prices of cellular tariffs to such an extent that the user will not be able to justify the pricing of paging as opposed to two-way cellular technology.
“We are working on various strategies to counteract this possible problem. There is a definite role that paging can play in our telecommunications industry.”
Trunked radio
The trunked radio industry, which has gained a comfortable niche market in the transport industry, does not foresee the two new cellular networks as a threat.
“We have a definite large base of transport customers who see trunking networks as providing better coverage than the cellular networks,” said Roelf Kloppers, managing director of Q-Trunk, a major trunked radio provider that competes most directly with a company called Fleetcall. Both companies tout national coverage, but initially were granted only regional licenses.
“Our base stations situated in strategic areas around the major highways on the nearest hills, can have a 70-kilometer radius and cover agricultural areas,” said Kloppers. “They provide much-needed services to farming communities, which previously had no means of communicating.
“I do not believe that a new cellular operator would find it economically viable to install infrastructure in those areas.
Trunked radio has been operational in South Africa since 1994 and has three main operators-Fleetcall, Q-Trunk and One-to-One, which is a smaller operator-with a total of more than 20,000 radios on their networks. The revenue earned per radio is estimated at R170 (US$29) per month, according to Kloppers. The total value of the radio trunking equ
ipment installed is estimated at R560 million (US$92 million), he said.
