Looking back at the growth of the South African ICT sector

The past 12 months have heralded what is arguably the greatest revolution in the South African telecommunications space. After being bound to one fixed-line telecoms operator since the first phone  network on the telephone division of the South African Postal services (now Telkom), South Africa has  progressed from being one of the most stringently regulated environments to one of the most liberally  regulated in the world.

This change, which was effected by the widely quoted Altech Autopage Cellular case of 2008, paved  the way for more than 400 operators to potentially compete against each other.

Altech had applied for the right to self-provide connectivity without being dependent on the Telkom  infrastructure – one which had often been seen as exorbitantly priced, sluggishly deployed and  technologically inferior to reigning international standards.

The ruling gave the former VANS (Value-Added Network Services) operators the right to compete  with the Goliaths such as Telkom and Vodacom, by giving these operators the same licence as Telkom.

By removing the high capital barrier of entry required to traditionally obtain this kind of licence, competition has been stimulated.

This move is set to revolutionise the South African telecoms industry and pave the way for the country to become competitive on the international front at best, or at least to reclaim the lead in terms of African telecoms (which in recent years has arguably been lost to countries such as Ghana or Nigeria).

If we look back 10 years, in 1999 Telkom as a company was eight years old after having split from the Post Office; Vodacom and MTN had been in existence for five years, and South Africa had had an Internet presence for nine years.

It was also in 1999 when the Broadcasting Act was accepted in Parliament, which began regulating the now hotly contested wireless spectrum that would eventually see the arrival of companies such as iBurst and the emergence of a strong state broadcaster in the form of Sentech (a promise that is yet to be fulfilled, however).

In 2000, the biggest highlight was arguably the establishment of an independent regulatory body in the form of the Independent Communications Authority of South Africa (Icasa).

The singular event of 2001 would be the Minister of Telecommunication’s move to start a process of giving power to the envisioned second national operator (SNO) of the 1996 Telecommunications Act, to provide competition to the semi state-owned Telkom.

This process would prove to take even longer, with Neotel being awarded the licence in 2005 and only coming into operation at the end of 2007.

However, 2007 was not the year when Telkom first started facing competition: With the rapidly expanding cell phone networks of Vodacom and Neotel, and the highest growth in cell phone uptake in the world in 2003 and 2004, the cell phone networks started taking more and more clients from Telkom.

The reasons for this loss were that the fixed-line network was not large enough to cater for all the individuals requiring access, but perhaps more importantly, the cell phone networks made it easy for people to own a telephone with ingenious prepaid vouchers – a world first that would become so popular that the actual airtime credit would later be used as trading currency in countries such as Ghana and Nigeria where “banking” transactions would be done on the base of transferring prepaid airtime from the purchaser to the seller.

Equally as important as the new competition was the fact that cell phone providers started offering Internet access via the GPRS system which, even though it was significantly slower and more expensive than Telkom’s ADSL network (launched in 2002), gained popularity due to the immediate availability of the service.

Although this competition expedited service delivery, it failed to reduce the exorbitant prices South Africans had to pay for international Internet access. This was because Telkom owned a major (and only South African) stake in the cable connecting South Africa to Europe and India (the SAT3 undersea cable that landed in 2002), and all other operators had to rent this access from it.

It would take seven years for the first cable to connect South Africa via an alternative route with the launch of the Seacom deepwater fibre-optics cable in April 2009.

In 2002 there was also the launch of Icasa’s first major regulation in awarding VANS licences to smaller operators which, even though they were not allowed to own infrastructure, they were allowed to sell telecommunications services.

In 2003 Cell C was born, which in many people’s opinion would turn out to be somewhat of a non-event, as it has failed to be true competition for Vodacom and MTN.

From a legal point of view, the biggest event for 2005 and 2006 was the compilation and acceptance of the Electronic Communications Act. This Act, which set out to revolutionise the communications industry, would do so in 2008 with the Altech case.

Even though the act was accepted in 2006, it would take Icasa two years to draft regulations governing the provisions of the Act, one that envisioned the competition, research and development in the ICT sector in its self-proclaimed objective (Section 2 of the Electronic Communications Act).

A further victory for the local industry was the deregulation of voice over Internet protocol (VoIP) in February 2005. Prior to this, it was not possible to make telephone calls without having to pay for minutes – as is the case with the now widely used Skype.

By charging users a subscription fee rather than exorbitant per-minute rates, companies like Vox Telecom, Orion Telecom and TelFree would start paving the way for what should be the future: one pays for data used and not minutes used.

The same principle of minutes (units) versus data would be exploited further by the birth of MXit in 2006. This cell phone application gained great popularity among teenagers and kids as it established itself as an alternative to text messaging at a fraction of the cost.

Youngsters would communicate with their friends and pay only for the data of the message at what was then a cost of R2 per megabyte – as opposed to sending the same amount of data via SMS at a cost of roughly R4 500 per Mb (as revealed in a 2008 study by MyBroadband.co.za).

It was clear from this point that operators would need to start revising their business plans, which at that stage were largely dependent on income derived from telephone calls; at the MyBroadband conference in 2008, all the companies seemed to agree that the way forward was to sell data and other services and to not be as reliant on the voice component.

Back to 2005/2006, however: From a technical point of view, this period would see the advancement of wireless technologies with iBurst becoming a broadband provider under the licence that was initially intended to carry the Lotto machine signals.

Vodacom also launched its 3G service, with MTN and Cell C launching Edge. The significance of this mobile Internet would become apparent by the end of 2008, when a World Wide Worx study found that this type of connection was utilised by the majority of Internet users in South Africa.

Apart from the Altech case, 2007 and 2008 saw the Telkom/ Vodacom relationship deteriorating, with Vodafone starting negotiations to obtain the Telkom stake in Vodacom. These negotiations would be effected in 2009 with Vodacom’s recent listing on the Johannesburg Stock Exchange.

This period also saw the stronger emergence of boutique telecoms companies such as ATEC Systems & Technologies, Smart Village and Vodacom Gated Services.

These companies would focus on installing and maintaining telecoms systems for gated estates and would differentiate their services by providing high-speed connections that could deal with the bandwidth-intensive applications such as video-on-demand – ensuring first-world connectivity to these estates and communities.

The significance in this would be seen in the purchase of both Smart Village and Vodacom Gated Services (then known as ICCGS) by Naspers and Vodacom respectively.

This brings us to 2009: With the issuing of 400 new Telkom-equivalent licences in January, the playing field has been levelled on a statutory tier.

On an international access level, the Seacom international cable that landed in April is set to provide competition on this level (along with seven other newly planned international access cables).

What exactly the effect of this will be in the future is still unknown, but it seems that although the basic cost of access will not decrease, the amount of access accepted as the basic will increase, which leaves the telecoms providers with an interesting predicament in having to find ways to increase bandwidth usage in the future.

The future will therefore probably see us using more and more bandwidth (in the same way that computers simply became faster and faster) for applications that at this point are still unknown.

It is interesting to note that during the past United States presidential campaign, CNN actually employed hologram technology for a broadcast – very much in the same way that the hologram was employed in the Star Trek movies of the 1970s.

The near future may not hold neighbours with pointy ears or travelling at the speed of light, but it seems that the age of previously ‘science fiction’ communication is upon us, and the events of the last decade have culminated to such a point that we will not be left behind.

Simone Tredoux