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The long awaited telecommunications competition - how it will actually affect South Africa

19 May 2004 News

While this topic has been extensively debated over the last 18 months, there is still large-scale uncertainty as to what the introduction of the second network operator (SNO) will achieve. This market ambiguity has equivocated in the many opinions as to what this competition will actually bring to the general consumer, business arena and the overall economy of South Africa.

It is obvious that competition in any industry is beneficial and will ensure a competitive market platform, which consumers ultimately benefit from, but there are speculations as to what direct benefits the introduction of the SNO will bring to the different segments of the market. While it is difficult to accurately predict these outcomes, there are definitely market certainties that will arise from it. One such certainty is the cost-effective ripple effect that a regulated market will have on the business, consumer and the economy of South Africa, not forgetting the telecommunications industry itself.

The second network operator and any new ISP will have a number of challenges to contend with; like the high input costs associated with establishing service provision technology and equipment, the consumer mass-market positioning that the incumbent Telco has had through its fixed line monopoly and a seemingly saturated corporate ISP.

For all these reasons, we expect that the initial benefit of the SNO to the consumers to be minimal at the outset. The opportunity that exists is to create more markets and to ensure that the broader South African community is given access to the Internet and the benefits it brings.

The SNO will impact the purveyors of their services (ISPs) at a cost-of-sales level. The reality is that competition within the telecommunications environment will place pressure on the incumbent Telco to ensure that its pricing is more competitive. This, coupled with the impact that the SNO will have on cost savings for businesses will gradually filter down into the consumer arena through lowered purchasing prices on consumer items, thereby making the technology accessible to previously disadvantaged communities.

A deregulated telecoms market will also have a far greater and immediate impact on the business industry in South Africa. The SNO will develop pricing models on new age technologies, making a company's transition to such technology more cost effective with a greater ROI and enabling companies to move away from legacy type operations. While this process will take time, these immediate benefits will place the incumbent Telco in a position to restructure pricing models and develop innovative technology solutions to its core offerings.

Looking at the introduction of the SNO on the South African economy, there are a number of positive developments that will arise. One such development will be the introduction of a free and regulated market whereby international investors and implementation companies will now be able to operate within our market. Previously, these investors were disregarded from the South African telecommunications market due to its unfair competitive environment. One such example of this is the Department of Trade and Industry's (DTI's) drive of call centre implementations in South Africa by foreign organisations to enhance local job creation, skills development and economic investment. The introduction of a deregulated environment will now present attractive investment opportunities from international players and place South Africa on the foothold of global economic development.

Lastly, the impact that a deregulated telecommunications environment will have on the Internet Service Provider (ISP) industry is substantial. Not only will competition bring a significant impact on cost of sales for ISPs but will enable the introduction of new technology offerings to give SA companies the competitive edge and capabilities required to compete on an international scale.

Over the past six years, the ISP industry has worked hard to maintain service level excellence whilst containing pricing models to a minimum. The introduction of the SNO will bring about the ISPs ability to offer more end to end solutions at affordable rates to big conglomerates, SMEs and end-user consumers which in turn will result in businesses utilising an entire required service rather than minimal services due to cost restrictions.

So while a competitive telecom market does have its uncertainties, the immediate and extended benefits are immense. Although these benefits are obvious and this transition tedious, the bottom line is that South Africa can look forward to a fair and competitive market that will drive innovation and facilitate change throughout Africa.

For more information contact Edwin Thompson, UUNET SA, 011 235 6500.





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