Technological advancement, changes in the regulatory environment and international investment continue to fuel the rapid development of the South African telecommunications market. According to IT and telecommunications market intelligence and consulting company BMI-TechKnow-ledge's South African Telecoms Services Overview and Opportunities Report, the telecommunications sector is poised for change.
"There will be a host of additional operators entering the South African market over the next two years, increasing the range of substitute and competitive offerings available to customers. A third cellular operator will be licensed while mobile satellite service (MSS) providers such as Iridium, Globalstar and ICO will be licensed to provide services to the South African market," writes Senior Telecommunications Research Analyst Rudie Cornelius and Telecommunications General Manager Stephen Carrott.
"By 2002/2003 a second network operator will have been licensed to provide fixed line services in direct competition with Telkom, this will increase competition yet further. The future liberalisation of the telecommunications market holds promise for the introduction and development of a highly competitive and dynamic industry."
According to them, the industry is still relatively undeveloped in terms of regulatory structure and liberalisation has only been pursued in earnest for the past two years. The Data Services (VANs) side of the market, on the other hand, is experiencing increased growth and competitive activity. VANs are required to utilise Telkom's infrastructure when providing sophisticated (value-added) services to third party customers. The current legislation also prohibits the VANs from providing voice over these networks. Regulatory changes regarding the selling of bandwidth will have a significant impact on the VANs industry.
Growing market
The South African Telecommunications service market was worth more than R26 billion in 1998 and is expected to grow to almost R57 billion by 2003, a CAGR of 19%. In 1998/99, Telkom Group generated R22,674 billion in revenue - an 18% increase on the R19,218 billion of the 1997/1998 financial year.
"The basic data services part of Telkom's offering will continue to show strong growth and is expected to grow from R1,2 billion in 1998, to R3,5 billion in 2003 - a CAGR of 30%. Basic data services represents Telkom's most vulnerable revenue stream which will see strong competition from the second network operator (SNO).
Second network operator
Transtel and Eskom are the two major private network operators in South Africa. They are, however, currently not allowed to provide services outside of their organisations within South Africa. A combination of the Transtel and Eskom telecommunications networks are expected to form the core of the leading consortiums bidding for the SNO licence, which is likely to be issued in 2001 to allow the new operator to roll out infrastructure during the remaining phase of Telkom's exclusivity.
"The introduction of a second operator will have a positive impact on business for infrastructure equipment suppliers but the extent of this impact depends on who wins the licence, as well as on the conditions set out in the licence. The licence conditions will, in turn, depend on the government's macro-objectives for the telecommunications sector," argue Cornelius and Carrott. It is expected that the SNO will invest some R4 billion to R6 billion in infrastructure, boosting local telecommunications equipment and associated telecoms infrastructure industries.
Cellular
The cellular industry in South Africa is one of the fastest developing in the world, boasting some 2,3 million net subscribers at year-end 1998. The cellular industry was worth between R4 and R6 billion in 1998. Prepaid services will continue to show strong growth and will account for 66% of net additions over the next four years. The awarding of the third cellular licence is imminent. BMI-T forecasts that a third cellular operator will achieve between 10-15% market share (subscriber market share) within 3-5 years of commencement of commercial operations.
Value added network services market
The opportunity for value added services within South Africa can largely be gauged by examining the size of the SA market for data-specific telecoms as a whole. Telkom's revenue from data services for the year ending March 1998 was R1098 million. Over half of this revenue was generated through leased lines, with the remainder derived from ISDN as well as other services, particularly X.25 and frame relay.
The South African Market for VPN Services was valued at R222 million in 1998. Companies currently categorised primarily as VANs accounted for 80% of this market while companies currently considered being predominantly ISPs, accounted for 20% of this market.
Internet services market
South Africa falls within the top 20 countries in the world when ranked by the number of Internet nodes. South Africa's Internet community is 30 times larger than that of the next largest African country. The combined number of all ISPs' dial-up subscriber accounts grew by over 100% during 1998, reaching 370 000. Correspondingly, the number of individual Internet users, including those who have access via corporate networks, reached 965 012. This is expected to reach 3,5 million by end 2003, assuming continued aggressive competition between ISPs, with corresponding stimulation of user numbers at the expense of lower revenue growth.
Internet access providers earned a total of R756 million in 1998 from access services as well as related non-access services such as Web hosting and security services. The VANs industry, excluding ISPs, was valued at R313 million in 1998. This includes revenues from MDNS (managed data network services), facilities management outsourcing, integration and application provision.
For further information, contact BMI-TechKnowledge, (011) 803 6412, [email protected] or see www.bmi-t.co.za
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