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Strand details factors pushing telecoms competition

Staff Writer
By Staff Writer, ITWeb
Johannesburg, 15 Dec 2014
Over-the-top services and video-on-demand are driving competition in the telecoms sector.
Over-the-top services and video-on-demand are driving competition in the telecoms sector.

Strand has detailed four factors it says regulators need to consider when evaluating merger activity in the telecoms space.

This comes as consolidation heats up globally, especially in Europe, it notes. Locally, the Independent Communications Regulator of SA (ICASA) has several deals to ponder, including Vodacom's R7 billion bid for Neotel, and Telkom's R2.67 billion offer for Business Connexion.

Strand notes, historically, when regulators evaluated mergers, they would review the number of competitors and the market share of proposed entities. "This approach may have been appropriate when an operator had a single network offering a single service, such as telephony or linear television. However today's world is different. Networks deliver competing services."

In the research note, Strand adds authorities may also require remedies as conditions for merger approval. "The notion is that the authority needs to somehow correct an imbalance or inequality created by the merger. However remedies in themselves can create new and unintended imbalances and inequalities. Therefore it is time for operators, regulators and competition authorities to update their knowledge on what creates competition in the telecom market," it says.

Strand says regulators now need to take into account four factors that are increasingly contribute to competition in the telecommunications market. These are:

1. Competition from over-the-top (OTT) providers:

OTT providers compete with operators across a range of communication and content services. Users can easily complement, if not substitute, OTT services for traditional telephony and video services. For example Skype can be used for long distance; Facebook/WhatsApp for messaging, and YouTube and Netflix for video. One advantage for OTT providers versus network providers is that they can offer their services without making investments in the underlying network on which their service is delivered.

2. The evolution of network technology:

Operators have invested significantly to upgrade their networks to deliver a range of new services. In the old days, cable TV providers only used their platform to deliver linear TV. Today they can offer broadband-, telephony- and video-on-demand. The network platform and the customer base are evolving and expanding the operator's business and competition.

3. Single play versus full service providers:

There is a big difference in being a quatro play operator versus a single play mobile operator. Operators differentiate in the kinds of products they offer, an important factor that needs to be considered in merger analysis. For example a single play mobile operator only offers mobile products while a fixed lined operator can offer broadband, TV, telephony, and wireless. Being a one-stop shop for consumers is a different business model than being a pure play.

4. Changing regulation in investment time horizon:

Regulation of the telecommunications industry is not static. Operators that buy a license and build a network frequently find that they undertake an investment at one point in time only to find the authorities "change horses in midstream" or "change the rules of the game" down the road. In practice this makes it very difficult for operators to plan in advance for network investment-and makes shareholders more risk averse. As operators see the spectre of a range of politically-motivated regulation, whether wholesale pricing or net neutrality-they may find their business case reduced.

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