Converged at last?

Convergence, broadly speaking, relates to several things. There is device convergence - your cellphone and PDA have converged into a smartphone, or is that your laptop and cellphone that have merged? There is convergence of voice and data onto the same networks. Some would argue that the mass move to online represents a convergence of services onto one platform.

The convergence that we've been waiting for in SA is that of voice and data. Various things have held this up - cost and quality of bandwidth, regulations, operator desire to hold on to lucrative revenues in one or the other sphere. VOIP, for example, offers significantly cheaper telephony to anyone with a 'data' line, but hasn't been widely rolled out because it undercuts valuable voice revenue on mobile and fixed-line networks.

All this is about to change, though. Maybe.

With the ability of iECNS licence-holders to self-provide, the landing of the Seacom cable (and solid progress being made on other cables) and ministerial determination to sort out some of the longstanding imbalances in the industry (such as high interconnect rates), 2010 looks to be a good year on the costing front.

It means one step closer to a liberalised industry.

Doug Reed, CEO, Vox Telecom

While lower interconnect rates (should they actually be lowered; the minister cannot order it, and the operators themselves seem set to collude and lower it according to their wishes) will not necessarily bring lower retail rates, they do pose a threat to the LCR sector, despite some protestations to the contrary.

While much discussion has taken place around lower interconnection rates and the benefits this will bring, little has been said about the impact of the demise of LCR. While the writing is clearly on the wall, and none of the LCR players are likely to go straight out of business (unless they really aren't in touch with current market moves), this will necessitate a reshuffle in strategy, some new partnerships here or there, and a consequently rearranged market.

Where to for the VOIP players is more room to compete. Says Connection Telecom director Rob Lith: “One of the immediate effects I've noticed with interconnection set to drop to 89c is that where interconnect couldn't compete with LCR, now any client that says they can get R1.05 per minute with LCR, I can give R1 per minute to, as of 1 March. This will shake up the LCR guys; they'll have to reinvent themselves,” he says.

Vox Telecom CEO Doug Reed says this is nothing unexpected. “We knew it was coming, although we were not sure when. It's all positive; it means one step closer to a liberalised industry and lets us compete on a more equal footing. In terms of facilities leasing, geographic number portability, and local loop unbundling, there is still a way to go, and it will take time, but we're getting there, and each step makes an improvement.”

Says IS WiFi and VOIP Mobile GM Justin Spratt: “If the interconnect rate drops sub-80c, there will no longer be any LCR value proposition. It'll be impossible to run an LCR business.

“That said,” he comments, “IS has had to build significant competence in the LCR space and has a lot of revenue attributable to that. As IS we're excited though, because our eggs are in the VOIP basket, not the LCR space. Our core competence is in terminating VOIP calls. So [LCR's demise] will be a pain for us, but it's not core.”

Vox moved some of its eggs into the VOIP basket too, and has recently launched Cristal Vox, a corporate voice solution supplied by Orion Vox. Orion, of course, is mainly known as an LCR operator.

Huge Telecom, another LCT stalwart, is expanding its horizons too. Says James Herbst, Huge Group CEO: “Our view is that the reseller space is where value can be added, the relationship with the customer owned [in the same way Autopage and Nashua Mobile own the relationships with MTN and Vodacom subscribers] and money made.”

Huge is not out to build its own network, he says, and as such, “this last year we've been focused on re-organising the company so that we can deliver as a reseller”.

The company has partnered ECN as part of this strategy, taking ECN's voice services to market. Herbst said in a statement made at the time: “Currently we provide our clients with services from the major network providers in South Africa and we felt that it was time we began introducing products from alternative network providers into our portfolio of services.” The company also recently partnered CMC Networks (one of five local tier-one ISPs) to provide what it calls “a comprehensive set of converged services” to the local market.

Huge competitor Telemasters has been pretty quiet about its plans, however. The AltX-listed LCR provider has not announced any major moves, although its Web site states: “Telemasters has developed from serving the GSM least-cost routing market to improving the efficiency of a client's communication and data services via auditing and network selection solutions,” which would imply that it too has entered the reseller space.

One of the major inhibitors to true voice and data convergence to date has been bandwidth costs, and the, erm, unwillingness of certain providers to either provide services, or provide services on a fair cost basis, to other providers.

The landing of the Seacom cable should assist in addressing the first issue at least once the national fibre legs have been put in place to take advantage of said low-cost bandwidth.

The other issue is neutrality, and to that end, three new players have entered the fray.

Dark Fibre Africa has been merrily, and relatively quietly, laying dark fibre (surprise, surprise) for the past two or three years. As it says: “Dark Fibre Africa (DFA) was established by Community Investment Ventures (CIV) and Venfin to build a carrier-neutral, dark fibre infrastructure for the transmission of metro and long-haul telecommunications traffic.”

Officially announcing its network launch in June last year, the company said: “The launch marks a milestone for DFA, which creating [sic] an open access dark fibre network in metropolitan areas, with over 800km of fibre-optics cable laid in Johannesburg, Pretoria, Durban and Cape Town. DFA owns, builds, maintains, secures and monitors the dark fibre network and has, to date, made private sector investments of R1.5 billion in the network infrastructure. DFA manager of sales and marketing Malcolm Kirby said... that individual service providers would now be able to lease fibre-optic cable from DFA. 'The dark fibre is then “lit” by each service operator when they deliver new high-speed services to their customers.' With the launch, DFA planned [sic] to introduce a new phenomenon called hyperband, which would provide enough capacity to accommodate all networks, allowing mobile operators to improve the quality of their service.”

DFA has also signed a deal with new data centre kid on the block, Teraco. Teraco (headed by ex-Storm Telecoms joint-CEO Tim Parsonson) has entered the data centre space, aiming to provide carrier-neutral hosting facilities to the local market. Why is this important? As Parsonson puts it: “With innovations like Seacom and other cables and innovations like DFA, there are at least 10 carriers using and building networks. Basically, it's all up for grabs, there's loads of choice between networks, which prompts people to want carrier neutrality in the data centre. Plus, if people are going to outsource something because it is complex and costly and non-core, when they look to do so in SA they increasingly look to do it through neutral data centres, because that's what gives them the flexibility to change providers going forward.”

So far, says Parsonson: “We have eight carriers in our data centres, and we offer free peering too. We have access points with the Johannesburg Internet Exchange (Jinx) and the CT Internet Exchange (Cinx) and offer free peering with carriers and ISPs internally, which people like WebAfrica love.”

Parsonson says the company is in talks with five big international players, which hadn't shown any interest in the market in the past. Telehouse, the neutral data centre of neutral data centres, has also hit the sub-continent, a sign that the market is really opening up.

Speaking of the Inxes, neutral exchanges where carriers and ISPs can interconnect on neutral territory are a relatively new thing in SA, which has been beholden to Telkom in that regard as far as the SA Internet Exchange (Saix) goes, while the other two (Jinx and Cinx) have been run by the ISPs via the Internet Service Providers Association (ISPA). Africa.Inx, launched in October, aims to change things.

In a statement released as its launch, the company said: “Africa.Inx is a new wholesale business that is completely independent and has no link or ownership with any of the existing incumbent telco operators. Its objective is to provide the key underlying infrastructure to enable the retail ISPs to gain low-cost access to the Internet and other essential services or networks. This will, in turn, enable them to bring low-cost broadband to the South African users, together with a wide range of converged services, such as VOIP.”

The company plans to build fibre rings around Johannesburg and Cape Town, with redundant links to London, and will offer bandwidth on these links to its customers on a 'wholesale plus' cost basis. Mike Brierley, ex-MTN Network Solutions head, has partnered with Ensync founder Edward du Plessis on the Africa.Inx initiative. Africa.Inx is operating under Ensync's iECNS licence at present (it has applied for its own), as a wholly owned subsidiary.

Brierley says the company has launched with the intention of giving everyone the same rate. “Our card is published to our client base, and everyone, even Ensync, pays the same rate.”

This last year we've been focused on re-organising the company so that we can deliver as a reseller.

James Herbst, CEO, Huge Group

While there are challenges ahead, the market liberalisation that will enable convergence on a widespread basis is happening, sometimes at breakneck speed. As Vox's Reed commented: “It would be nice to be able to plan more than three months ahead.”

The new types of players entering the market, along with internationals like Telehouse, bode well for the future. Companies are not going to invest in a market that is beholden to a few incumbents, with no hope of reprieve. That they are here clearly indicates things are changing.

In the meantime, signing long-term contracts may not be a good idea right now, given the rate at which costs are dropping, and the market shifting.