On the bandwidth bandwagon

The physical aspects of the Mother City provided suitable analogies for the Cape Town Futurex conference this year. As Table Mountain provided a visual backdrop to the event, so too did the "big bang" market liberalisation loom over all presentations. And, like the notoriously fickle Cape weather, the sentiments of speakers and the audiences blew hot and cold over future prospects for the ICT industry.

Government`s surprise telecommunications liberalisation announcement was barely a month old when the conference took place and almost all speakers - irrespective of whether their presentations had a direct connection with it or not - found themselves drawn into discussing what will happen after 1 February 2005, the date the market changes come into effect.

This meant the prospects suggested for the ICT industry were fundamentally different from those that emerged from the Johannesburg Futurex Conference held in May. Then, such liberalisation was considered a pipedream and any scenario planning was at best mere speculation.

While questions on telecoms were put during the Cape Town sessions, the real speculative discussions occurred during tea and lunch breaks as delegates tried to fathom what the new telecommunications environment would mean for them and their companies.

In the absence of a White Paper or clear government policy directive, and news of the government announcement still fresh, the lack of consensus on the subject is not surprising. However, some general points of agreement did emerge.

The first is that bandwidth costs are unreasonably high in SA, have been a major inhibitor in developing the overall ICT sector and have placed a brake on economic development.

VOIP offers an immediate and very dramatic cost saving.

Tim Parsonson, MD, Storm

The second point is that while the industry welcomes the announcement, it needs more clarity on several issues - particularly those of interconnectivity and international gateways. Thirdly, the value-added network services (VANS) have an opportunity, but new entrants will use the changed order as an opportunity to gain market access.

The fourth point of consensus is that, due to the lack of clarity, companies will vie for position by pushing the boundaries and there could be an increase in litigation.

Finally, telecommunications costs will not fall dramatically, but rather there will be a gradual decline as more entrants come to market.

There is also general agreement that the second national operator (SNO) will not be a direct competitor to Telkom in terms of installing telephone lines to houses, but its business model will take a radically different approach. However, it remains unclear as to what that approach will be.

While much of the above was churning in the background, the "formal" part of the conference addressed more traditional issues. These included speculation on the future of technology, the implications of allowing more competition into the sector, return on investment, the process of the ICT empowerment charter, open source, broadband, voice over Internet protocol (VOIP), outsourcing, application development, ICT`s role in education, the broader social effects of ICT and why liberalisation is good for the ICT sector and the economy as a whole.

There was some crystal ball gazing by Johan Jacobs, Meta Group`s senior research analyst of enterprise applications. He predicted that, through increased broadband accessibility and the prevalence of fixed wired applications, there will be more and more reason for companies to allow employees to work from home.

"Higher bandwidth speeds are critical to enable people to work from home, but it must come at an affordable price," he said.

Jacobs pointed out the benefits to companies of this scenario. These include a better quality of family life, the ability for a person to work during times best suited to optimal productivity, and a lessening of social and economic stresses caused by commuting.

Jacobs said the role of a company CIO has to shift from being "the IT investment fund manager within the organisation as he moves to not only protect the investment, but to plan for change".

He noted that as the IT function has become more integrated within the business, the budget allocation has shifted away from IT departments to the operational side of the business. At the same time, IT project managers are becoming business process project managers. According to Meta`s research, 67% of South African companies say their IT departments have low credibility within their organisations.

"This is a main reason why outsourcing many of the IT functions has become the single biggest growth sector of the industry."

Masedi Molosiwa, executive director of the Cape IT Initiative, explored the reasons why SA, and the Western Cape in particular, would benefit from the worldwide outsourcing trend.

He said the vast majority of the approximately 1 200 IT companies in the province export software products to Europe and the US, while adding that Africa has become an increasingly important market.

Molosiwa said opportunities exist in business process outsourcing, call centres, software development and value-added mobile services.

"The cost of bandwidth has been cited as probably the biggest single cost in exploiting these opportunities and the liberalisation process should make SA even more competitive," he said.

Old Mutual business process engineer Marius Smit said lowering bandwidth`s cost and improving its capacity will go a long way to improving the software manufacturing process within organisations.

"Bandwidth is an enabling element for the improvement of software. The more there is of it, the cheaper it is, the larger the benefits to the company."

Angus Hay, Transtel`s CTO, concluded that bandwidth is finally bringing about the paradigm shift that fixed-line operators have sought for so long - from separate, low bandwidth services, to multiple, simultaneous, combined voice and data services.

He pointed out that defining broadband services is difficult because new technologies are raising access speeds continuously. The International Telecommunications Union says broadband access is "faster than primary rate ISDN" (1.5Mbps or 2Mbps).

The first draft of the Convergence Bill sought to define broadband as "a high capacity link between end-user and access network suppliers, capable of supporting full motion, interactive video applications, based on technology available at the time".

However, Hay said the highest bandwidth currently available on a single broadband connection in SA is 512Kbps - "a far cry from the multi-megabits per second connections available elsewhere".

Mobile telecommunications will not provide an effective broadband solution, Hay said. "A little basic physics will show that mobile wireless technologies will always fail to achieve bandwidths of fixed - particularly optical fibre, but also copper and even wireless - technologies. Despite all the hype about 3G mobile, true broadband access is and will remain a fixed network phenomenon."

People want the convenience of ICT in their homes and do not want to have to walk somewhere to obtain it.

Teresa Peters, founder, Bridges.org

Hay pointed out that the lack of broadband access is widening the digital divide and that national policies and regulation are needed to encourage the deployment of such infrastructure. This regulation would involve competitive access to existing lines and, ideally, subsidisation of every new broadband connection.

"The best incentive for operators remains stable, predictable regulation, which enables investors to develop long-term plans for infrastructure deployment," said Hay. "Regulators need to follow well-established regulatory principles, and use positive tools such as a Universal Service Fund to grow access areas."

Neil Emerick, a council member of the Free Market Foundation of South Africa, was outspoken in his view that the sudden liberalisation announcement was proof that managed liberalisation has failed.

"Ten years of telephone tyranny," was how Emerick labelled the lack of fixed-line penetration compared to what was achieved by the competitive cellular market. He also pushed the point that less regulation is good and allows for an open and competitive market that results in a broader stimulation of economic development and prosperity.

Emerick said there is no need for any more laws governing the ICT sector as any transaction is already covered by common law principles, business statute law and by international standards and regulations. "There is no legal vacuum."

He cited Section 45(4) of the ECT Act as an example of an ineffective law. The section outlaws spam and provides penalties for it. "Has anyone been convicted yet? No. I still receive plenty of it."

Emerick proposed that regulators auction off radio spectrum. He said it could be treated in the same manner as people holding rights to land and could result "in the biggest empowerment deal of the century".

Voice over Internet Protocol (VOIP) remains the single biggest technology attraction for consumers and companies. It has been touted as the one means to cut SA`s exorbitantly high telephone bills.

Tim Parsonson, joint-MD and founder of Internet service provider Storm, said VOIP could bring other cost savings, apart from those on telephone calls.

He said VOIP will allow ISPs and others to create innovative bundled packages that will help companies and consumers manage both voice and data costs.

According to Parsonson, all major VOIP equipment manufacturers predict the retail cost of VOIP handsets will fall by between 20% and 30% annually as use becomes widespread.

VOIP, he said, is widely used by between 20% and 40% of all European companies. Consumer take-up has been "huge" in the past few years and figures from Cisco show it is replacing around 6 000 traditional handsets with VOIP handsets every day.

International research firm Gartner has predicted that PBX companies will no longer develop traditional PBX equipment from as early as 2008 and that support for it will cease soon thereafter.

Parsonson anticipates that larger South African players, such as Storm, UUNet and Internet Solutions, are likely to implement discounted VOIP offerings within their existing customer bases shortly.

"In SA, we have to focus on short-term issues at the moment. The cost of calls is high, for many reasons, and VOIP offers an immediate and very dramatic cost saving for business and consumers," he said.

Although it is not yet clear where prices will be pegged, Telkom has begun levelling the ratios between the cost of national and local calls in anticipation of the arrival of VOIP.

Parsonson cautioned companies considering investing in VOIP initiatives to ensure they seek a managed solution, which includes a service level agreement covering call quality, call capture, customer service levels and guaranteed savings.

Russell Achterberg, Telkom`s head of technology strategy and integration, said that by 2010 the plain old telephone service, with ISDN operating over it, will have declined in importance. Technologies such as DSL and optical fibre will take up the lion`s share of bandwidth traffic, with fixed-wireless technologies playing an ever-increasing role.

"Network infrastructure can be successfully outsourced by companies to someone else and service level agreements would be critical in ensuring the delivery of flexible and agile services," he said.

Achterberg believes telecommunications companies will deploy fibre closer to the customer. This will include a "metro Ethernet" with fibre-based high bandwidth services allowing for the triple play of voice, video and data transmission at a very low cost per bit.

He said the major challenges of implementing such networks will be scale, cost legacy and complexity.

Achterberg said service providers are able to support outsourced infrastructures as technology has evolved and operating techniques have improved.

Two speakers, Teresa Peters, founder of non-government research organisation Bridges.org, and Mthunzi Mdwaba, executive chairman of Torque-IT, addressed the social and empowerment issues facing the ICT sector.

Peters said research by Bridges.org showed that "telecentres", where rural villages have a centralised telephone and information centre, are not successful.

"People want the convenience of ICT in their homes and do not want to have to walk somewhere to obtain it," she said.

According to Bridges.org, the future for African telecommunications lies in handheld devices that can be used as an information repository (as in the case of doctors) that can be refreshed with new data when needed.

"These devices need not have telephone functionality, but rather the ability to download data," Peters said.

Mdwaba, who said chapter three of the ICT charter supports transformation in all its forms, spelt out the connection between the ICT charter and the telecommunications liberalisation.

"Transformation, irrespective of how it happens, is supported. This includes open source solutions with local content and, of course, telecommunications liberalisation."

Mdwaba pointed out that the ICT charter is aligned and co-ordinates with the regulator (the Independent Communications Authority of South Africa) so there is no "double jeopardy".

"We have to ensure that the liberalisation process benefits black-owned and small businesses," he said.

But how will the ICT sector look after 1 February 2005?

Yvonne Muthien, MTN`s director of corporate affairs, offered some insight a week later at the Telecom World Africa conference, also held in Cape Town.

Muthien said interesting aspects would possibly be a spate of joint ventures, mergers and acquisitions and the emergence of new niche market players that will stimulate the competitive environment.

She defined a "virtual operator" as someone who leases infrastructure from one of the dominant players in order to provide a telephone service to a specific area.

"A prime example would be the Universal Service Agency Licences (USALs), that lease infrastructure and Internet capacity, and purchase bulk airtime for the areas they service," Muthien said.

Government, as a means to supply telecommunications services to mainly rural areas, has created the concept of a USAL. So far, three such licences have been issued and more are expected before year-end.

Speakers at both conferences highlighted that while the ICT sector is in for interesting times, the risk associated is extremely high and further clarification from government and regulators is needed. All expressed the hope that it turns out to be a win-win situation, rather than the dog-eat-dog scenarios that have characterised similar processes in other countries.