The local Internet services market will be worth over R10 billion by 2009, says research firm BMI-TechKnowledge, which means the market will grow by about R2 billion annually until then.
Roy Blume, BMI-T analyst and author of the Internet Services Market report for 2006, believes the market for Internet access services in SA will continue to grow steadily throughout the five-year forecast period.
"However, end-user trends are changing quickly. The market for dial-up services, which has traditionally accounted for a high percentage of spending in SA, is expected to decline over the forecast period as users migrate to broadband. Consequently, broadband will become the key driver of growth in the Internet market."
Blume says that, for the purposes of this report, broadband includes all mobile connectivity and access speeds that would not be considered broadband in other countries.
"The market dynamics are changing rapidly. For instance, HSDPA [high-speed download protocol access] has the potential to change the shape of the mobile market. Similarly, the trend to drop 3G rates brings them closer to landline rates," he says.
Influencing factors
According to BMI-T, the following factors will influence the development of South African Internet access services over the next several years:
* Although spending on dial-up services will decline over the forecast period, migration to broadband will accommodate for this loss and ensure continued growth for the market as a whole. Dial-up will maintain a high share of connections, but spending on broadband will account for a larger proportion of the market`s total value.
* Penetration levels in homes remain low but are increasing gradually every year. As a result, the market for residential access services is taking an increasingly important position in the market, whereas in the past attention was focused on the business segment. The latter, however, will continue to account for a significant share of the market`s value due to higher average spend per connection.
* Low-bandwidth leased-line connections will decline over the forecast period as customers migrate to broadband DSL. Although prices for leased-lines are going down, tariffs still remain high. There will be demand for high-bandwidth leased-lines among large corporate clients, but these connections will account for a small percentage of the overall market.
* The South African market remains price-sensitive. As a result, operators are lowering fees for services and making payment models more flexible to attract wider segments of the market. This is causing average revenue per connection to go down. Consequently, growth in connections is outpacing growth in spending.
* In the longer term, market consolidation is a strong probability. Within the Web hosting space there are a number of players including the network service providers, IT outsourcers and specialised Web hosting companies. All are competing for growth, and BMI-T expects the market to take on a more definitive shape as the telco-oriented service providers look to gain a stronger link with the IT world, competing with major services players and pure-play vendors.
* Service providers in the Web hosting segment must ensure these evolutions balance the cost structure needed for profitable operations with customer needs. Telecommunications carriers that intend to remain in the Web hosting market must justify this decision by establishing tighter synergies between their Web hosting services and network-centric offerings.
Defining broadband
Raven Naidoo, MD of ICT consultancy Radian, says the findings illustrate the problem of defining broadband in this country.
"Connectivity speeds that are considered broadband here are not considered broadband in other countries," he says.
Naidoo believes dial-up connectivity will remain a viable option for home users for some time in this country.
"DSL connectivity over a landline is still very expensive for most people. However, they would still require some kind of Internet access and dial-up connectivity is still a cost-effective option for them."
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