The South African telecoms market is reaching a watershed and key players are going to have to reinvent their business strategy, as the days of only providing telecoms services are over.
Analytix BI's latest report, South Africa Country Report: Telecommunications Market, finds that, as landline use at home has been in freefall since 2005, and the mobile market is reaching a plateau, the sector needs to encourage significantly higher Internet and data use.
The report is mainly based on an annual consumer survey among a nationally representative sample of more than 25 000 people, known as the all media and products survey (AMPS), conducted by the South African Advertising Research Foundation.
Hitting a peak
Gavin Taylor, research analyst and compiler of the report, says: “The days of simply being a provider of telecoms services being enough to survive are over.”
The number of users had more than doubled, from 12 million in 2005 to 28 million in 2011, representing an increase of more than 16 million users in six years - a compound annual growth rate (CAGR) of 14.1%, the report found.
However, between 2008 and 2011, the market had started to plateau, with a CAGR of 9.7% over the period. Although the growth rate is expected to continue to decline, there may still be some opportunity, the research found.
Taylor says by the end of this year, it is expected that every household in SA will have at least one cellphone. “This is not to say that saturation for the cellphone market has been reached. Complete saturation is only expected much later, as the remaining non-users of cellphones fall into markets that are notoriously difficult to reach due to various socio-economic factors.”
About 6.3 million South Africans older than 16 do not own or use a cellphone, which is the last frontier for many providers seeking incremental users. There are also more than 2.5 million non-users over the age of 50, which accounts for 40% of non-users.
More than half of those who do not use a cellphone are either students or unemployed, the research found. “Affordable mobile communications packages and an increased focus on data and data usage may be opportunities for cellular service providers to drive revenue.
“The players in the South African cellphone market are definitely going to feel the squeeze in the next five years, unless they branch to neighbouring African markets, something which MTN and Vodacom have been doing in the last few years already,” says Taylor.
A move towards data packages is also expected, but to reach a larger portion of the market, prices will have to come down, he notes.
Downward trend
“The trend for landlines is not a pretty picture,” says Taylor. He explains the annual growth rate for landlines at home is -6%, while the trend for landlines in the workplace is also on the decline, with a negative growth rate of -1%.
Fixed-line phones in homes have fallen by nearly two million users since 2005, as people found it more convenient and cheaper to use cellphones, the report found. It also noted a growing popularity for DSL lines and mobile connections, as technologies such as voice over IP become more available to end-users.
Landline telephones at work also declined from 2005 until 2009, although there was resurgence in the market after 2009. The report says a strong factor was Neotel's entry in 2006, which is gaining momentum.
Large operators such as Telkom and Neotel will have to make a large shift to data to improve and maintain profitability, says Taylor. This could include cutting the cost of current data packages, or repackaging them into products that shift the way hard-line networks are used.
Analytix BI is seeing large growth in the number of users who access the Internet, which the operators must take advantage of, says Taylor. Households are taking advantage of products that are easier to install and cheaper to use, he adds.
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