SA WAN equipment market growing rapidly

The South African market for wide area network (WAN) equipment confirmed its status as one of the highest growth areas of the local IT industry, notching up a total value of nearly R390 million in 1998 - an 80% growth on the previous year.

According to telecommunications and IT market intelligence and consulting company BMI-TechKnowledge`s recently published South African WAN Equipment Market Report, this exceptional growth rate was achieved on the back of three factors. Telkom is rolling out of an extensive Asynchronous Transfer Mode (ATM) network, Internet service providers (ISPs) and value added networks (VANs) are upgrading their networks to frame relay and ATM, and the corporate sector is rapidly adopting the latest WAN technology.

Research analyst Neville Nicholas forecasts the 1998-growth spurt to moderate this year to a still healthy 31%. Strong growth is forecast to remain a hallmark of the WAN equipment market until 2002.

The South African ATM and frame relay WAN Switch Market grew dramatically in 1998 by 118% to R284 million. "Growth was boosted by Telkom`s ATM project, aimed at providing South Africa with a new broadband managed network infrastructure. The effect of this project was seen in massive growth in carrier edge ATM WAN switches in 1998, which will in turn affect the growth in enterprise edge WAN switches in 1999," Nicholas writes.

Despite the Telkom project, the most significant amount of the total 1998 switch demand originated from the corporate market.

Although showing positive growth over the period in review, frame relay switches are expected to exhibit a reduced positive growth towards 2002. The relatively low growth rate in relation to ATM is due to Telkom`s frame relay network already being in place. Strong uptake of public frame relay services is, however, driving market growth.

"ATM technology has become accepted worldwide. Demand and growth for ATM WAN equipment within South Africa reflects this international trend. Specific factors driving the market is demand for high bandwidth, and Telkom`s need to gain competitive edge ahead of deregulation. IP over ATM and Voice over ATM are also seen as important drivers in the marketplace."

The South African remote access server (RAS) market is segmented into two sub-categories, namely fixed-port RASs and RAS concentrators. The fixed-port RAS market is much smaller than the RAS concentrator market. Over the projected period to 2002, this share will decline further, through both the decline in demand for fixed-port RAS systems as well as through the strong growth in demand for RAS concentrators.

The demand for RAS concentrators is looking much healthier, driven largely through demand from corporates and ISPs in South Africa.

"Factors driving the market for RAS connectivity include e-commerce, employees working from home, growth in Internet connectivity, and connectivity to branches. Promoting this demand is the improving availability of ISDN in South Africa," Nicholas says.

The corporate market captured just over half of total WAN equipment sales in 1998, despite Telkom`s increase in expenditure and the heavy expenditure by VANs and ISPs. Globally, WAN equipment spend is expected to move toward service providers over the next 5 years, as deregulated markets translate into cheaper and higher quality public data services. This will make it increasingly difficult for corporates to justify heavy expenditure on private wide area networks.