Telkom has opened the door for smaller telecoms players to get in on the spectrum action, by confirming it is not in the running for any more.
While this is positive news for the other competing bidders, it also implies the winning bidder faces fierce competition from Telkom post-auction.
The spectrum auction refers to an invitation from the Independent Communications Authority of SA (ICASA), in May, to apply for spectrum in the 2.6GHz and 3.5GHz bands. These bands are what the telecoms providers will be after, specifically for the development of LTE or WiMax networks.
Tim Parle, senior BMI-TechKnowledge telecoms consultant, explains it's no surprise Telkom is not gunning for spectrum since it is sitting on several spectrum allocations, and much of this spectrum is not used.
This is despite Telkom's assertions last year at the public hearings on spectrum that it would go out for the resource, by calling on the regulator to not exclude the incumbent operators.
“Telkom has 56MHz of spectrum in the 3.5GHz band, of which a small portion is used for its WiMax services in limited metro areas. Overall, Telkom already has around 130MHz of spectrum allocation for access purposes and much of this is suitable, and available, for applications of LTE,” he explains.
While Telkom's plans not to go for spectrum opens the doors for smaller operators to take advantage of an auction without the incumbent, the winning bidder will still have to face Telkom's strong market position when it gets its own networks into the field.
Parle explains that Telkom is already sitting in a strong situation and doesn't need to invest in more and possibly expensive spectrum. “Once again, the regulatory position and history have helped the incumbent to be in position number one,” he notes.
“With one less big player, it may make the bidding more intense, although unless the process is clarified, there is a good chance the whole process may not be as successful as was anticipated,” comments WWW Strategy MD Steven Ambrose.
The process to which Ambrose refers to includes a requirement for 30% historically disadvantaged individual (HDI) status for bidders to participate, which analysts predict will knock many top players out of the running.
Who complies?
Parle believes none of the following top players would qualify for the 30% HDI requirement to participate in the auction: Vodacom, MTN, Cell C, or Altech.
Outlining the shareholding of the major players, Parle explains that previously Vodacom was comprised of 50% Telkom and 50% Vodafone. That has changed to 100% Vodafone, now listed on the Johannesburg Stock Exchange, meaning it has no BEE shareholding.
Vodacom is trying to sell its share in Internet provider iBurst, because Vodacom will not be allowed to bid for additional spectrum, with a subsidiary already holding some in the frequency.
Cell C's main shareholder is Saudi Oger, and according to the latest information, Cell C is 25% owned by CellSAf; 15% by Lanun, based in Panama; and 60% by Oger Telecoms of Saudi Arabia, he continues.
Cell C used to have a 40% BEE shareholding through CellSAf; however, after financial difficulties, the BEE partner sold its share and debt back to Oger. The company is positioning itself in the space with the roll-out of its new network, which is LTE capable.
Whether Altech qualifies is unclear, explains Parle. However, the company's anchor BEE partners are Platina Venture Holdings, which has an effective 25% equity interest in Altech Alcom Matomo; and Pamodzi Investment Holdings, which has a 25.1% equity stake in Altech IT. iBurst has a WBS shareholding, he notes.
Altech has several BEE shareholders, but primarily in its subsidiary companies, and its actual BEE rating is still unclear.
MTN is in between shareholding at the moment, after it unbundled its holding business Newshelf, which was supposed to be the start of its transformation process. However, the BEE deal is on hold for the time being.
Internet Solutions may still be in with a chance, since it has several BEE equity stakes, with the largest being Convergence Partners and a stake by the Public Investment Corporation.
Flawed approach
With many of the top players failing to meet the HDI requirement, and Telkom out of the running, the door may be opened to smaller contenders like Vox Telecom, which have the full BEE requirement, which makes them more likely to be able to enter the auction.
However, another big requirement is that winning bidders will have to guarantee they will cover 50% of the country's population within two years of their licences being granted.
This will require big, deep pockets running into billions of rands, and the absence of these significant resources will make this difficult, explains Ambrose.
“As the spectrum offered is scarce, and in high demand, we anticipate that the big players will be bidding heavily, which may also push the smaller players out of the running,” he continues.
Brian Neilson, director for telecommunications research at BMI-TechKnowledge, agrees. “Personally, I am a bit sceptical about the financial viability of a large-scale wireless network rollout by a new infrastructure-based competition.”
With many of the top players failing to meet the HDI requirement and speculation around the financial ability of the smaller players, questions remain around the success of the entire process.
Add to that the fact that the successful bidder will then have to face an already confident Telkom in the market. “The bidders will have to recognise that they will be competing with the 1 000-pound Gorilla who, to mix metaphors, already has the bases loaded,” concludes Parle.
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