The true test of the way forward must lie with the consumer and so far, nobody has asked the consumer what he or she needs.
Where are we regarding the additional cellular licences? Not much further than when SATRA submitted its recommendations to the minister for his consideration, as the minister has appointed a special advisor to review SATRA`s recommendations.
We expect some form of announcement from the minister`s office round about January/February 1999, at which point we should see the invitation to bid for the licence(s) issued.
Let`s look into the future and review various scenarios that could occur. These are:
- Twinning scenario : Two additional licences are issued with the new operators each forming an alliance with an existing operator.
- Combat scenario : The two additional operators do not form any strategic alliance with the existing operators and challenge them for market share.
- One licence scenario : The Government only issues one licence and one additional operator enters the market.
These are the dominant scenarios that are currently being discussed, although there are other scenarios that involve, for example, technologies at other frequencies, such as analogue systems. I shall only cover the three dominant scenarios, touching on some of the advantages and disadvantages.
Twinning scenario
This scenario has many attractions but its downside is found in consumer choice and the empowerment arena. Under this option, the two additional operators each choose and form an alliance with an existing cellular operator. A strategic alliance would be founded on an exchange of 1 800MHz frequency for roaming across the 900MHz network and access to existing customers.
The upside of this alliance, among other advantages, is that the new operator will not need to rollout a competing national network and can rapidly enter the market at a lower capital cost. The main downside is that the consumer only sees two competitors and may not benefit from the introduction of the additional licences.
Frequency usage will most likely be as follows: 900MHz used in rural areas and low subscriber density areas, whereas 1 800MHz is used in high subscriber density areas, increasing the overall quality of service.
Such an alliance would also need to be examined under the light of the new Competitions Act.
Combat scenario
Under this scenario, the new operators compete directly against the existing operators for new and existing cellular subscribers. A strong prerequisite for such a scenario will be the adjustment of legislation to advantage the new operators while they are in their formative years.
The cellular market will see innovative bundling together of products and services that will benefit the consumer, but will also see an increase in churn rates as the new operators attract existing cellular users.
A prime target will be the business and high mobility users (we can segment cellular users into four general segments: business, high mobility, low mobility and prepaid).
The new operators will need to search for innovative ways to break the stranglehold the existing cellular operators have on sports sponsorships. To rapidly build brand awareness and brand loyalty will require the new operators to embark on extensive advertising and marketing campaigns, which in turn will provide a boost for the ad industry.
The dominant upside of this alliance is that the consumer will benefit from a highly competitive market that will see a host of new products and services offered. A downside is that the cost of entry will be high in that the new operator will need to rollout a competing national network, assuming roaming cannot be enforced and commercially arranged.
Single licence scenario
Here the Government only licences one new operator. This option, long thought to be probably the only viable scenario by many potential contenders, sees a market with three cellular operators competing for customers.
This is probably the easier option to envisage, yet many of the issues identified under the previous outlines apply to the new operator in this scenario. The upside is that a single operator, who is the sole user of the 1 800MHz frequency, will be in a stronger position to negotiate with existing operators. The downside lies in potential licence conditions, which if not carefully constructed, can hinder rather than encourage operator activity.
Where to from here?
Some of the key issues that will influence what and how well the new operator does will lie in the following essential areas:
- Roaming : Should roaming be enforced or left to commercial arrangements?
- Interconnect agreements : This follows from the roaming issue. Interconnect charges can be as high as 50% of a start-up operator, so should interconnect charges be specified or should they be left to commercial negotiation?
- Low mobility : A much talked about issue which will potentially be inserted as some form of licence condition. The essential issue is what is low mobility and what defines a potential user as a low mobility user?
The true test of the way forward must lie with the consumer and so far, nobody has asked the consumer what he or she needs. We might just be surprised by what the consumer has to say and expect from additional licences.
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