Broadband's endless loop
Fast-approaching telecoms competition and deregulation won't be the instant cheap broadband party everyone expects.
After 10 years of waiting, many South Africans are thinking our telecoms might actually be getting somewhere. Altech stared down the communications minister and won, Neotel and the mobile carriers are laying fibre as fast as they can, and the Seacom international cable will provide an alternative to SAT-3 in July. The buzz about cheap bandwidth is palpable. After years of slipping down the global connectivity rankings, it might be our turn to start climbing them again.
But the truth is more sober. Our current situation is just the beginning of a three- to five-year process during which the incumbents with infrastructure will fight tooth and nail to protect their stranglehold on it. Bandwidth has come down considerably, but won't automatically plummet overnight when Seacom lands, because many providers have existing contracts that cannot just be abandoned.
The regulator has capacity problems and our legislative environment is one that favours delaying tactics and legal action. Telcos have armies of lawyers and often build business cases internally for contesting unpleasant regulation in the courts. Lessons from overseas, particularly from the UK, show local loop unbundling is not a panacea. And neither can we expect international investment in infrastructure while there remains the risk of local players suddenly getting access to Telkom's network for a few cents per kilometre. This is a challenging time for the Independent Communications Authority of SA (Icasa).
In the third and fourth quarters this year, the price of bandwidth is going through the floor."John Holdsworth, CEO, ECN
John Holdsworth, CEO of ECN, says the regulator needs to start making moves now. "Once Vodacom, Neotel and some of these other organisations with deep pockets get going, then you'll start to see infrastructure-based competition. But really what has to happen now is that Icasa needs to step up to the plate: we need complete carrier pre-select, complete fixed-line number portability, and local loop unbundling. That should be the first thing: to force Telkom to share its local loop with everyone on cost-based terms. Nobody is going to roll out a local loop network to compete with Telkom in the short-term, and it's not even about cash - it's about time. It will take three to five years to roll out a network to compete with anybody and that's just not going to happen."
All of which leaves licensees without their own networks in a kind of limbo. The flood of new licensees has been welcomed, but as Keith Matthews, country manager of BT SA, points out, few are in a position to do anything with their new permissions.
"The reality is that there are only a handful of players who are geared up to do anything with their new licences," he says. "The balance played a wait-and-see game. The only way they will step in is by unbundling of the local loop. After that happened in the UK, it was only when BT was later forced to separate its retail from its wholesale business, that competition started to happen."
The regulator's role
Icasa will be centre stage for a while, for better or worse. Steve Song, telecommunications fellow at the Shuttleworth Foundation, says all regulators have two mechanisms for regulating the market.
"One is that they can step in to correct something that's out of balance; the other is that they can license new market entrants. And obviously that has happened in a broad way with the Altech decision, but in one sense it hasn't happened because you still need access to spectrum and the deep pockets to be able to roll out infrastructure. If you introduce innovative spectrum licensing into this country, it would be possible to let telecoms grow the way the Internet has. It's a different kind of thinking: not the kind that says we need a national network, but one that lets regional networks grow up in a mom-and-pop fashion."
Tim Parsonson, MD of Teraco, agrees that the regulator needs to be front and centre during the process of local loop unbundling.
"Local loop unbundling is definitely an important first step, but the UK experience shows it's definitely not a silver bullet. It depends on how you price it. The BT debate is even now still contentious: what is wholesale and what is retail? So you definitely need a very strong regulator to make that process successful, not just in the initial stage, but on an ongoing basis."
That might be true, but SA is blessed with a telecoms legislative environment where the easiest remedy is to go running to the courts to gain time. Says Song: "The problem with getting Icasa to regulate effectively is that remedial regulation never works as well as you want it to. First you have to have proper market definitions that are long bureaucratic processes that Telkom and the like are experts at working their way around. The best solution for regulators is to make it easy for new entrants and they could do no worse than opening up spectrum. In the US at any one place and any one time, only 10% of the spectrum is being used. You can imagine what little spectrum is being used in South Africa. There is new wireless technology that makes WiFi look like a joke and it has the advantage of technology-based contention, which is far more preferable to bureaucracy-based contention."
Rob Lith, CEO of Connection Telecom, also has a problem with the gap between the intention and the written word.
"Creative licensing and guidelines need to come from the regulator and at the moment what's coming out of it, either through under-capacity or lack of experience, is sometimes gibberish. It tried to come out with some kind of consumer protection and a charter for that, yet it's lumped ECNS licences together with ECS licences. One delivers to consumers and one doesn't, yet it's put the same consumer blanket over both. When you as a player get these regulations from them, you're all at sea."
Seacom sea change?
Perhaps the most tangible change to the South African communications landscape in the near future will be the landing of the Seacom cable in July. But expectations for an instant slashing in bandwidth costs may be misplaced, according to Royden Dall, broadband business unit manager at Internet Solutions. Dall, who looks after the wholesale arm, says many people are asking him when the cheap bandwidth is coming. But it's not that simple.
Innovative spectrum licensing would let telecoms grow the way the Internet has.Steve Song, telecommunications fellow, Shuttleworth Foundation
"Right now we have contracts that I can't just switch off on 1 July when Seacom goes live. Some are in place for at least the next two years. Seacom can come in and plug into my network so I will have spare capacity. But it does not mean bandwidth suddenly goes from R50 a gigabit to R25. It's only those players that have no existing contracts and can plug straight into Seacom with no existing loyalties to anybody that can offer cheap bandwidth. It's going to be interesting. The nice thing for me will be to go to the existing carriers and say: `Now I have a choice - stop wringing my neck or I'll move as soon as I can.' But people who think there will be an instant 90% drop in bandwidth costs are smoking something other than their socks. There will only be a drop when contracts start to lapse."
Holdsworth says that may be optimistic.
"In the credit crunch, some customers are not going to wait for contracts to lapse. Stones are already being thrown. If a customer signed a R40 000 per month [contract] for a one-megabit, one-to-one international transfer and I come along and offer it for R7 500 per month, it's going to concentrate his mind. In the third and fourth quarters this year bandwidth is going through the floor. What's interesting is that it will be tough on those organisations defending an existing revenue stream. It will be very disruptive and positive for the consumer."
The nice thing about Seacom will be to go to existing providers and say 'stop wringing my neck'."Royden Dall, broadband business unit manager, IS
Dall points out that this situation, where a new technology supplanted the old and forced a pricing rethink, has happened before in this country.
"The owner of our infrastructure milked the country dry with the cost of Diginet lines. Then ADSL lines were introduced that were eight times the speed, so it just doubled the bandwidth of Diginet for the same price - and people took it. It's possible that incumbents will do the same thing to keep customers but I don't know yet what the winning formula is going to be. It is possible that existing players could double their bandwidth for the same price, but I don't really know what they will do in the short-term to keep customers."
Matthews says some players will not be able to move completely to Seacom because of redundancy issues.
"If you do have to offer some kind of redundancy on your infrastructure, then you can't put all your eggs in the Seacom basket. A retail consumer broadband might not need redundancy, but a corporate will. I think there is a lot of confusion in the market about the coming price drops, and in the consumer market that may be true. But the expectation among enterprises is for the same thing to happen and I don't think it's feasible."
The big plus with Seacom is that it disrupts the zero-sum game that is reselling Telkom links. ISPs and VOIP providers can innovate all they want with services, but ultimately, the international circuit price is set by Telkom and anything that goes overseas is carried at its whim.
Cheap overseas bandwidth is coming. The way that filters through to South African businesses and consumers will depend on the battle between existing players with a revenue stream to defend and the next generation of providers with loyalty only to the new cables at our borders. Inside our borders, Icasa could also train its sights on the interconnect rates between Telkom, Vodacom and MTN.
"They paid for their networks a long time ago and the real rates are a fraction of what they're charging," says Holdsworth. But as Dall points out, the incumbents have more lawyers than engineers, and very deep pockets. Icasa needs help from everyone.
"Icasa has its work cut out for it. We need to support it as much as we can."
One thing is certain: the owners of the three large networks will defend the billions they make using any excuse possible. After 10 years of waiting, we're only just getting started with the process of deregulation.
* The debate from which all comments in this article were drawn was made possible by a videoconferencing facility provided by Polycom to ITWeb, for which we are most grateful.