Roaming agreements take pressure off smaller telcos

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Vodacom CEO Shameel Joosub and Telkom CEO Sipho Maseko put pen to paper on a new multi-billion-rand roaming deal.
Vodacom CEO Shameel Joosub and Telkom CEO Sipho Maseko put pen to paper on a new multi-billion-rand roaming deal.

A new roaming agreement with Vodacom will not only help boost Telkom's 4G coverage, but will also reduce capex pressure on the smallest mobile player in the market. This is according to analysts who spoke to ITWeb about the long-term, multibillion-rand agreement announced this week, which will see Telkom switch its roaming from MTN to rival Vodacom.

"Considering that the telecoms industry is highly capital-intensive, roaming agreements reduce the pressure on smaller operators to continue investing extensively in network infrastructure in order to compete with the larger operators and stay relevant," says Derrick Chikanga, research analyst for telecoms, media and IOT, Africa at IDC.

"In the mobile sector, both Vodacom and MTN invest about R9 billion on network infrastructure per annum. However, smaller operators such as Cell C can only afford around R3 billion per annum. Hence, it makes sense for the bigger players such as Vodacom and MTN to undertake most of the extensive infrastructure development, then recuperate some of these expenses from their smaller partners. This creates the win-win situation," Chikanga explains.

On Wednesday, Vodacom and Telkom announced the deal, whereby Telkom will obtain roaming and facilities leasing services from Vodacom with full effect from June 2019. Meanwhile, in May, Cell C also announced it had entered into a multibillion-rand long-term roaming agreement with MTN, which will help boost its 4G coverage in SA.

Ofentse Dazela, director of pricing research at Africa Analysis, says a drawcard for Telkom is the deal will provide Telkom with a better 3G/4G network to roam on nationally than if it continued to roam on the MTN network.

Telkom's previous deal with MTN only covered 2G and 3G services, but the new Vodacom deal will allow Telkom customers to roam on Vodacom's 2G, 3G and 4G networks. The 4G boost in particular was likely one of the main reasons why Telkom decided to end a nine-year deal with MTN when the contract expires in June 2019. Dazela says network capacity constraints are also likely a factor.

"With Cell C scheduled to begin roaming on the MTN network from November 2018, MTN's network may experience potential degradation of quality as it will need to accommodate Cell C traffic as well. Vodacom would also see replacement of some revenue loss from Cell C's move to MTN.

"[Data-only network] Rain announced that it will suspend the sale of new accounts to franchise fixed-LTE products through partner Internet service providers (ISPs) in order to manage the service quality experienced by its existing customers, while MTN increased the price of its social bundles in an attempt to free some capacity on its network. Through this deal, Telkom is therefore trying to be proactive and is navigating around the capacity constraints facing MTN, on which it roams, by switching some of its traffic to Vodacom," Dazela adds.

The Vodacom deal also comes with the added benefit of seamless handover technology, which will reduce the number of dropped calls as customers seamlessly move between networks.

"Often, consumers are least bothered by the choice of roaming partners their service provider selects. All consumers are interested in is receiving their service coverage and being able to continue with their activities on their devices with minimum service disruptions," Chikanga points out.

"Generally, Vodacom has more 4G/LTE sites in South Africa than MTN, and is likely to significantly increase Telkom's service coverage throughout the country. However, the signal quality that will be experienced by Telkom's subscribers will determine whether they appreciate or not the switch from MTN."

Resource sharing

Telkom CEO Sipho Maseko said while the seamless handover and 4G mobile technology will improve the customer experience on the Telkom network, the infrastructure sharing agreement will also allow Telkom more efficient capital and operational expenditure.

"Infrastructure sharing is an emerging trend that eliminates infrastructure duplication, allowing smaller operators to utilise existing network infrastructure owned by the larger service providers. This allows the smaller companies to streamline their operations and avoid expensive network investment," Chikanga explains.

"This is something that we're already witnessing in the fibre space, where Openserve and Vumatel have signed agreements to co-operate in certain locations to avoid infrastructure duplication."

Dazela says infrastructure sharing is also "an important aspect of the ECA Bill and is mainly supported by smaller operators, while bigger operators such as Vodacom are a bit apprehensive of the view that their networks must be opened to competition".

"This Vodacom/Telkom deal is not per se informed by facilities leasing regulations because operators have entered into roaming agreements long before infrastructure sharing became a topical issue in SA. For example, Cell C has piggybacked on Vodacom's network for the past 18 years," Dazela concludes.

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