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Telcos remain cautious

 

Alex Kayle
By Alex Kayle, Senior portals journalist
Johannesburg, 26 Jan 2009

Analysts predict consolidation within the telecommunications space will increase this year, because of the economic downturn, and that the larger telecoms service providers will acquire their competitors.

Dimension Data hosted a panel discussion between three telecoms service providers - Telkom, Safaricom and Vodacom - to discuss the future of telecoms. This was held at DiData`s recent Perspectives 2009 conference, at Sun City.

"It`s not good what`s happening in the industry right now in terms of the economic crisis," noted Michael Joseph, Safaricom CEO. Joseph pointed out that a lot of global telecoms companies are feeling the pain of the economic crisis. These include Nortel, which has filed for Chapter 11 bankruptcy protection; and Nokia and Siemens, which are undergoing significant job cuts.

Competition to increase

According to DiData, mobile operators are now moving into different areas because of the converged environment.

Just two weeks ago, in an historic occasion, the Independent Communications Authority of SA handed out electronic communication network service licences, allowing telecoms network service providers the right to build their own networks.

Thami Msimango, Telkom`s chief of global operations and subsidiaries, said the industry`s competition is expanding and the fixed-line monopolistic approach is dead. "At the end of the day, the mobile world has taken off and there`s nothing that you can do for a fixed-line operator but to evolve.

"Yes, there will be more consolidation and capex plans have to be reviewed to invest in markets. The economic downturn is a challenge; people are running out of cash and the bigger boys are going to be making a move against the smaller ones."

Shameel Joosub, MD of Vodacom, noted that more competition will drive down pricing. "There`s been a lot of consolidation happening, particularly in Europe, and we think this will filter down to Africa. We`ve seen a fair amount for consolidation already. The challenge comes in when determining how mergers will be managed and how infrastructure will be invested. Margins are under pressure, we`ve had 30% decline in exchange rates, fuel price increases, power cuts last year. Telcos are going to have to become more efficient in other parts of their business."

Msimango said Telkom is carefully watching Nortel and its affect on the telecoms market locally and globally.

Future of WiMax

According to Msimango, Telkom is the first telco to implement extensive WiMax and plans to aggressively drive its data centre strategy and its expansion into the continent. However, he pointed out that the current financial crisis is putting strain on the telecoms industry.

"We`ve always run data centres and we do have space to build more and are looking for an outside operator to help us support that. From an IT point of view, we are looking at partnerships to support us to take a bigger role in going forward."

Safaricom, which started eight years ago, has 80% market share in the Kenyan telecoms market. Joseph said the company will expand its service offering to become a converged service operator.

"We see that, in order to continue our growth, we are rolling out 3G, EDGE and WiMax. Safaricom has a huge infrastructure, covering 85% of the Kenyan population and 65% of the geographic area, so we need to develop a low-cost, high-speed device to provide 1.2 million people with access the Internet."

Joseph predicted that 3G is going to be the broadband technology of the future for emerging markets such as Africa. "It means we will have quality with scale. The restriction is the transmission backhaul; you need fibres to every single base station with redundancy and that`s where the cost comes in.

"The investment into new technologies will bring a number of benefits and new revenue streams. However, a lot of price advantages made in terms of new infrastructure are lost because of the exchange rates," added Joseph.

Coming consolidation

Vodacom has million of customers in over 40 countries. Joosub explained: "We are now sitting at 40% penetration and a lot of mobile operators are investing more in Africa because of its potential."

According to Joosub, Vodacom is deploying 3G services to all the countries it operates in and there is positive growth coming out of data.

Lindsay McDonald, analyst at Frost and Sullivan, said: "The biggest level of consolidation will be at an SME level. There are hundreds of ISPs coming into the market and many of them can service from between 20 to 1 000 users, and we predict there will be a lot of consolidation to come. On the enterprise side, there will be more consolidation at a services level, such as Neotel and MTN coming together to build networks."

Arthur Goldstuck, MD of World Wide Worx, noted that with more ISPs emerging on the radar, the larger telecoms service providers will be on the lookout for viable acquisitions.

"It`s inevitable that, because of the new licensing structure, there will be more competition expansion and with that expansion will come significant consolidation."

Goldstuck believes the next big technology to come into the telecoms space is Long Term Evolution (LTE) technology. "3G will be upgrading to LTE which is expected to roll out in 2010. At this stage, it looks as if WiMax will be more of a niche solution because it`s not getting much traction due to the fact that it requires significant frequency which our infrastructure is currently lacking."

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DiData takes on Africa
DiData boosts its game plan
VANS flock for licences
ICASA completes licence conversions

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