Rural connectivity presents strong business case for telcos

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As rural areas are now using more telecoms services than before, telcos are bumping up infrastructure buildout investments, seeking to extract more intrinsic value from the countryside market.

This is the view of analysts interviewed by ITWeb, in reaction to recent announcements that MTN and Vodacom have set aside almost R2 billion to build new base sites in some of the deep rural areas.

The analysts say telcos have been prompted to seek more value from the rural market, increasing infrastructure investments targeting outlying areas.

With densified 4G coverage in cities, the operators are focusing more on improving quality of service in rural areas, as they search for opportunities to drive growing digital services.

The shift by telcos to bolster buildout investments is expected, say analysts, as urban areas are largely saturated.

Vodacom revealed it invested over R1 billion in the last financial year, to enable more communities in the Western Cape’s urban and rural areas to increase the benefits of connectivity.

This, Vodacom said, forms part of its commitment to build a digitally-inclusive society, where increased online access can help to promote socio-economic empowerment and close the digital divide.

Vodacom’s investment includes building 38 new 3G and 4G base station sites, including 16 in townships and six in rural communities, and implementing LTE capacity upgrades to over 75% of base stations in the province.

Vodacom has also built 50 new 5G base station sites in the region, which it says are ready for the next-generation technology rollout.

Countryside reach

MTN SA announced a R700 million investment to “modernise existing and deploy new network infrastructure” across KwaZulu-Natal.

This, an addition to the R500 million invested in 2021, will go toward MTN’s modernisation project, as well as expanded rural reach, 5G expansion and restoration of vandalised network infrastructure, it said.

“The project will increase network coverage, improved throughputs and customer experience in the region. This will enable the broadband platform to many of the previously unconnected areas in KZN.”

Commenting on the buildout investments, analysts point out the trend is global, and is not unique to SA.

“There is a shift and we are also seeing the same in other countries in emerging markets. Urban areas are largely saturated as every new entrant in the industry starts there, while there is still room to grow customers and usage per customer in small towns and rural areas,” says Peter Takaendesa, head of equities at Mergence Investment Managers.

“The opportunity and profitability will obviously not match up to what the value uplift of growing coverage in urban areas was over the past decade, but the rural market is a source of growth in largely-saturated mobile customer growth countries.

“It’s important to note also that the economics of providing rural coverage will improve as operators receive more sub-1GB spectrum, which is more suited for wider coverage at lower network investment cost. The results of the current spectrum auction are therefore supportive in this regard.”

Rural activities are now using more telecom services than before, hence the move by telcos, he notes.

“Smartphone affordability and faster adoption of consumer digital services (social media, etc) are clearly supportive of the improved adoption and usage of telecom services in rural areas.

“Telecoms will also be targeting to extract more value from the rural market through their new airtime lending and insurance activities.”

Africa Analysis telecoms analyst Dobek Pater agrees that rural activities are increasingly becoming digitised, hence the need for improved networks.

This, he adds, means a viable business case for telcos.

“As data prices decline, use of data services increases and more traffic is generated on the mobile networks,” says Pater.

“Additionally, as the use of adjacent services (such as financial services/mobile money) grows, operators want to ensure they continue expanding and improving the broadband infrastructure in under-served areas to enable its customers to use such services. Traditional (circuit-switched) voice services also continue to be important and coverage is important for this.”

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