Friday, July 30, 2010

Mobile payments fight poverty in Africa

By Jennigay Coetzer - Business Day, 30 July 2010

By the end of next year almost three times as many consumers globally will use their mobile phones to make person to person payments than those who will use them to conduct traditional banking functions, according to ABI Research. The developing world is embracing mobile payment services with enthusiasm wherever they are offered, says senior analyst Mark Beccue.

“It is becoming the first financial service for previously unbanked people, and may make a real contribution towards lifting them out of poverty.” The biggest mobile payment success story to date in Africa is mobile operator Safaricom, which has cornered 78% of this market in Kenya, with its M-PESA system, which enables money to be transferred between mobile phone users.

“Before the introduction of M-PESA, 15% of the adult population of Kenya was banked, and now 55% transact through mobile banking or bank in the traditional way,” says Simon Russell, managing executive for financial services at Accenture South Africa.

He says in South Africa the picture is a bit different because 56% of the adult population is banked and 60% of individuals over 16 have access to a mobile device, according to Accenture’s research. Nedbank recently entered into an agreement with Vodacom to bring M-PESA to South Africa, and intends to launch the service later this year.

Those signing up for the service, will be able to deposit money at authorised retail outlets and send it to mobile phone users anywhere in South Africa, much like Safaricom’s service in Kenya. Recipients will then be able to redeem the cash from authorised outlets or ATMs located near to them, says Ingrid Johnson, group managing executive for retail and business banking at Nedbank.

Those using M-PESA will also be able to use money stored in their electronic purses to purchase goods from conventional retailers and spazas that are using the service, by sending the value of the transaction to a designated cell phone number. The same thing could apply when paying for taxi fares.

Johnson says the electronic purse will be password protected, to stop any unauthorised person from accessing it. “M-PESA is the answer for the unbanked sector of the population.”

She says employers could also pay their casual workers by depositing money into their M-PESA electronic purses, which is much safer than them carrying cash around. However, the amount of money being transferred will be restricted to small amounts, in terms Fica regulations.

In the future, functionality could be extended to other services like enabling users to purchase funeral policies, as Safaricom has done in Kenya. When delivering services, the banks need to recognise the affordability levels of different consumer sectors and the devices they use, says Johnson.

For example, M-PESA can be accessed with basic phones, whereas mobile internet banking requires a more sophisticated phone, and full internet banking with richer functionality requires a laptop or PC. “We need to walk in the shoes of people with different needs.”

She says Nedbank also plans to launch a virtual credit card that is loaded on the customer’s phone and is activated and deactivated every time it is used. This is more secure than using a conventional credit card when making purchases online or at retail point of sale.

The bank is intending to provide increasingly rich functionality through electronic channels. “The objective is to provide a window through which customers can subscribe to different services,” says Johnson.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Internet banking users can prevent phishing and pharming

By Jennigay Coetzer - Business Day, 30 July 2010

Internet banking is available at all hours of the day and night, from anywhere, and is a cost efficient service to deliver. However, it is vulnerable to malicious practices such as identity theft, phishing, and pharming - whereby a user gets redirected to a bogus website.

“Users can have all the virus protection in the world, but it is up to ISPs to ensure their servers are protected against pharming,” says Simon Webster, technical consultant at Webcom. This malicious practice involves manipulation at the point where the website address, or domain name, is translated into a numerical IP address.

Another common scam is the harvesting of email addresses for the purpose of using them for spam and other unsolicited marketing activity. “Harvesters could get as much as $500 for a list of 10,000 authenticated email addresses,” says Webster.

These email addresses are obtained in various ways, including enticing users to respond to free offers or to forward chain mail-type emails to all their friends, and syphoning of the email addresses to the harvester’s database. Another method of harvesting is to use a program called a bot to infiltrate databases to harvest email addresses, or to get the bot to feed random names into a database and come out with likely email addresses.

For example, the bot might be instructed to come up with 1000 first names, 1000 surnames and 1000 company names, either randomly or perhaps relating to a specific industry sector. “They might get less than 1% hit rate for real email addresses, but they just leave the bot running,” says Webster.

Then there are botnets, used by hackers to take control of tens of thousands of PCs and, unbeknown to the users, use them for malicious intent. “These hackers are referred to as botnet herders or shepherds,” he says.

When doing internet banking it is risky for users to use a PC that is not under their control or under the control of their company, especially when travelling. In an internet cafe, there could be a network sniffer in the back office that logs the activity of users, or a key logger device might be used to capture their key strokes.

“Hackers can download what is being typed remotely from 10 to 100 metres away using Bluetooth, for example while sitting outside the internet cafe in a car,” says Webster. However, he says, shoulder surfing is one of the most common causes of unauthorised access to personal information.

For example, a so-called trusted colleague watches what a user is doing or the user is interrupted or leaves the PC unattended in the middle of what he or she is doing while getting a cup of coffee and gains unauthorised access. But the banks are addressing this kind of vulnerability with dual accreditation, for example sending a one time password to a person’s cel phone.

“The banks have gone beyond the bounds of banking regulations to protect their customers,” says Webster. He says the onus is therefore now on customers to follow the security protocols that are provided in the same way they would when using bank cards.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Cellphone banking surges in South Africa with the unbanked targeted

By Jennigay Coetzer - Business Day, 30 July 2010

In South Africa the number of internet banking users users has doubled over the past five years to about 3.2-million to 3.5-million, across all the banks. Mobile phone banking is growing even quicker in the country, although off a lower base, with a total of about 5-million users across all the banks, says Christo Vrey, managing executive for digital channels at Absa.

“We have 1.1 million internet banking users, and 2-million cell phone banking users - including 50,000 businesses.” FNB has nearly 2 million active cell phone banking users out of a total customer base of 6.6 million.

“We are adding 40,000 to 50,000 users a month,” says Ravesh Ramlakan, CEO of FNB Cellphone Banking Solutions. He says mobile banking usage is more prevalent among lower and middle income groups.

“Two-thirds of our customers earn less than R100,000 a year.” A lot of these people use internet banking when they are at work and use mobile banking when they are not.

“Our mobile banking usage peaks between 19:00 and 23:00, while our other banking channels volumes peak during the day,” says Ramlakan. He says customers have a choice between traditional mobile banking, whereby they dial a number, are presented with a screen, enter a PIN, and select options from a menu by pressing numbers, or using browser based mobile internet banking.

Some people use dial-up mobile banking for quick functions like requesting a balance, which take a few seconds, and use mobile internet banking for more complex options, says Ramlakan. He says the browser based option will increase in popularity as more internet enabled mobile phones become available at affordable prices.

In addition, more of the phones that are passed down from higher to lower income people will be internet enabled, which will help to boost usage. Over the next three years, FNB will be putting significant effort into its mobile banking portal fnb.mobi because mobile internet banking is the future, says Ramlakan.

He says beyond the boarders of South Africa, the bank has been offering mobile banking in Namibia and Botswana since 2007, and in Zambia and Swaziland for six months, and is launching services in Lesotho and Tanzania over the next six months. Mobile phone banking is ideal for people living far from bank branches and ATMs, and is a good way for banks to broaden their reach across the continent without having branches and ATMs everywhere, says Ramlakan.

Brad Gillis, CEO for regulated cluster at BankservAfrica says although the adoption rate of internet banking has been steady over the past few years in South Africa, growth has been hampered by the fact that until recently it required a PC or laptop to use internet banking. “But with more mobile phones with internet capabilities becoming available, the take-up should be a lot higher.”

He says more than 90% of internet and mobile banking, ATM and retail point of payment transactions that involve settlement between two banks are handled by the company’s electronic funds transfer switch. Last year it switched 2.5 billion transactions with a total value of seven to R8-trillion.

“We switch the majority of the low value high volume payment transactions between the banks,” says Gillis. He says the ability to pay beneficiaries through real-time internet banking has been available for about three years and volumes are increasing by 74% a year.

In the past with batch systems, it could take a number of days for payments to be reflected in the recipient’s account, but the latest real-time technology allows this process to be completed in as little as one to two minutes. “Three of the large banks are already offering this and a fourth is currently implementing it,” says Gillis.

He says today, less than 3% of payments to beneficiaries are made by cheque and the balance are made electronically. The South African mobile banking market is different to the rest of Africa because a significant percentage of the population have a traditional bank account, and the growth potential is therefore likely to be in the unbanked sector.

“Many of those who are banked have access to a PC at the home or in the office and can use internet banking,” says Gillis. He says the success of mobile payments is dependent on getting enough retailers to accept this type of payment method.

Cell phone airtime is also being used as a currency, for example to download ringtones, make donations and pay to download software from online mobile application stores. “Anyone who is not banked can do this,” he says.

However, as the unbanked population adopts alternative methods of transacting payments, this could result in them working around the banking system, instead of migrating to it. A mechanism is needed to transition these people to formal banking services.

But to achieve this the technology between the banked and the unbanked world will need to be interoperable, says Gillis.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Mobile banking growing across Africa

By Jennigay Coetzer - Business Day, 30 July, 2010

The use of mobile phone banking is growing across Africa and will continue to do so because a large percentage of the population have cell phones and no formal bank account, and live far away from the nearest bank or ATM.

Mobile banking presents a great opportunity for operators on the continent to increase revenues and those that have done so have reported a 10% increase in average revenue per user, says Konstantinos Tzingakis, head of Innovations Centre and partner management at Ericsson South Africa.

In South Africa and other parts of Africa the operators are partnering with the banks to provide mobile banking services. “Operators are not allowed to provide mobile banking services themselves in most parts of Africa due to regulatory restrictions,” says Tzingakis.

However, in many African countries airtime is passed from one phone user to another and used as currency, bypassing the formal banking system. He says one of the operators providing this type of service is Kenyan operator Safricom, which has signed up two-thirds of its 13 million subscribers to use its mobile banking service M-PESA, and is signing up 11,000 users a day.

“Safricom processes $10 million worth of transactions a day, with an average value of $20,” says Tzingakis. Bharti (previously Zain) has introduced an equivalent service, Zap, which it is marketing across Africa.

“MTN is also taking its mobile banking solution into Africa in partnership with Standard Bank,” says Tzingakis. He says mobile banking is as secure as internet banking, bearing in mind that the banks send one- time passwords to customers’ cell phones before they transact online, as an additional level of security.

With traditional mobile banking some transactions are done directly between the user and the bank as opposed to over the public internet, while with others the transaction request goes to the mobile operator first before being passed to the bank. Most mobile banking in Africa is currently done in the traditional way, but there is great potential for browser-based mobile internet banking on the continent as more affordable phones with this capability become available, says Tzingakis.

He says the more people get used to interacting online, the more they are likely to use mobile internet banking, and this is already starting to happen. For example, social networking is becoming very popular across the continent, partly due to arrangements between Facebook and operators like MTN, Bharti, and Orange allowing free access for activities such as interacting with friends, and posting messages, in some countries.

“They then charge normal data rates for things like video downloads,” he says.
Farmers are also using mobile internet for checking the going price of commodities to know where they are most likely to get a good price for their produce before taking it there to sell it.

Online activities like these will be a catalyst for growth in the use of mobile internet banking, says Tzingakis. He says Ericsson is developing mobile banking-related applications at its innovation centre that are suitable to the African market.

This includes an application that allows people to trade goods and services on their cell phone, with the payment processed through mobile banking, which is ideal for farmers. The company is also looking at developing mobile micro financing solutions that are suitable for the African market.

For example a farmer might need the finance to buy a water pump, and someone wanting to set up a laundry service might need to finance the equipment to do so. These people could access a website on their mobile phone, fill out a form about who they are, their requirements and a brief business plan and invite responses from those interested in financing.

“We are developing applications like this with a view to offering them to the operators to take to market,” says Tzingakis.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Diverse services have South African banks fired up

By Jennigay Coetzer - Business Day, 29 July 2010

Internet and mobile phone banking is expanding its reach into non-traditional areas. For example, today anyone can transfer money to a recipient anywhere in the world by internet or mobile banking through Absa’s local agreement with Western Union, which provides cross-border payment services across 200 countries, including parts of Africa.

“A recipient in Kenya can present proof of identity and redeem the money in local currency at a Western Union office,” says Christo Vrey, managing executive for digital channels at Absa. He says Absa customers can also prepay for electricity usage, on their cell phone, by selecting an option and entering a value that is then deducted from their bank account, and are then provided with a voucher number to feed into their meter.

“We will be releasing this functionality on internet banking at a later stage,” says Vrey.
He says the banks are also fired up about providing personal financial management services in the future, for example to allow customers to access a composite view of all their assets and liabilities with the bank, categorise the transactions and create a budget.

They could also provide customers with a view of all the products they have with the bank, and allow they to track the progress of an application for a new service, such as a credit card, in real-time. “This type of functionality was previously the realm of accounting applications, but it was complex to integrate it with banking information,” says Vrey.

He says the functionality of mobile phone banking is also expanding, and an increasing number of customers are accessing internet banking from their phones. He says users of Absa’s mobile portal http://absa.mobi have tripled since February.

“There is a specific section for the youth, which includes free ring tones and music, and we had 50,000 free music downloads last month.” Vrey says internet banking users need to be vigilant in protecting their information from malicious practices such as phishing when transacting online.

He says users should ensure they enter the bank’s correct website address themselves and never try to access it from a link in an email. “The banks will never send emails to customers asking them to click on a link to access internet banking.”

Users should also ensure there is a closed padlock symbol on the internet banking site, before transacting, because bogus websites do not have this lock. Absa has introduced an added security feature whereby customers are asked to enter a phrase known only to themselves, which is then presented to them each time they log in to confirm they are on the bank’s authentic website, says Vrey.

Another tip is that users can see if an email is part of phishing scam, by moving the mouse over the website link they have been asked to click on, without clicking on it. A window will then pop up displaying the real website address the link will connect to, which is hidden underneath the bogus bank website address.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Mass market provides potential for mobile banking

By Jennigay Coetzer - Business Day, 30 July 2010

Mobile banking offers a convenient way of transacting from anywhere at any time, and can be delivered at a lower cost to the bank. “But if a bank is not offering a good price, customers will move to one that is, especially at the lower end of the market,” Simon Russell, managing executive for financial services at Accenture South Africa.

He says one a major challenge for the larger banks is that, typically, 60% of their costs are in their branch and ATM networks, and their internet and mobile banking products have to be integrated with this complex infrastructure. But smaller banks are more agile and can use low cost mobile banking offerings to take business away from their bigger competitors and expand into other areas later.

In South Africa, there is the mass market at the one end, where customers would benefit from simple mobile banking transactions, and the more sophisticated customers at the other who view mobile banking as just another transaction channel, says Russell. The potential take-up of mobile banking is bigger among those that do not want to walk long distances to the the nearest bank, and do not have access to internet banking, he says.

“Those at the higher-end of the market have more choice.” A well thought out offering, a flawless launch and an innovative marketing approach are key to the success of a mobile banking product, says Russell.

He says the Spanish bank Bankinter is offering a service whereby when customers buy high value items in retail shops, such as a TV, and the retailer swipes their card they receive an SMS offering them a short term loan to finance it. If they accept, the money is then transferred from their account to the retailers account.

As a marketing ploy when launching the service the bank sent customers that had a positive balance in their account an SMS asking them what interest rate they would like for investing this money. “The bank agreed to some of the most outrageous responses and got amazing publicity from it at a low cost,” says Russell.

Bankinter has become a market leader in mobile banking in Spain by gathering data about customers and delivering products through the most appropriate channels. Mobile payments have been available for some time in South Africa, but customers are spoilt for choice due to the high penetration of branches and ATMS, says Russell.

“In SA there are 12 branches and 17.5 ATMs per 100,000 people compared to Nigeria, where there are below 5 branches and 5.2 ATMs per 100,000 people.” He says the future will see mobile electronic wallets on the phone that can have money loaded onto them that could be used to buy items from vending machines, pay for parking, and make person to person payments, without transacting online with the bank while making payment.

Jennigay Coetzer is a freelance business and technology journalist. She also does media spokesperson training and article writing skills training.

Thursday, July 29, 2010

Clear ground rules needed for telecoms progress in South Africa

By Jennigay Coetzer - Business Day, 29 July 2010

The progress of the upgrading of the telecommunications infrastructure in SA is being followed closely by international industry analysts. Will Hahn, principal researcher for communications service provider business strategy at Gartner says it is important to note the changes that have already happened in the market and their effects.

He says the international bandwidth reaching South Africa's shores in the form of undersea cables has increased dramatically since the beginning of 2009, and there are more of these to come. The direct results have been mainly seen in lower prices, increased bandwidth and the introduction of uncapped services, which are all good news for end-users.

Another important, indirect, aspect of change is that Seacom and other companies are allowing open access to their infrastructure, to a much wider set of customers. This is allowing service providers of all sizes to enter the market, because they can buy international capacity directly from Seacom, at prices that are openly advertised.

“Many authorities and market-watchers would define progress for South Africa largely by whether many of these potential new entrants actually enter the market and offer services,” says Hahn. The new open model is having a ripple effect on the market because the incumbents have had to respond by making their prices more transparent.

Previously, the incumbent operator did different deals with different customers, because there were no ground rules. Hahn says the increases in international bandwidth has been paralleled, though not matched, by substantial building of the national backbone infrastructure, with fiber rings and networks put in place or under construction by most of the major operators.

The hosting of the World Cup in this country was a vital spur to this increased capacity, and was a catalyst for the wave of lower prices and more flexible terms for broadband access, and it is clear that this progress will continue, says Hahn. However, if South Africans would like to see more than a handful of new entrants offering services, several things need to happen and the onus for this is mainly on the regulator.

“Highly visible talk about mobile interconnection rates is a perfect example of the cart before the horse in South Africa,” says Hahn. He believes the regulator is attempting to set a schedule for reductions in retail prices, but has not yet published any rigorous cost study that lays out the model to determine what the cost of providing service is.

These cost studies are extremely hard work, and it will take more than a magic wand to stop litigation threats by the major players to stop change from happening. The incumbents will always test and complain against regulatory announcements, because their shareholders will force them to do it, says Hahn.

But if there are no well defined cost of service models, such as those used in developed markets, then no precedent against future complaint will be established and each decision by the regulator will give rise to litigation from the operators. “Our understanding is that such studies are underway, but until they are published and hashed out, decisions about wholesale and retail interconnection rates cannot be considered permanent.”

Filling the phone-line gap

By Jennigay Coetzer - Business Day, 29 July

Telkom has an installed base of about 5-million residential copper telephone lines that can potentially support ADSL connectivity. But this represents a small portion of the population and not all these lines are of the quality required for ADSL, says Aingharan Kanagaratnam, head of network solutions at Ericsson.

“So there is a big gap that can be filled by mobile and wireless services.” He says there is currently a 110% penetration of cellular mobile connectivity with more mobile subscriptions than the total population, although this includes people with more than one connection.

“We estimate that 20% of mobile phones in the hands of users today are capable of mobile broadband.” This is an indication of the need to extend the reach of 3G broadband coverage across the country.

He says about one third of existing base stations currently have 3G capabilities, although the mobile operators are rolling out the service quickly. A limited factor the operators have to contend with is the lack of capacity on the transmission networks that link their base stations, for which they rely heavily on Telkom’s microwave infrastructure.

In two to three years time the operators will have their own microwave transmission networks and they have already started building these. It is too expensive to roll out fibre to every base station site, but when the national fibre infrastructure is more extensive it can be used to link some of them, says Kanagaratnam.

“Fibre will be confined to dense urban areas and long distance connectivity.” Improvement in the overall communication infrastructure will be gradual in line with the rollout of national, international and last mile infrastructure, says Kanagaratnam.

He says it will take two to three years for the various industry players to complete the roll-out of their national and metropolitan broadband fibre networks and for the multiple undersea cables to be completed to relieve the current overload of the infrastructure. The Johannesburg, Cape Town and Durban national and metropolitan links are already progressing, but it will take longer to reach to urban areas, says Kanagaratnam.

He says it takes such a long time to roll out fibre infrastructure because of environmental and other issues that lengthen the process. Multiple parties are rolling out fibre infrastructure to get to achieve a competitive advantage.

But there is a lot of debate about the merits of sharing conduits in the ground, with each industry player laying its own fibre in these, instead of everyone digging up the roads. “Some 80% to 90% of time and cost is in this construction process,” he says.

Operators and municipalities are racing to get the metropolitan areas covered, because this is where the bulk of revenues can be generated. But the more players building overlapping infrastructure the more this will push up the price of connectivity to the end user.

Super mobile applications will alter the way users work and play

By Jennigay Coetzer - Business Day, 29 July 2010

At this year’s Mobile World Congress in Barcelona, the biggest mobile event in the world, the spotlight was on mobile applications and online application stores as opposed to the usual announcements of new phone models. “This shows suppliers are focusing more on to the experience the phone brings and what users can do with it as opposed to the device itself,” says Deon Liebenberg, regional director for sub-Saharan Africa at BlackBerry smartphone maker Research In Motion in South Africa.

He says the latest buzz is about super applications that change the way users works and play, enhance their lifestyle and integrate with other applications on the phone to provide a seamless experience as users move from one application to another. Applications are now available that will tailor information to users’ needs, depending on criteria such as their location, availability status and how they want it to be presented.

If the user is travelling, they will change the time zone on the phone, check if flights are still on schedule and report any delays. “These applications will sit in the background and provide users with the appropriate information when they need it,” says Liebenberg.

Super applications constantly monitor users’ location, push concise information to them proactively when they need it based on their current situation, and allow them to request more detail if they need it. They run faster, are always on, and are reliable, even when the mobile networks are busy.

“It is all about just in time information,” says Liebenberg. He says applications have to be good to for users to continue to use them, and this is borne out by research that shows 99% of all applications downloaded are discarded or ignored after four weeks.

Arthur Goldstuck, MD of World Wide Worx, says enlightened mobile users want to be able to download applications that enrich their lives and suit their specific needs and some developers are responding to this demand. For example, users of instant messaging application Mixit, which is cheaper than SMS and is geared to the younger generation, now offers information channels on topics such as drug rehabilitation, and even has a trading post feature for buying and selling items.

“What is happening with Mixit is an indication of the future of instant messaging applications that will kill SMS,” says Goldstuck. An increasing number of applications can now be downloaded to mobile phones that take users directly to their favourite websites, like Twitter, Facebook Mobile, and news services without having to waste time loading a browser first.

This makes it easier for users and they are less likely to move to another application that provides similar functionality. Many World Cup applications were also available for download during the event. “Specific applications like these far outpace browsing on the phone,” says Goldstuck.

He says those using social networks will be influenced by their peer groups when deciding what applications to download. Another trend is that companies are setting up specific mobile websites, including newspapers and magazines, which are now directing readers to their mobile sites in their publications.
“This will build a closer relationship between publications and mobile device users,” says Goldstuck. He says as smartphones become smarter more people will use them as a preferred internet device.

According to the World Wide Worx Mobile Internet in South Africa 2010 report, 60% of mobile users in urban areas have phones that are capable of browsing the internet, but only 21% of them actually do it. “The balance either don’t know how to use it or don’t want to do it, or don’t do it because of cost concerns, or perhaps because the screen is too small.”

TV and social media are set to merge

By Jennigay Coetzer - Business Day, 29 July 2010

Broadcast, IT and telecommunication are all moving to the same IP (Internet Protocol) based network delivery platform. This will pave the way for new services such as interactive TV whereby it will be possible for friends to chat on social networks such as Facebook or Twitter and discuss programmes on the same screen, while they are watching them.

“This is a merging of social media and TV,” says Ian James, programme director for ICT and telecommunications at Gordon Institute of Business Science. He says the converging of broadcasting and the internet will also allow targeted advertising.

For example, with interactive TV, when watching a programme viewers will be able to click on an outfit worn by one of the stars and a window will pop up with information about where it can be purchased. Another example of the bringing together of different mediums is that it is already possible to make free Skype phone calls over the internet from a mobile phone, says James..

The delivery of mobile TV is another area in which operators are dabbling, but it is difficult to envisage how revenues can be generated from this. In the traditional broadcasting world, subscribers pay a TV licence fee and revenues are generated through advertising.

But mobile operators are in the habit of charging per megabyte of data throughput, and are not geared up to handle advertising. “So there is a clash of business models,” says James.
An alternative is for mobile operators to charge a monthly subscription, but then they would have no control over how much content users are downloading, and the bandwidth-hoggers would clog up the networks.

This cannot happen with traditional TV, because it is broadcast on a one-to-many basis.
The operators are the weak link in the converged communication chain, because they are are focusing on being connectivity utilities instead of becoming content providers, says James.

He says people will pay more for content than bandwidth if it is of value to them.
The incumbent Japanese operator NTT Docomo proved this 10 years ago when it launched its iMode portal to deliver mobile content to its customers, and sold phone handsets to them that were capable of accessing the service.

“The cost of the content was added to customers’ phone bills and 91% of the revenues went to the content providers,” says James. Cellphone manufacturers have recently woken up to the potential of content delivery, an example being Apple, which was the first to set up an online application store.

The company encourages developers to develop mobile applications, checks the quality before making them available in its online App Store, and pays 70% of the revenues to the developers, says James. “Some developers think this should be higher, but payments to the credit card companies reduce Apple’s share to about 14%.”

James says it would be possible to deliver pay TV over mobile phones, but with the current mobile content delivery models this would not be viable for the operators because most of the money users pay goes to the content providers. Another challenge is that users are used to getting a lot of free internet content and services from the likes of Google and participating in free video conferencing using Skype.

The internet business model is to get millions of people to access the content or service and then find ways of generating income, for example by advertising to specific market segments. “Technology tools are available to mine this type of information, but telecommunications operators are not seeing this,” says James.

Monopolistic principles and poor service stiffle telecoms players

By Jennigay Coetzer - Business Day, 29 July 2010

Frustration abounds in the local telecommunications market about the lack of progress with bandwidth availability and costs. Service fees are perceived as inflated and the stability of the infrastructure is questionable.

The situation is expected to improve as more competitive entities build infrastructure in competition with the incumbents, but consensus is that the market still has far to go. “At the moment options are limited, so monopolistic principles prevail with poor service and high prices being the order of the day,” says Hannes van der Merwe, product manager for Mitel solutions at Itec Distribution.

He says telecommunications infrastructure providers such as Telkom and Neotel do not have the resilient telecommunication connectivity infrastructure required to support corporate PBX systems and are the weak link in the supply chain. While it takes just two to three weeks to order and install a PBX system, it takes Telkom two to three months to install the lines, he says.

Enterprise PBX systems are available that can deliver a unified communications platform that enables mobile users to be contactable at any time and any place and can be managed from anywhere in the world. “But of course you can only take advantage of all this functionality if the connectivity infrastructure is in place and performing at optimal levels,” says van der Merwe.

He says government needs to give the regulator the resources it needs to keep the incumbent telecommunication players in check. It should also reconsider its own investments in the telecommunications market, especially Telkom, since these represent a conflict of interest.

The incumbent operators also need to be more open to partnering with third-party service providers to plug the gaps in their own resources. Van de Merwe says Icasa needs to ensure that its regulations are legally watertight to prevent incumbents from delaying changes in the market by litigating against them.

Jonathan Maliepaard, MD of eNetworks says the biggest hurdle to progress is the cost of bandwidth from the likes of Telkom and Neotel, which is disproportionately high. “Local bandwidth now costs more than international bandwidth.” He says when the 5.6 gigabit West African Cable System (WACS) undersea cable lands in SA in 2012 the biggest problem will be affordable local bandwidth to access it.

“The cost of deploying long haul fibre is expensive, so the same old big companies are installing it and keeping prices high.” He says another issue is Telkom’s monopoly over the last mile, or local loop copper wire telephone lines that support ADSL.

Either the regulator Icasa needs to introduce local loop unbundling, which would allow other service providers to share this infrastructure or Telkom needs to provide ISPs with fast, scalable, affordable access to its ADSL network.

Gregory Massel, MD of Switch Telecom says while local ISPs have reduced ADSL costs significantly, Telkom’s access charges for this service are still higher than in many comparable countries. “More significantly, users are still forced to pay R174 a month for the rental of a Telkom phone line before obtaining the ADSL access,” he says.

Another issue is that the local ADSL speeds are limited to a maximum of 4 megabits per second (Mbps) compared to up to 24 Mbps available in most other countries, says Massel. He says due to the lack of fast affordable fixed line access, 50% of broadband connections in this country are wireless compared to most other parts of the world where more than 90% are fixed.

Fixed broadband is generally much better suited to the delivery of VoIP-based telephony services, video conferencing and other high-end multi-media services, as the bandwidth is more consistent. Another hinderance in the local market is the lack of consumer awareness of the alternatives that are available, says Massel.

“Most consumers still do not realise that there are much better cheaper options for their internet, telephone and switchboard services than Telkom’s services.” He says Telkom still has over 98% of the non-mobile voice market, despite the alternative services offered by the likes of Switch Telecom, Vox Telecom, ECN and Neotel.

Reshaad Sha, director of strategy for internet business solutions at Cisco says the landing of the Seacom undersea cable and the upgrades to the existing SAT-3 undersea cable have had a positive impact on the price of international bandwidth. “To some extent one component of the larger problem was solved,” he says.

But the challenge still remains for the local telecommunication operators is the building of fibre infrastructure to provide users throughout the country with access to all this international bandwidth. He says the demand for services and applications to be delivered over the internet is expected to reach 150 petabytes per month by 2014 in SA.

“The pace of the build out of access networks to cater for this demand does not seem to be sufficiently hasty to meet this projected demand,” says Sha. Martin Lotz, CEO of Jasco Electronics Holdings says the huge quantities of broadband capacity that will be provided through the new undersea cables will support data and video services.

But to access these cables will require terrestrial fibre networks to be expanded and more mobile base stations to be erected. “To do this we will have to overcome the challenges posed by environmental regulations and council approvals,” says Lotz.

These constraints will lead to the sharing of current and new infrastructure by multiple operators. The regulator can assist progress in this market through further liberalisation, such as number portability and setting reasonable cost structures as is happening with interconnect fees.
But the best driver for better services and lower cost will be competition, says Lotz.