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.”