Despite facing fierce competition and slowing revenues in 2014, South Africa’s telecoms operators are well placed to see growth in the near to medium term. The mobile market is approaching saturation and a shift from traditional voice and SMS services to data is expected to drive future growth, particularly in 4G long-term evolution (LTE) services, which are slated to expand well beyond upscale suburbs in the next several years. Although operators face a competitive and crowded market, a lack of available spectrum, and a new mobile termination rate (MTR) regime that has cut into revenues, the sector’s surging data demands, strong equipment sales, increasingly popular value-added data bundles and a pair of planned acquisitions should see operators maintain profitability and expand their customer bases in 2016.
Market Structure (Telecoms)
In May 2014 the government divided responsibilities for its broadcast, postal and telecommunications services among two bodies: the Department of Communications (DoC) and the Department of Telecoms and Postal Services. The DoC is responsible for much of the country’s telecommunications sector and oversees a number of entities, including the South Africa Broadcasting Corporation, Brand South Africa, the Media Development and Diversity Agency, the Film and Publication Board, and the Independent Communications Authority of South Africa (ICASA), South Africa’s telecoms watchdog.
ICASA was established in July 2000 following a merger of the former regulator, the South Africa Telecommunications Regulatory Authority and the Independent Broadcasting Authority. The authority is responsible for regulating the telecommunications, broadcasting and postal industries, and acts to advance South Africa’s universal service and access policy, which mandates nationwide access to basic telecommunications services at affordable prices. ICASA also issues licences and allocates radio frequency spectrum to telecommunications and broadcasting service providers, works to enforce compliance with government policy and legislation, and acts as a consumer protection agency.
Fixed-Line Telephony
South Africa’s incumbent operator, Telkom, held a monopoly on fixed-line services during the apartheid years. It remained state owned until 1997, when the government sold a 30% stake to Telekom Malaysia and American firm SBC Communications. Today the company is 50.37% state owned and competes with Neotel, which became licensed to operate in the fixed-line segment in 2006. Neotel is 67% owned by India’s Tata Group, though Vodacom was in the final stages of acquiring the whole company as of July 2015.
As in other emerging economies, South Africa’s fixed-line market is lagging. Telkom reports that its fixed-line voice and interconnection revenues declined by 11.9%, to R8.3bn ($717.1m) during the financial year ending March 31, 2015, while fixed voice revenues fell 13.5% and leased-line revenues fell 22%. The company nonetheless recorded a profitable 2014/15, announcing 1.2% year-on-year (y-o-y) growth in operating revenues, which rose from R31.29bn ($2.7bn) to R31.68bn ($2.74bn). This increase was driven by a 4.5% increase in data revenues within its mobile arm, as well as a 23.7% increase in equipment sales, which offset a 4% decline in voice and subscriptions. The company’s profit after tax reached R2.9bn ($250.5m), although this was a sharp decline from the previous year’s R3.6bn ($311m).
Mobile Operators
South Africa’s mobile market has high rates of penetration, according to 2015 statistics published by South Africa-based ICT consultancy World Wide Worx, which found that there were 80.2m sim cards in circulation and 42m mobile users in the country as of September 2014, a figure that amounts to 77.8% of the population. The country’s mobile market is dominated by five major GSM operators: Vodacom, a subsidiary of UK-based Vodafone; MTN South Africa, an arm of the publicly-listed South African company MTN Group; Telkom’s mobile subsidiary Telkom Mobile, Cell C; and Virgin Mobile.
According to an April 2015 report in Business Tech, Vodacom is the largest player by market share, with 31.4m subscriptions, or 38.4% of South Africa’s estimated 81.7m. MTN SA is second, with 28m subscriptions, or 34.3% of the total, followed by Cell C, with 20m subscriptions; Telkom with 1.8m; and Virgin with 500,000. Telkom has since reported, however, that its mobile uptake rose 21.2% to hit 2.19m subscriptions as of June 2015. MTN Group was established in 1994 and is active in 21 markets across Africa and the Middle East, while Cell C was founded in November 2001 as a subsidiary of 3C Telecommunications, of which Oger Telecom South Africa owns 60%, CellSAF holds 25% and Lanun Securities SA has 15%.
Vodacom was originally formed as a joint venture between Vodafone and Telkom, although the latter sold its 50% share in the company in 2008 – 15% to Vodafone and 35% to shareholders on the Johannesburg Stock Exchange – in order to reinvest in its own mobile unit. Vodacom is active in a number of African markets, including Tanzania, the Democratic Republic of Congo, Mozambique and Lesotho.
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