THOUGHT LEADERSHIP

Edwin Thompson
GM, Technology and Infrastructure: MTN Business

While Seacom has created a new era in adding East Africa to the “cable connected world”, relieving the high costs created by satellite-based capacity there, it has done little to relieve the high cost of connectivity to South Africa. So where are we headed?

With approximately 1.058 millions unique consumer broadband users and significant corporate demand, the explosion of wireless broadband is making a huge contribution to Internet access in South Africa and this is set to increase as a result of the impact of the additional under-sea cables underway, as entry barriers into the market drop further and the demand for smart cell phones and applications skyrocket. Looking at the statistics, in January 2009, South Africa had a maximum build capacity for 360Gbps.

With Seacom’s added Terabyte capacity and the upcoming EASSy and WACS cables expected in the next two years, by the end of 2011, South Africa will have 22 times the potential capacity we started with at the beginning of this year However, despite the long-awaited hail of more bandwidth, there are still a number of challenges that need to be overcome. Firstly the right to land in competitive environments with co-location facilities and cross connect fees, not too mention the slow delivery to competitive operators.

Secondly, price is always a challenge, especially as history paints the picture of monopoly environments. Although the threat of competition has certainly made an impact, interesting enough though, if we look at the history pricing on SAT 3, the most significant decrease was in fact way before Seacom became active.

So is it just the cables that have resulted in prices being dropped?

The answer is no. Based on Seacom list prices for raw capacity between STM-1 and STM-4 capacities, a $10m saving can be achieved based on volume on an IRU basis. Therefore, it is either the demand for higher capacity and/or the availability of an alternative cable which has had a significant impact. In fact, at this point, volume is as significant or in fact more so, than the decrease in cost. This in fact shows that the consolidation of the market is having a positive impact on the cost of services.

Given the above, where are prices headed if capacity becomes a driving factor? It is clear that prices will reduce based on volume until more competition is introduced. Having only a second cable land induces a “duopoly” type structure where prices reduce, but remain higher than in a truly competitive market. While Seacom is “open access” its pricing is likely to be higher than that obtained by EASSy members. Therefore, EASSy and WACS are likely to introduce a new level of competition – one that will possibly trigger increased value for money and higher service levels for the consumer.

 

Certainly the sheer cost of building an undersea cable system drives competitors to work together to make such systems economically viable, and collectively joint initiatives are bound to create a much more attractive telecommunications environment for all of us. Additionally, as the same concept is fast being adopted to build expensive inland systems, we are likely to see a new era for this industry and any network service provider – existing or new – wanting to gain a strong competitive advantage needs to be flexible, innovative and, most importantly, a true catalyst for change. It is only through continuous evolution (internal and external) that the telecommunication industry in South Africa will stand for all.