Convergence is the name of the game in telecoms town, as witnessed by the proposed MTN and Telkom deal, the establishment of Infraco and the rush to lay undersea cables.
Following the money in the telecoms industry, it is easy to see where future profits lie in the short- to medium-term. It is in owning and operating transmission networks, so the operators can take advantage of combining fixed and mobile offerings.
Residential fixed-line growth is stagnant, with little in the way of new connections being rolled out. The mobile market is close to saturation, with 41.4 million active SIM cards out of a total population of about 47 million people.
While the mobile operators are still making good profits, they now have to find ways to extend their revenue streams. This is why they are diverting into other non-core activities, such as credit cards, etc.
Naturally, they also want a slice of the IT services pie. For this they need fixed-line backhaul, as wireless doesn't give the necessary guarantees of quality of service needed, or prove cost-effective for bulk data transmission.
Irreversible differences
Neotel must be feeling somewhat miffed at the whole situation.
Paul Vecchiatto, Cape Town correspondent, ITWeb
The difference between mobile and fixed connections has become "irreversible", as stated by Gartner principal analyst Will Hahn, at the recent Gartner ITxpo.
Gartner's research shows mobile is the only large and driving sector in traditional communications. However, the market is being hampered by low average revenue per user and increasingly difficult licensing conditions.
"And in many emerging markets, fixed and mobile carrier organisations are segregated. Globally customers are nearly three times as likely to have a mobile connection as a fixed one, and in the Middle East and Africa, the ratio is closer to five to one," he said.
Hahn also stated that globally telecoms companies are facing a meltdown as far as revenue is concerned. He estimated the fixed voice and wholesale carrier segments would lose about $60 billion in revenue over the next three years.
SA shows a remarkable divergence with telecoms trends globally. Hahn pointed out that while this country's fixed-line connections account for less than 3% of the total Middle East and Africa network, it accounts for a whopping 46% of IT services revenue.
No one with a business case to lay an undersea cable around the African coast can afford to ignore SA, Hahn said.
Eyeing the gap
Undersea cables, however, need a national fixed-line network, which, in turn, has to connect to the local connections. The mobile operators have been eyeing this for some time.
Vodacom CEO Alan Knott-Craig said in his Business Times column "...suddenly all and sundry (yours truly included) want to build a transmission network".
MTN has already begun experimenting with its own landline network and it has experience with running a fibre optic network in Nigeria and supplying retail landlines in Uganda.
Telkom and Neotel, which are supposed to be the national fixed-line operators, have their own wireless licences. But why should they roll-out such networks that effectively duplicate what the mobile operators already have?
On the other hand, why should the mobile operators roll-out backhaul and transmission networks that their fixed-line counterparts already have?
Pressure on Neotel
Should the MTN and Telkom deal go ahead, then the former will get its boost into the fixed-line market, even if it is just on the backhaul side, which it can then resell to anyone who wants to pick up the retail segment.
Such a deal would also mean Vodacom could begin to enter the backhaul market. There are already indications that it is mulling laying its own undersea cable.
Neotel must be feeling somewhat miffed at the whole situation. It has seen its fixed-line jump-start thwarted through the co-opting of the promised Easitel and Transtel assets into government's new broadband provider, Infraco. It is also seeing its business case as the second national operator being eroded rapidly.
I can only imagine the serious soul-searching that must be going on among Neotel shareholders at the moment.
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