For Vodacom, SA's largest mobile operator with more than 32 million active subscribers, the most important investment it could make now, is in the infrastructure that enables it to accommodate the "over-the-top (OTT) invasion".
This is according to analysts, who say the operator's continued hefty network investment has started paying off. With the structure well in place for the company to maintain traditional services, value-added services may now start to take more of a front seat in Vodacom's strategy.
Yesterday, at Vodacom's full-year financial results, the company made it clear its priority going forward would be that of developing new service offerings.
"New services, which include M-Pesa, financial services, machine-to-machine (M2M) and content have been identified as a new growth pillar."
While M-Pesa has seen less than encouraging growth, revenue from its insurance business grew 36%, boosted by an increase in device insurance. M2M also saw an upward trajectory, after Vodacom leveraged off the Vodafone global M2M platform to launch additional applications in target industries.
Broader potential
World Wide Worx MD Arthur Goldstuck points out, going forward, "whether [operators] like it or not" OTT infrastructure is going to be one of their key reasons for existence in coming years. "Their own customers will judge them on the basis of how well they facilitate those supposedly competing services."
That said, Goldstuck adds it is crucial networks develop new services that reduce their dependency on declining revenue categories.
"Mobile money is not proving to be a silver bullet, and for now neither is M2M. However, both of these have the potential to be the foundations for broader categories of service, such as facilitating e-commerce on the one hand, and ushering in the smart home on the other."
In addition, he says, the rise of in-vehicle and vehicle-to-vehicle digital services and communication also spells a new opportunity for the networks. "However, these are long-term plays which need broad vision, deep pockets and great patience right now."
BMI-TechKnowledge director Brian Neilson says Vodacom's current R8 billion investment in its network seems to be paying off, "because Vodacom does derive a large measure of differentiation by virtue of having a superior network, albeit for commodity communications services".
Neilson says the company will continue to look for gaps to exploit areas the OTT players are not already servicing.
M-Pesa miles
In the same light, where M-Pesa specifically may not have proven itself worthwhile just yet, it may soon, says Africa Analysis analyst Dobek Pater.
"I think we will be progressing towards mobile payments as a far more proliferate form of payment than it is now and M-Pesa is very well positioned to take advantage of this as its ecosystem expands."
But, as it stands, analysts describe M-Pesa growth on the local front as "lacklustre", "constrained" and "on the low side".
Vodacom says M-Pesa is slowly gaining traction in SA, with one million registered M-Pesa customers signing up since re-launch about 10 months ago, and 76 000 - a relatively small number in comparison to other African countries - actively using the service.
Vodacom CEO Shameel Joosub said yesterday the operator had experienced "challenges" with M-Pesa systems, so it is not yet driving the product as aggressively as it could.
Joosub says Vodacom wants to make sure the system is 100% before really pushing it. He did not elaborate on what issues the company had, but said there was a "combination" of them, and the company was in the process of fixing them.
Goldstuck says, as it stands, M-Pesa is still a problem in search of a solution in SA, where there is no desperate need right now for the service. This is in stark contrast to countries like Kenya and Tanzania, where the service has taken root and seen considerable growth.
"We're now almost five years on from a [initial] launch that promised more than 10 million users, and only now have the flaws we publicly identified back then been addressed. That means we should allow another year or so of wait-and-see.
"The [local] networks have still not come up with an indisputable value proposition and, if they have, they're being very quiet about it."
VOD opportunity
So far in SA, only MTN has introduced its own video-on-demand (VOD) service, FrontRow, although its success so far is questionable. Vodacom has yet to make its VOD plans public, but ITWeb understands the company has been in talks with a provider.
Ovum analyst Richard Hurst says, with a fibre-to-the-home rollout from Vodacom, "the next logical step would be a VOD service". MTN only officially launched its VOD service in February.
Pater notes it is still "very early days" for VOD in SA. "It is important to have a foot in the door, but at present, it is a medium to longer-term investment for the opcos."
If Vodacom launches a video content service this year, it is not going to be worse off for it in comparison to its competitors, says Pater. "The launch of VOD services is more strategic. In the long-term, operators have to offer it, in order to try and avoid becoming just dumb pipes, and realise additional revenue from content."
Goldstuck says, given the high cost of mobile data and the limited availability of high-demand spectrum, it is almost a joke for a mobile operator to offer a VOD service right now. "That said, it is wise of MTN to invest in such a service in order to learn what works, what doesn't and what the requirements are for such a service, for a time when it does become feasible ? but that doesn't mean everyone needs to pay those kinds of school fees."
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