The 2007 telecoms pack of cards

2007 will be a year of wildcards in the telecommunications sector, meaning those who think laterally will position themselves well for a profitable future.

If one had to expand the analogy of a pack of cards, the Ace, though few seem to have realised it, is the Electronic Communications (EC) Act that allows for increased competition. This law effectively bars the regulator, the Independent Communications Authority of SA (ICASA), from doing anything that encourages a monopolistic situation.

This is the cornerstone of cellular network operator MTN's reasoning that it can now self-provide for its international connections and not have to go through either Telkom or Sentech. There is market talk that Vodacom and Cell C may have similar plans.

While the law is the Ace, the regulator is the Joker of the pack. ICASA has not covered itself in glory this past year with its inability to hold on to staff, conclude its own investigation of CEO Jackie Manche, and staunch outrageous comments made by some of the councillors. It also has to find at least one more councillor so it can have a full council of nine as mandated by law.

So don't expect much from ICASA. It will have its hands full sorting itself out, which will mean a number of key issues it has to deal with, such as drafting regulations as stipulated in the EC Act, will still take some time.

Thus, a massive legal grey area will exist for a while and so will an opportunity for new and established players alike. They will, if they have the tenacity to do so, push the regulatory boundaries and invoke the established South African principle "that it is easier to ask for forgiveness than for permission".

Surely this is an opportunity for someone to come in and snatch away these customers by offering a massive cutting of monthly call costs?

Paul Vecchiatto, Cape Town correspondent, ITWeb

Obviously Telkom sees itself as King of the pack; however, it is worried about encroachment from various players, not least from the second national operator Neotel. There has also been some concerted effort, in statement if not in practice, by government to "unbundle" the local loop - a step that would allow other players access to Telkom's local exchanges.

Telkom has several things to protect, including its reputation for delivering high profits to shareholders, and its planned R5 billion investment into its next-generation network. It also has to consider potentially more competition in the international connectivity arena, where it is a tiny player in global terms.

Neotel, which also wants to be a King, has had a less than spectacular entry into the market and it appears it is determined to play a type of wholesaler role, rather than take Telkom head-on at its own game. The key here will be to see whom it ties in as partners in this strategy as these will carry the brunt of customer demand.

Talking of wholesalers, proposals to create a broadband infrastructure player, namely Infraco, are still less than certain. The Department of Public Enterprises, which is driving the process, was supposed to hold a public briefing in November, which it has postponed to January. It seems Infraco does not yet have all the political support it needs - despite two of government's most powerful ministers, Alec Erwin and Trevor Manuel, endorsing it.

However, a broadband strategy will have to be implemented soon as time is steadily marching on to 2010 and the broadcasting demands of the Soccer World Cup.

Queens of the pack have been the cellular network operators (excluding Cell C), which have had profitable times for quite a while. These have been able to leverage high customer demand, with low consumer activism to maximise their profits. The question is: how long will they be able to do this?

Ironically, the poorest people in this country are charged the highest telecommunications rates, namely prepaid cellular calls that are often made within the coverage area of one base station. Surely this is an opportunity for someone to come in and snatch away these customers by offering a massive cutting of monthly call costs?

So the key for 2007 is for a model that will effectively capture the hearts and minds of consumers. The corporate model is heavily discounted already and consumers are asking why they should not be seeing the same benefits.

This opportunity will be for a company, or joint venture entity, that is able to cut the costs for consumers, while offering the same, if not better convenience that they get from their existing services.

I don't believe the entity that will do this will be one of the obvious established players. Rather it will be a wildcard, such as a retailer or a financial services institution that will take the market by surprise and leave many to smack their foreheads and say: "Why didn't I think of that?"