Department of Communications The State of ICT in South Africa

Transcription

1 Third Quarter 2011 Department of Communications The State of ICT in South Africa Quarterly Report 3/2011

2 Report prepared by Research ICT Africa

3 Table of Contents 1. EXECUTIVE SUMMARY 1 2. MARKET 2 3. OPERATIONAL PERFORMANCE Fixed Mobile MTN ta Mobile data ICT ACCESS Fixed subscribers Public pay phones Mobile subscribers Vodacom MTN Internet Broadband PRICING Fixed Retail Wholesales termination rates Leased lines Mobile retail Broadband QUALITY OF SERVICE BROADCASTING POSTAL SERVICE CONCLUSIONS REFERENCES 32 ICT INDICATORS QUARTERLY REPORT 3/2011 3

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5 The State of ICT Quarterly Report South Africa 1 1. EXECUTIVE SUMMARY Despite the turn down in the national and global economy the South African ICT sector continues to be very dynamic. This is particularly so in the mobile segment where although growth is slowing down as traditional mobile voice markets move closer to saturation, the market segment is performing considerably better than the traditional fixed line voice. Fixed voice services lines are static or experiencing minor declines in line with global trends with an associated drop in revenues. Increased activity in data services has however off set these losses. It is not only in the fixed market that the real value add comes from data with growing contributions to revenues in the mobile segment coming from data too. The use of all these services remains constrained by the high cost of calls and data bandwidth. The retail prices of the two mobile incumbents has remained relatively static and high despite the regulated decrease in termination rates, which later entrants, Cell C and 8ta, initially leveraged to offer lower prices and undercut the incumbents. The mobile operators remain highly entrenched in the market and are able to withstand the pricing pressure from the last entrants, who have been forced to settle their prices closer to those set by the incumbents. With premium prices charged for broadband services such as ADSL and 3G, penetration remains very low compared to other lower and middle-income countries and even compared to some of the North African countries such as Tunisia and Egypt and the island states of Mauritius and Seychelles. Despite the drop in international leased circuits following the increased competition from EASSy and Seacom to Telkom, there has not been a significant drop in end user prices. Big wholesale savings seem to have been secured but the cost for private subscribers remains high. Some of the main internet service providers have offered increased bandwidth for the current subscriber rates and although this provides relief for capacity constrained users, it does not sufficiently bring down prices to enable new internet subscribers. There is very little public data available on quality of service (QoS) for any services without the publication by ICASA of operators quality of services reports. However, QoS remains a ICT INDICATORS QUARTERLY REPORT 3/2011 1

6 2 ICT Indicators Quarterly Report South Africa serious concern, with the entire transmission network of the largest mobile operator having collapsed for an extended period earlier this year. In addition, the number of dropped calls on the network which customers are charged for, bandwidth capacity and speeds provided being way below the advertised rate, and the poor quality of voice and data services generally require a greater monitoring, clearer indicators and publication of results in the media. Without comprehensive data from some of the unlisted companies it is difficult to establish accurately the overall growth rate across the sector on the contribution of the sector or a specific segment in it to GDP. 2. MARKET Despite a horizontal licensing regime introduced by the Electronic Communications Act and the conversion of the existing licences into networks, services and content licences, the market remains structured around vertically integrated incumbent operators. The effective duopolies in both fixed and mobile market (all players holding electronic network and network services licences) has resulted in price matching, poor service quality and uncompetitive behavior. In the fixed line market the incumbent, Telkom, retains dominance over the backbone/competes downstream with its competitors in the electronic network services (formerly VANS and ISPs). The services market includes both managed data network providers and first tier Internet Access Providers, such as Internet Solutions, MTN Business Solutions, MWeb and Telkom. It also includes hundreds of smaller Internet Service Providers who hold class licences only. The second traditionally public switched network operator, Neotel, following licensing delays, only become operational in 2005, and primarily focuses on the corporate market though it does have a limited residential service in metropolitan areas. 2 ICT INDICATORS QUARTERLY REPORT 3/2011

7 ICT Indicators Quarterly Report South Africa 3 The mobile market comprises two dominant players, MTN and Vodacom, who between them have more than 85% share 1 of the market. Third entrant Cell C and virtual mobile operator Virgin,, share the remaining 15% of the market. Radio continues to be the main source of information in South Africa with around 77% of households in 2009 having a radio compared with nearly 70% of households having television (General Household Survey 2010). Radio household ownership has been relatively static at around 80% for over a decade however television has increased by 10% from around 60%. Interestingly however, the number of mobile phones over the same period has increased from 35% in 2002 in 83% in 2009, while landlines dropped from 25% to 17% largely as a result of mobile substitution. Over the same period less than 9% of homes had Internet and only 16% home computers. 3. OPERATIONAL PERFORMANCE Consideration of the performance of the different segments of the sector highlight the inherent cost differences between them and the competitive positions within them. Across the segments the challenges faced by late entrants into the market is evident as is the increasing shift to the development of data services to grow their businesses. 3.1 Fixed In 2011 Telkom s revenue declined by 5.9% from R33.49 billion to R31.46 billion. This was due to lower fixed-to-mobile traffic revenue, lower international and mobile interconnection revenue (Telkom, Annual Report 2011). Monthly average call volumes decreased by 11% from million minutes in 2010 to million minutes in Data revenue however increased during the same period to R10.70 billion which partially offset the decline in overall revenue. Telkom South Africa s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margin declined from 38% to 35.9% in Capital expenditure decreased by 1 Without access to the revenues or subscriber numbers of the unlisted companies, Neotel and Cell C is not possible to accurately determine market share, but Cell C has previously assessed it own share as 12% and Neotel has indicated its as 10% (Analyst briefing). ICT INDICATORS QUARTERLY REPORT 3/2011 3

8 4 ICT Indicators Quarterly Report South Africa 27.2% to R2.84 billion due to a more measured approach to expenditure to meet short-term demand and revenue generating services (Telkom, Annual Report 2011). Figure 1: 2005/2010 Revenues (Source: DoC indicator portal, 2011). Telkom revenues include a portion of Vodacom revenues until 2009 The dramatic drop in Telkom revenues in 2009 reflects loss of revenues from mobile services with the sale of Telkom s share in Vodacom. Figure 2 below depicts that the loss of assets for Telkom between 2009 and 2010 reflects the sale of Vodacom shares in ICT INDICATORS QUARTERLY REPORT 3/2011

9 ICT Indicators Quarterly Report South Africa 5 Figure 2: 2005/2010 Total assets Rm (Source: DoC indicator portal, 2011). Telkom assets include portion of Vodacom assets until 2009 In 2011 the total number of Telkom company employees declined from to for the year ended in March 2011, despite 883 positions at Telkom s new mobile service, 8ta, being filled (Telkom Annual Report, 2011). 3.2 Mobile Financial results from the mobile operators indicate that the mobile market has continued to grow despite the economic downturn. With reported growth rates of between 5% and 8% the mobile market has been growing at nearly double the rate that the overall South African economy. Capital expenditure has declined as most of the major expenditure in 3G networks has been undertaken and current spend is focused on network upgrades and expenditure on transport networks in order to enhance the quality data offerings and prepare for Long- Term-Evolution (LTE) technology. ICT INDICATORS QUARTERLY REPORT 3/2011 5

10 6 ICT Indicators Quarterly Report South Africa There has been significant data growth due to increased operator focus on data packages for both low end and high-end subscribers. Average Revenue Per Users (ARPUs) have declined as the number of MTN and Vodacom s subscribers increased in both the prepaid and low-end contract segments. Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) also contributed to the reduced the number of SIM cards as a result of disconnections. This increased blended and pre-paid ARPUs while post-paid ARPU declined as both MTN and Vodacom pursued customer acquisition strategies through attracting post paid customers on to low cost post-paid contracts. The increase in prepaid ARPU may also be explained by the increased use of ordinary airtime purchases for data use. During 2010 Vodacom s revenue grew by 5.7% from R47.73 billion to R50.43 billion. This was coupled with a significant increase in mobile data revenue, which grew by 32.8% to R4.36 billion. This was due to increased mobile PC (dongle) connectivity and increased use of mobile Internet. Vodacom s EBIDTA margin expanded from 34% to 36.8% following cost control measures, reduced licence fees and foreign exchange gains (Vodacom Annual Report, 2010). Vodacom continued to make significant investment in it s network with a focus on enhancing quality and support, however capital expenditure declined marginally from R4.63 billion to R4.57 billion (Vodacom Annual Report, 2010). 6 ICT INDICATORS QUARTERLY REPORT 3/2011

11 ICT Indicators Quarterly Report South Africa 7 Figure 3: MTN, Telkom and Vodacom EBITDA margins ! ! 100! 80! ! ! ! 132! Vodacom ARPU 60! 40 Vodacom MOU 40! ! 10 0! 2007! 2008! 2009! 2010! 0 Figure 4: Vodacom South Africa Average Revenue Per User (ARPU) and minutes of use (MOU) ICT INDICATORS QUARTERLY REPORT 3/2011 7

12 8 ICT Indicators Quarterly Report South Africa In 2007 the market was characterised by strong growth in prepaid and contract customers. ARPUs however decreased due to a higher proportion of lower ARPU prepaid and contract customers as the operator penetrated low-end customer segments in the market. Contract and prepaid minutes of use declined as a result of increased adoption of low-end packages. During 2008 ARPUs increased due to the implementation of the supplementary disconnection rule on the prepaid customers. Minutes of use increased slightly in line with the growth of prepaid customer segments. In 2009 ARPU continued to increase as a result of the growth in low usage prepaid customers and the introduction of Yebo4Less 2 and low denomination vouchers. Moreover contract ARPUs declined due to growth in low-end contract customers. Minutes of use increased, which was driven by increased usage patterns in the prepaid customer segment. Vodacom South Africa s ARPU remained relatively stable, with only a slight reduction from R133 to R132 per month in Prepaid ARPU remained unchanged at R70 while there was a 5.7% decrease in contract ARPU to R447 as a result prepaid customers migrating to lower contract packages (Vodacom Annual Report, 2010). 2 Yebo4less is a prepaid tariff plan which offers customers variable discounts (up to 99%) based on the customer s location and time of day. 8 ICT INDICATORS QUARTERLY REPORT 3/2011

13 ICT Indicators Quarterly Report South Africa 9 Vodacom contract and prepaid ARPUs Vodacom contract ARPU Vodacom prepaid ARPU Blended ARPU Figure 5: 2006/2010 Vodacom contract and prepaid APRUs. Vodacom s latest trading statement released in June 2011 reported a slight decrease in quarter-to-quarter revenue of 0.5% from R13.6 billion to R13.54 billion between March 2011 and June Moreover data revenue increased by 35.4% to R1.86 billion due to an increased adoption of data services. This was coupled by a decline in ARPU to R142 in June 2011 from R153 in March 2011 due to a decline in call costs. Contract ARPU declined to R369 due to the strong uptake of new low contract packages, while prepaid ARPU stood at R79 (Vodacom trading statement, June 2011). ICT INDICATORS QUARTERLY REPORT 3/2011 9

14 10 ICT Indicators Quarterly Report South Africa Figure 6: Vodacom ratio of subscribers to number of employees Vodacom South Africa Interim Results: ending September 2009 Interim Results: six months ending September 2010 Subscribers in million ARPU in R* MOU* APRU/MOU Operating Profit Rm Revenue Rm *Quarter ended p.25 Interim Result September 2010 compiled by Research ICT Africa Table 1: 2009,2010. Vodacom financial performance The ratio of ARPU divided by MOU decreased, which implies a drop in prices and suggests that users could make more calls for same expenditure. The effective lower voice costs is somewhat masked by ARPUs including data revenues (air time purchases) while MOU are 10 ICT INDICATORS QUARTERLY REPORT 3/2011

15 ICT Indicators Quarterly Report South Africa 11 voice only. This means that effective voice rates are even lower than what appears in the drop of the ARPU/MOU ration. The graph below shows that airtime increased, that may include data for prepaid phones (mobile Internet use) Airtime and subscription revenue Data revenue Fig 7: 2007/2011 Vodacom SA voice and data revenue (Source: Vodacom Annual Reports) Mobile data generated R1.8 million in revenue for the quarter ended in June 2011, representing the 6.23% o total revenue, while MTN had a 17.9% increase (excluding SMS) in the first six months of MTN During 2010 MTN s revenue increased by 8% from R17.86billion to R19.3billion. Data revenue increased significantly by 47% (excluding SMS revenue) to R3.64billion following increased uptake of the operators expanded data offering. MTN s EBIDTA margin expanded from 31.4% to 34% as a result of increased data and prepaid revenue and an increase in network traffic (MTN Annual Report, 2010). Average Revenue Per User (ARPU) increased from R126 in 2009 to R154 in Although MTN continued to make improvements on it s network by ICT INDICATORS QUARTERLY REPORT 3/

16 12 ICT Indicators Quarterly Report South Africa rolling out 3G and 2G base stations, capital expenditure dropped from 18% of revenue to 11% from R6.03 billion to R3.91 billion in 2010 as this marked the peak of MTN s effort to expand capacity on its core network (MTN Annual Report, 2010). MTN s June 2011 interim results reported revenue at R18.14billion. In addition, there was a rise in data revenue (excluding SMS revenue) by 17.9%. Blended ARPU declined to R134 per month and there was an increase in the EBIDTA margin to 35.1%. MTN s capital expenditure stood at R1.92billion. This is accounted for by the enhancement of network technology, ongoing fibre projects, LTE trials and self-provisioning (MTN quarterly report, 2011) Airtime and subscription revenue Data and SMS revenue Figure 8: 2007/2010 MTN SA voice and data revenue (Source: MTN annual reports) ta During 2011 Telkom Mobile trading under the name 8ta reported active subscribers, of which were prepaid customers and postpaid customers (Telkom Annual Report, 2011). It reported losses from 8ta to the tune of R 3,641 million. These were anticipated as a start up and expected to continue for several years. 12 ICT INDICATORS QUARTERLY REPORT 3/2011

17 ICT Indicators Quarterly Report South Africa Mobile data In Vodacom, mobile data generated R 1,8 million revenue for the quarter ended in June 2011, representing the 6.23% of the total revenue, while MTN had a 17.9% increase (excluding SMS) in the first 2011 six months. 4. ICT ACCESS Fixed lines in line with global trends have continued to decline or at best stabilise. A few unsaturated markets in Africa, particularly North Africa and the island states, are seeing moderate growth. In Namibia, for example, the annual report of Telecom Namibia for the financial year ending September 2010 states an increase in the number of installed fixed-lines, yet residential fixed-lines fell in the same year, revealed by a nationally representative household survey in August Figure 9: 2002/2009 General Household Survey (Source: StatsSA data, DoC indicator portal, 2011) ICT INDICATORS QUARTERLY REPORT 3/

18 14 ICT Indicators Quarterly Report South Africa 4.1 Fixed subscribers In line with global trends fixed line subscribers are decreasing in South Africa. More particularly there is probably greater decline in the residential market, as business lines must continue to grow. Several unsaturated emerging markets are also showing signs of growth including Poland, Turkey and of the BRICS countries, only China shows any growth in the fixed line market. Brazil s fixed lines market, though much larger than South Africa s, faces similar challenges and also seems to be stagnating. On the continent the fast growing ICT markets in Senegal and Tunisia also show moderate growth Russia 31,56 31,81 31,72 31,45 Argentina 24,13 24,53 24,38 24,74 Poland 27,47 25,47 25,06 24,7 Turkey 26 24,68 23,01 22,27 China 27,67 25,62 23,5 21,95 Brazil 20,76 21,53 21,47 21,62 Tunisia 12,57 12,09 12,34 12,3 South Africa 9,28 8,97 8,68 8,43 Botswana 7,1 7,28 6,93 6,85 Namibia 6,4 6,61 6,63 6,66 India 3,34 3,18 3,07 2,87 Senegal 2,35 2,02 2,3 2,75 Table 2: Number of fixed telephone lines per 100 inhabitants (Source: ITU ICT indicators database 2011) 14 ICT INDICATORS QUARTERLY REPORT 3/2011

19 ICT Indicators Quarterly Report South Africa Public pay phones There has been a decline in number of public payphones between 2006 and Payphones declined from 165 units in 2006 to 125 units in However, in 2011 they increased by 5 units compared to 2010 (Telkom, 2011). This is in line with global trends and accompanies the increased take up of mobile phones. In countries with high mobile costs and poor fixed line penetration, public pay phones continue to be used as part of wider communication access strategies by poorer users. 4.3 Mobile subscribers Vodacom During the year subscribers (number of SIMs) decreased from 27.6 million in 2009 to 26.2 million in 2010 as a result of the implementation of RICA legislation which led to R1.9 million decline in prepaid SIMs (Vodacom Annual Report, 2010). The number of prepaid SIM cards dropped to 21.7 million from 23.6 million in Post paid subscribers increased during the same period to 4.5 million up from 3.94 million as part of Vodacom s strategy to migrate pre-paid subscribers to post paid with lower entry-level contracts (Vodacom Annual Report, 2011). The latest trading statement released in June 2011 however shows that subscribers grew again by 19.7 % to 27.7 million subscribers. Net additions for the quarter were 1.2 million, with over 1 million being prepaid customers (Vodacom trading statement, June 2011) MTN During 2010 MTN South Africa s subscribers (SIM sales) increased by 17.3% to 18,8 million subscribers. This was driven by enhancements in the MTN Zone 3 offerings and prepaid data offerings. The number of pre and post-paid SIMs sold increased. Pre-paid went up from 13 million SIMS in 2009 to 15,5 million in 2010 and from 3 million post-paid SIMS in 2009 to 3,37 million in 2010 (MTN Annual Report, 2010). In the latest interim report released in June 2011, subscribers increased by 5,1 % to 19.8million subscribers due to increased adoption of MTN Zone Mahala 4 packages and growth in the 3 MTN Zone is a PayAsYouGo price plan that offers up to 100% discounts on calls and SMSs to MTN numbers as well as discounts to other networks. In addition, some contract customers can enjoy these MTN Zone discounts. MTN Zone discounts on calls and SMSs depend on the time of day of a customer s location. 4 The MTN Zone 100% Mahala offers a discount of up to 100% on Calls and SMSs to customers. The offer lowers the cost of making calls and of sending SMSs for all MTN Zone customers. Customers are able to see two ICT INDICATORS QUARTERLY REPORT 3/

20 16 ICT Indicators Quarterly Report South Africa postpaid segment and migration to hybrid packages (which give contract customers a fixed monthly fee, with an option to top up with prepaid offerings if required) (MTN interim report, June 2011). 4.4 Internet Broadband The South African broadband market is characterised by extraordinarily high prices and low penetration compared to other middle income countries. Penetration level figures related to data services still offer growth opportunity, both for the ADSL and broadband wireless markets. The number of Telkom ADSL subscribers increased from 647,462 in 2010 to 751,625 in 2011, while new WiMax subscribers increased only marginally from 2,979 in 2010 to 3,199 in 2011 (Telkom Annual Report, 2011). Wireless broadband subscribers exceeded ADSL subscribers by almost nine times in June The indicator shows that mobile Internet is the preferred way to access the Internet in South Africa. Although both Vodacom and MTN continue to increase Internet customers, due to the high cost of data bandwidth, customers in South Africa rely on data bundles to access the Internet. In 2011 Vodacom active data customers grew 37.7% to 9.6 million (Vodacom trading statement, June 2011). MTN recorded 9.5 millions data users (MTN interim results, 2011). Vodacom reported an 86% increase in data mobile bundle customers to 3.0 million in June This reflected an additional 425,000 subscribers in the second quarter of 2011, largely as a result of BlackBerry market sales. The total number of customers with active smartphones on the network increased by more than 406,000 in the second quarter of 2011 to a total of 3,7 million customers with a smartphone (Vodacom trading statement, June 2011). With regards to 3G dongles or other PC connectivity devices, Vodacom registered approximately 1.1 million devices, with an increase of 43,000 units during the last quarterly report ending in June MTN has 4,6 million 3G devices of which 2,6 million are smartphones. However, the data does not provide a breakdown of active and not active dongles. separate discounts reflected on their cell phone screen - one for MTN to MTN calls and SMSs and the other for calls and SMSs to other local networks. The calls that are discounted at 100% will are available to MTN customers based on the time of day and a customer s location. In order to benefit from the 100% Mahala calls customers must have airtime in their phones. 16 ICT INDICATORS QUARTERLY REPORT 3/2011

21 ICT Indicators Quarterly Report South Africa 17 For both Vodacom and MTN, data related to broadband subscribers does not provide any breakdown related to the real usage of the service in terms of the demography of the population covered (urban/rural, male/female, low/middle/high income) or indications about the kind of service provided, such as capacity and speed of the data bundles. Moreover, possibly the multiple SIMs effect experienced in the voice market segment also occurred in the data bundle market segment, since most of the customers use the same SIM card to access both voice and data services. 5. PRICING South Africa s fixed line prices remain high by comparison with other middle income countries and are more than double the OECD average price. South Africa 830 Poland Czech Republic Turkey Mexico 428 OECD Korea Slovak Republic Portugal 198 Figure 10: 2009 OECD residential fixed-line basket: medium-usage, USD PPP. When analysed in the BRICS context, South Africa has the highest tariffs with Brazil suffering the same negative policy pricing outcomes. ICT INDICATORS QUARTERLY REPORT 3/

22 18 ICT Indicators Quarterly Report South Africa 0,25 0,2 0,15 0,1 0,05 Brazil Russia India China South Africa Figure 11: Price of a 3-minute fixed telephone local call (peak rate, USD (Source, ITU, 2010). 4.5 Fixed Due to the entry of Neotel in the wholesale market Telkom s leased line prices have dropped considerably, although retail prices have not decrease in the same way. As a result of a reduction of termination rates, off net (to Cell) calls decreased between 2009 and 2010, but the cost for the end user is still kept very high due to a stable increase of line rentals. 18 ICT INDICATORS QUARTERLY REPORT 3/2011

23 ICT Indicators Quarterly Report South Africa Retail Analogue line rental (ZAR) 92,28 99,92 111,9 124, ,3 139,97 Min Charge Local (centzar) Min Charge National (centzar) Local calls peak (centzar) ,44 42 Local calls offpeak (centzar) ,64 20,64 National calls peak (centzar) ,98 57 National calls offpeak (centzar) ,52 28,5 Off net (to Cell) peak (ZAR) 1,89 1,89 1,89 1,89 1,89 1,475 1,4 Off net (to Cell) off peak (ZAR) 1,17 1,17 1,17 1,17 1,17 1,174 1,122 Table 3: 2005/2011 Telkom SA tariffs Retail prices have reduced over the last five years but not sufficiently to attract new subscribers in any significant number onto networks. Off line (to Cell) peak prices remained stable at R 1,89 between 2005 and 2009, and slightly decreased to R 1,475 in 2010 and to R 1,40 in 2011, as a result of the implementation of reduced interconnection rates. Also national call peak prices decreased between 2005 and 2011 from 40c to 28.5c after the entrance of Neotel in the fixed line market which increased competition in the fixed-line national calls segment. On the other hand, local calls increased by 4c during the same period, showing a Telkom monopoly over local calls segment. Line rentals continue to be high constraining access of lower cost users despite flexible options being available. For instance, a new calling plan called Telkom Closer does not have contract obligations. ICT INDICATORS QUARTERLY REPORT 3/

24 20 ICT Indicators Quarterly Report South Africa Local calls peak Local calls off-peak National calls peak National calls off-peak Off net peak Off net off peak Figure 11: 2005/2011 Telkom SA tariffs (cent ZAR) Line rental prices continue to be very high, constraining low-income customers to access fixed-line services. Figure 12 below shows the increasing cost of an analog line rental between 2005 and 2011, with a sharp increase between 2010 and 2011, from R to Analogue line rental (ZAR) Figure 12: 2005/2011 Telkom SA analogue rental (ZAR) Source: RIA Sector Performance Review (historical). 20 ICT INDICATORS QUARTERLY REPORT 3/2011

25 ICT Indicators Quarterly Report South Africa Wholesales termination rates Much has been made by the incumbent operators in their reporting since the reduction in regulated wholesale termination prices of the loss in revenues from R1.25 to 89c in March 2009 and then further to 73c peak and 65 off peak in March when ICASA regulations came into force. Fixed termination rates were set at 20c peak and 12c off-peak and 28c peak on area code and 19c off at the same time. These results apparently serve to underlie the dire warnings by MTN and Vodacom in the media following the decision by ICASA to cut rates of dominant operators Vodacom and MTN further, of the threat this poses to future loss of earnings and to the development of the mobile sector. From a policy and regulatory perspective these results demonstrate a far more positive and intended outcome. Despite the loss of earnings from interconnection - an anticipated outcome of the introduction of regulated cost based pricing following years of extractive pricing - in the first quarter after the rate come into force subscriber numbers have continued to grow as have EDBITA margins. As a result of these regulated prices MTN total interconnection revenue decreased 10%. However, the margins on pre-paid increased to 65% from 61% while post-paid decreased to 47% from 49%. Vodacom registered a 10.4% decrease in interconnection revenue (Vodacom, 2011). Of course for the same reasons, the interconnection costs also reduced as a result of the regulated reduction in the termination price and these should be offset against any losses incurred. Importantly from a regulatory impact perspective, MTN and Vodacom have continued to increase their revenues and profits and to contribute to the dynamism of the mobile market. Reduced termination rates also decrease the costs of termination for all operators, not just revenues of operators. This has produced efficiencies in the network that have the potential 5 ICASA introduced a glide path from March 2011 to 2014, by which time mobile termination prices would be symmetrical for peak and off peak at 40c and fixed at 12c for on area code and 19c for off area code. See Government Gazette no , vol October ICT INDICATORS QUARTERLY REPORT 3/

26 22 ICT Indicators Quarterly Report South Africa to reduce end user prices and offset interconnection revenues losses through increased demand and usage and the more productive use of the network. This has already prompted MTN and Vodacom to revise their business models, focusing on growing their data markets, increasing voice volumes through lower calling rates and packages aimed at encouraging on-net calls. Regulated termination prices nevertheless remain high by comparison with a diverse range of countries. Senegal 2,30 Kenya 2,70 Mauritius 2,80 Ghana 3,40 Namibia 4,10 Nigeria 5,40 Tunisia 5,90 Zambia 5,90 Botswana 6,50 wanda 7,00 Tanzania 7,50 Mozambique 7,80 Uganda 8,20 Côte d Ivoire 8,90 Burkina Faso 9,90 South Africa 11,30 Benin 12,30 Cameroon 16,00 Figure 13: Comparison of mobile termination rates in U$ cents (FX = average 2010) 22 ICT INDICATORS QUARTERLY REPORT 3/2011

27 ICT Indicators Quarterly Report South Africa Leased lines South Africa Mexico Korea Canada Spain Ireland United Kingdom Italy Portugal Japan France OECD Turkey United States Belgium Greece Austria Germany Denmark Luxembourg Norway Iceland USD PPP USD Figure 14: 34Mbit/s leased line prices comparison SA (2009) vs OECD (2006), Comparison USD PPP and USD Leased line price trends (US$ nominal) Figure 15: Leased lines Telkom trends between 2003 and 2009 (USD nominal) ICT INDICATORS QUARTERLY REPORT 3/

28 24 ICT Indicators Quarterly Report South Africa Figure 16: Leased lines Telkom trends between 2005 and Mb/s (DoC Indicator portal, 2011) From having the highest prices for leased lines when compared with OECD countries, Telkom s prices have dropped considerably. This downward trend emerges from 2004 and is largely in anticipation by Telkom of a leased line competitor with the entry of Neotel. 5.2 Mobile retail Mobile retail rates appear to be relatively unaffected by the enforced reduction of wholesale termination prices following the ICASA termination rate regulations which came into affect in March Following an initial attempt by Cell C and later 8ta, to leverage the wholesale price reduction following the Ministerial intervention in 2010 that saw a price reduction, but March 2011 their prices had increased to a range just lower than Vodacom and MTN where they have remained relatively static. 24 ICT INDICATORS QUARTERLY REPORT 3/2011

29 ICT Indicators Quarterly Report South Africa ta CellC MTN Vodacom Virgin Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Figure 17: Jan 2011/Oct 2011, Cheapest product mobile low user mobile operators (Source: RIA, Fair Mobile Index, 2011) The failure of retail prices to drop off as they have in several African countries may have to do with the fact that prices are still way above cost and considerably higher than several other African countries that have introduced rate reduction. In Kenya following a significant reduction in the regulated price following an a comprehensive Long Run Incremental Cost Study in August 2010 (CCK, 2010) to 2.21 KSh or US cents subscribers went up in the following quarter by more than 9.5% (CCK, 2011) and retail prices dropped by 60%. Likewise in Namibia, cost based termination rates at R0.3 meant more investment, cheaper prices for consumers and higher EBITDA margins and profits for all operators. Mobile operator prices demonstrate that the dominant mobile operators, MTN and Vodacom, are sufficiently entrenched in the market not to be affected by price cutting efforts by late entrants Cell C and now 8ta. Unlike MTN and Vodacom in anticipation of 8ta s entrance into the market, Cell C slashed its prices forcing 8ta to enter the market ICT INDICATORS QUARTERLY REPORT 3/

30 26 ICT Indicators Quarterly Report South Africa marginally lower to undercut Cell C s price. This however had little impact on the incumbents who, having reduced their prices marginally since the enforced reduction of whole sale termination prices, have keep the prices constant over the last quarter at nearly a third more than Cell C and 8ta. MTN has consistently had the highest price for the low user basket at 97.37c while Vodacom has been constantly only marginally less at between 81c and 85c. By the end of this quarter (September 2011) prices were concentrated in the lower 80s, with only 8ta below the average at 77,45c and MTN continually the highest at a constant 97c for the cheapest product. MTN has constantly remained the most expensive, not only in the cheapest product low user category, but also the cheapest product medium and high user category. In the high user category it s price was nearly R100 a month more than its rival Vodacom and R150 more than 8ta who were substantially lower than any of the others. These prices have remained relatively static with little evidence of competitive effects on pricing. Egypt Sudan Kenya Algeria Tanzania Mauritius Ethiopia Namibia Ghana Uganda South Africa 1,54 1,89 1,9 2,09 2,21 2,39 2,61 2,81 2,87 2,94 10, Figure 18: Ten cheapest countries in Africa in terms of prepaid mobile for OECD lower user basket in US$ compared to South Africa, June (Source: Research ICT Africa) 26 ICT INDICATORS QUARTERLY REPORT 3/2011

31 ICT Indicators Quarterly Report South Africa Broadband Figure 19 below compares South African broadband market with some OECD countries broadband markets. It compares the cheapest broadband product as advertised from the operators websites with the highest broadband product in PPP. 6 South Africa 255,15 South Africa Estonia 13,52 Estonia 50,89 Turkey 14,31 Turkey 155,12 Slovak Republic 14,50 Slovak Republic 575,81 Japan 14,82 Japan 49,44 Hungary 15,62 Hungary 91,25 Poland 20,33 Poland 65,07 Slovenia 21,46 Slovenia 1319,26 Mexico 23,44 Mexico 117,70 Czech Republic 27,89 Czech Republic 69,53 Korea 34,29 Korea 64,30 Chile 34,63 Chile 79,89 Spain 44,48 Spain 83, Figure 19: Comparison OECD/SA Broadband subscription price ranges, Sept (SA July 2011), all platforms, logarithmic scale, including line charge (or 3G modem), USD PPP 6 The OECD data includes a set of three operators per country: the incumbent telecommunications operator, the largest cable provider (if there is cable coverage) and one alternative provider, if available, over DSL, cable or fibre. In the case of South Africa, instead, data include all operators providing broadband data services. The offers were advertised clearly on the operator's website. In the case of OECD countries, all DSL, cable and fibre offers are recorded, but not used in calculations if speeds are lower than 256 kbits. In the South Africa calculation we included also mobile wireless data bundles and 3G offer, due to the higher number of users for these services rather than cable of DSL services. Prices include PSTN line rental charges or 3G rental charges when they can be separated out, if subscribers are required to have a PSTN line to subscribe to DSL (these prices are designated as with line charge ) or a 3G modem. This also applies to offers where cable television service cannot be disaggregated, including cable and fibre-based services in the case of OECD countries. Prices which do not include PSTN line/cable television / 3G modem rental charge were also collected. These are designated as no line charge, and provide an alternative way to compare prices. Although both sets of prices provide valuable information, the following comparison does not take into line charge or 3G modem cost in the case of mobile data bundle. The pricing information is presented in Purchasing Power Parity (PPP) terms. ICT INDICATORS QUARTERLY REPORT 3/

32 28 ICT Indicators Quarterly Report South Africa 6. QUALITY OF SERVICE There is very little public data available on quality of service (QoS) for any services without the publication by ICASA of operators quality of services reports. However, QoS remains a serious concern, with the entire transmission network of the largest mobile operator having collapsed for an extended period earlier this year. In addition, the number of dropped calls on the network which customers are charged for, bandwidth capacity and speeds provided being way below the advertised rate, and the poor quality of voice and data services generally require a greater monitoring, clearer indicators and publication of results in the media. Quality of service indicators traditionally for fixed lines have included: waiting list for main lines; percentage of telephone service faults cleared by next working day; percentage of calls which fail during the busy hour; telephone main lines faults; percentage of calls for operator service answered within 15 seconds; complaints per 1000 bills and customer satisfaction rate. 7. BROADCASTING Nearly 70% of households had free to air television in South Africa in 2009 according to the 2010 General Household Survey. In the free-to-air market, e-tv has continued to grow both audiences and revenues, while the public broadcaster SABC has shown a turn around. 28 ICT INDICATORS QUARTERLY REPORT 3/2011

33 ICT Indicators Quarterly Report South Africa Figure 20: SABC revenues and other income in R000. (Source, SABC, 2011) Figure 20 above depicts that SABC revenue started to grow again between 2009/10 and 2010/11, due to an increase in advertising revenues increased by 19%, after a period of stagnation between 2007/08 and 2009/10, with revenue growth of only 1% (SABC, 2011). Direct-to-home operator DSTV s high-end domestic market has long been saturated and it continues to devise lower-cost entry packages to lure subscribers onto its channels and attract lower end customers targeted by its new competitor TopTV. By 2010 there were 2,639,341 subscribers on Digital Satellite TV (DSTV). As many 95% of this number subscribe to the premium service, with only 123,686 subscribers remaining on the analog service ( In 2009 TopTV owned by On Digital Media (ODM), became the first subscription competitor to DSTV but has only managed to secure a miniscule share of the market. Mobile television is now accessible via 3G streaming (3G) and Digital Video Broadcast Handheld Technology (DVB-H). DStv Mobile, wholly owned by MultiChoice, uses cellphone technology to aggregate and produce mobile TV content and services for a number of mobile platforms and technologies. However, the uptake is still relatively low. ICT INDICATORS QUARTERLY REPORT 3/

34 30 ICT Indicators Quarterly Report South Africa 8. POSTAL SERVICE SA Post indicators have continued to improve since the introduction of a competition in 1994 introducing a range of services beyond traditional postal services in order to match those offered by competitors. The South African Post Office Group posted strong financial results for the financial year ending March 2011, achieving a 3% increase in revenue to R5,8 billion. The group s balance sheet remains strong despite a dip in profit arising from capital expenditure related to the expansion of operations to underserviced areas ( Figure 21: SAPO revenues, R000 (Source: SAPO, 2011) Postnet is SA s largest privately owned counter network in the document and parcel industry, trading across over 230 owner-managed retail stores. 9. CONCLUSIONS South Africa s ICT sector continues to be very dynamic and growth rate in the sector is probably at least double that of the national growth rate of around 3%. Late entrants into 30 ICT INDICATORS QUARTERLY REPORT 3/2011

35 ICT Indicators Quarterly Report South Africa 31 the mobile market 8ta and Cell C tried to leverage the reduction in termination rates by offering rock bottom prices and did initially shake up the highly priced voice and broadband mobile market. Incumbent mobile operators MTN and Vodacom however seem to be able to withstand these attempts to undercut their prices and their traditional mobile voice service prices have been almost static, and high, since the first quarter of the year. In the new mobile broadband market they have been forced to be more responsive, despite initially holding out on their considerably higher prices. Fixed-voice services have declined in line with global trends as have associated revenues but these have been offset by significant growth in data services. This is true for all data services and is in line with global trends toward the dominance of data services (and revenues) over traditional voice services. Although leased lines, a major input cost for businesses, have dropped significantly over the last five years, when adjusted for purchasing power parity they remain high in global comparative terms. Likewise although international bandwidth prices have dropped significantly the reductions have not always been passed on to end-users, service providers often providing them with additional bandwidth instead. Until these prices are significantly reduced Internet and broadband penetration rates will remain concerning low by continental and middle-income country standards. Policy and regulatory interventions that will increase the competitiveness of the sector are the only way in which the market will efficiently service local needs and become globally competitive. ICT INDICATORS QUARTERLY REPORT 3/

36 32 ICT Indicators Quarterly Report South Africa 10. REFERENCES ITU (2010). World Telecommunications/ICT indicators database. ITU (2011). World Telecommunications/ICT indicators database. MTN Annual Report (2010). Available online: MTN Interim Report (June 2011). Available online: OECD (2011). OECD Broadband Portal. Available online: (accessed on November 2011) SABC (2011) Annual Report. Available online: (Accessed on November 2011) SAPO (2011) Annual Report. Telkom SA LTD (2010). Telkom Tariffs List, August Telkom SA LTD (2011) Annual Report. Available online: Telkom SA LTD (2011). Telkom Residential Voice Tariffs. Available at Vodacom Annual Report (2010). Available online: Vodacom trading statement (June 2011). Available online: pdf/quarterly_results/trading_statement_q12012.pdf 32 ICT INDICATORS QUARTERLY REPORT 3/2011