The South African telecom industry is marked by high SIM card penetration (160%) due to the popularity of broadband services. According to GSMA, average mobile broadband connection in South Africa is 74 persons per 100. Yet it is also one of the markets with one of the most expensive data tariffs in Africa.
A report by Research ICT Africa (RIA) shows that data tariff in South Africa is one of the highest in the top six African markets. In South Africa, the average data tariff is $7.6 per GB, which is much more than that of the second most expensive market Kenya (at $4.9 per GB).
The same report suggests that data tariff in the country has not changed much since 2014. Vodacom and MTN, which together corner 78% of the market share in South Africa, charge over R150 for one GB of data (MTN charges R160 and Vodacom R150). Telkom, which is partly state-owned, has slashed its data tariff substantially. It now charges R99 for one GB data.
Even at R99 offered by Telkom, data tariff in the country is too high for most consumers comfort. In RIA’s Africa Mobile Price Index, even the Telekom’s cheapest R99 per GB tariff ranks 16th(out of 47 countries) most expensive.
A key reason for the high cost of mobile broadband is the high capital expenditure of setting up and managing a network. Besides, high cost of power, which is used to run the cell sites also adds to the expenditure of the telcos.
South Africa’s high tariff rates, which activists believe is above the international ‘norms,’ has led to a unique campaign, #DataMustFall, under which activists are protesting outside the offices of telecom service providers asking them to cut data prices.
The protests did get the attention of both the regulator, the Independent Communications Authority of South Africa (ICASA) and the telecom players. Reacting to the protests, ICASA said that it is looking into the issue of how to address the high cost of communication, including data costs, in the country. It is also in consultation with regulators like the Competition Commission and the National Consumer Commissions to find ways to bring down data cost.
Telecom companies also paid heed and promised a reduction in data prices. Vodacom reduced the out-of-bundle rate of R1 per megabyte to 89c for post-paid customers 1 October 2017.
The protests have rightly brought focus on the high cost of data despite high data demand. According to an ICASA report, mobile data traffic increased significantly by 55% in 2016. However, it failed to acknowledge the fact the telecom sector in the country faces significant challenges due to policy and infrastructure constraints.
Group CEO of Vodacom Shameel Joosub in a press statement admitted that lack of access to spectrum is hampering their ability to drive down infrastructure costs and in turn, enable preventing them to pass savings to the consumer.
Get the Virtualisation advantage
The telecom industry needs to take the demand of a lower tariff seriously and look for cost-effective technologies to provide affordable data services. Technology disruptions, like cloud, virtualisation and other software-driven approaches are already helping telecom companies save cost on equipment and energy.
One of the key selling points of Network Functions Virtualisation (NFV) is that it promises better energy efficiency resulting from consolidation of resources and dynamic utilisation of the same. This feature is especially relevant for the South African operators because of the high cost of energy in the region.
Typically, servers use a very low physical server capacity. Virtualising the server would not only save space but also make the system much more energy efficient. Virtualising the systems hardware would also help save on equipment cost.
Generally, telecom companies invest a fortune in hardware to run data centers. They, thus, incur a lot of cost in procuring, installing and operating massive specialized network hardware. Not just cost, physical hardware also increases response time and reduces the overall efficiency of the system.
Essentially, NFV enables telcos to add agility and flexibility to the network leading to an overall simplified network. This in turn allows them to rollout services at a faster rate. Virtualisation also allows telcos to be flexible towards the need of the customers by being quicker in response to their demands.
South African service providers can also use automation for network maintenance to bring down their cost of network management. Virtualisation allows automation of different components across the network enabling service providers to best utilise their resources. Greater visibility and control of the network also leads to better security.
By shifting the physical hardware on to a virtual platform, companies would not just save a lot on capital expenditure but also increase the overall efficiency. Some estimates put the savings in capital cost to as much as 60%.
Last but definitely not the least is the opportunity for the telcos to increase their revenue by overhauling their networks. It allows them to better address the consumer demand for mobile broadband. As the quality and reach of services improves, the consumption is sure to go up, further allowing them to bring down the tariff.
The concept of virtualisation is a key part of telco transformation and enables the service providers to simplify the networks while enhancing their efficiency. The South African telcos would need to adopt technology solutions in line with the concept of virtualisation to save cost in the immediate future and to pass on the benefit to their customers in the form of cheaper data tariff.
By Lux Maharaj, Director, Africa Sales at Parallel Wireless