With all of the infrastructure development currently underway in South Africa one could be forgiven for thinking that the 2010 FIFA World Cup is the only transformation the country is undertaking.
While there has been comparatively far less fanfare surrounding its arrival, the launch of the Seacom cable in July heralds a seismic shift in South Africa’s telecoms industry, with the promise of cheaper Internet access.
The Seacom cable, which snakes along the East African coast, will provide international fibre optic bandwidth that connects southern Africa to the rest of the world for the first time, and is set to be the first of a number of undersea cables launching over the next few years.
Transformation across Africa
While the word Seacom has become synonymous with the idea of cheaper Internet access, there are a number of other cables that are scheduled to launch over the next few years, with South Africa scheduled to house four of these.
The first is the Eastern Africa Submarine Cable System (EASSy) which is slated to launch in the second quarter of 2010 linking East and Southern Africa to the rest of the world, while the MainOne system is set to complete in 2010, connecting countries from Portugal to South Africa, this time on the West coast of Africa (though there is speculation that funding issues may see the cable terminate in Lagos.)
In 2011, the US$600-million West African Cable System (WACS) – the biggest of all the cable systems in development - is scheduled to go live, linking Southern and West African countries with Europe.
Africa Coast to Europe (ACE) , which was initially planned to stretch from France to Gabon, has since been extended to South Africa, thus connecting the entire West African coast, and is also scheduled to go live in 2011.
In addition, two other cables will expand capacity on the rest of the continent later this year. The GLO1 cable system, by Nigerian carrier Globacom, will connect Nigeria to the UK, while The East African Marine System (TEAMS) will connect Kenya to the United Arab Emirates.
With seven cables scheduled to go live in the next two years, Africa’s telecoms landscape is set to change dramatically and South Africa’s location at the foot of the continent places it in a unique position to benefit from these changes.
Explosion of internet access
A report by consultancy World Wide Worx, Internet Access in South Africa 2008, revealed the number of Internet users in South Africa hit 4.6-million last year and is set to nearly double to 9-million over the next five years.
This explosion in growth will be due in part to the new undersea cables, according to Arthur Goldstuck, managing director of World Wide Worx, though he says that the cables represent only one of four major drivers of growth in the Internet user base.
“The others are the explosion of Internet Service Providers thanks to the upgrading of all existing VANS licences to network provider licenses, the explosion of access at SMEs as they upgrade to broadband and wireless networks, and Internet access on cell phones,” says Goldstuck.
“While we will reach a growth rate ceiling of PC-based access by 2014 (i.e. most PCs will be connected, and growth of PC-based access will depend on growth of PC sales), continued future growth will come from mobile Internet access,” he adds.
The expected growth in mobile Internet access is reflective of the nature of the South African landscape, with the majority of the population currently accessing telecoms services through cell phones rather than fixed-line services.
Dobek Pater, telecoms analyst at Africa Analysis, expects to see a growing dominance of large mobile operators in the data / broadband arena, as he notes that they already have large subscriber bases to which they can cross-sell broadband services.
Costs set to tumble?
The arrival of Seacom has been trumpeted as a remedy for bringing down the cost of Internet access in South Africa. However, with weeks to go before the cable is finally launched speculation is now rife that the fall in costs may not be as dramatic as first predicted.
Steve Briggs, executive head of commercial sales at iBurst, says that while prices should come down if international bandwidth is cheaper, there are also other costs involved for an ISP including infrastructure, marketing, distribution and support.
“My take on Seacom is that many people are seeing it as a panacea for high Internet costs, which I don’t think is the case. I think what will drive down costs is increased competition and economies of scale,” says Briggs.
“I’m not saying that iBurst and other ISPs won’t reduce their costs,” says Briggs. “I just don’t think we’ll be seeing the 50%+ reductions in consumer prices that have been mentioned.”
Dobek Pater agrees, adding that the additional undersea cables landing in South Africa are private / profit-driven ventures. He says the business plans of the cable operators must take into account a return on investment over a medium-term future.
“They are unlikely to engage in a price war with Telkom. The 95% reduction of the cost of bandwidth being rumoured with the landing of Seacom is probably just that – a rumour,” says Pater.
While bandwidth won’t be available directly through Seacom - as the company acts as a wholesaler - chief executive Brian Herlihy says he does expect cost savings to be passed on to the end-user, though he notes that increased competition is what will really drive down costs.
“The more players there are in the communications market the greater benefit the consumer will have as prices will be driven down as a result of the increased availability of bandwidth,” he adds.
What does it mean for the economy?
It is Seacom’s benefit to consumers that is often mentioned in the press; however the impact of cheaper telecoms costs will also have a profound impact on the South African economy.
The Business Process Outsourcing (BPO) sector in particular has long-called for cheaper telecoms costs in the country, arguing that the high cost of telecommunications puts off potential investors to the country.
Operators in the BPO space have complained that the cost of telecommunications can be as much as 500% more than that being charged by other emerging countries in the BPO space, making South Africa far less attractive than its competitors.
Speaking at a conference for the South African Institute of Electrical Engineers in June, Ajay Pandey, managing director of Neotel, said the launch of Seacom and subsequent cables such as WACS and EASSy, could trigger a new wave of growth in the IT and BPO industries.
For consumers and businesses alike, the prospect of cheaper telecoms costs is certainly on the horizon, however in the meantime, customers may find they receive added-value in their telecoms packages, rather than dramatically cheaper rates.
“Prices won’t come down immediately, but data caps will increase dramatically over the next three years,” says Arthur Goldstuck.
iBurst’s Steve Briggs goes one step further. “Hopefully we’ll get to the point where capped bandwidth is outdated, but I don’t think that will be in the short-term, it’s likely to be a medium-term development,” he says.
Looking to the future
As always competition is the biggest driver for cheaper services, and while Seacom will provide broadband capacity at a much lower cost than currently available, the arrival of a number of separate undersea cables over the next few years will inevitably force costs lower.
In addition, the deregulation of the telecoms market, with more players being able to build their own infrastructure and offer Internet and telecoms services, is also set to invite further competition in the industry.
However, perhaps the biggest change in South Africa’s telecoms and Internet industry will be from the predicted growth in mobile Internet access and the impact that will have on how Internet access is delivered in the future.
Seacom’s Brian Herlihy says that so far Africa, including South Africa, has been a receiver of the beneficiation ICT has delivered, “but with appropriate infrastructure, Africa will be an innovator and a great contributor to the gains made in this century.”
Innovative services such as cell phone banking have already proven successful in South Africa, and perhaps over the next decade, aided by cheaper access through the new cable networks, South Africa can also innovate with the way the wider population will access and use the Internet.
