In a statement issued in September, the Independent Communications Authority of South Africa (Icasa) said: “The ICT sector has been and continues to undergo rapid technology changes with far reaching implications for the local and international industries.”
The regulator is right and some hard decisions need to be made. In May 2014, Vodacom and Neotel announced a $557-million deal for the transfer of license control from Neotel to Vodacom; public hearings were held by Icasa at the beginning of this year, revealing that not everyone is pleased.
The deal will be great for Vodacom, giving it the spectrum it needs, fiber infrastructure and a decent wedge of the enterprise market, where Neotel has placed its focus.
“The regulator has to do the right thing and take back the spectrum and allocate it to everyone. If they allow the deal to go through, then they are sending the message that they don’t want competition,” Cell C’s Chief Executive Officer, Jose Dos Santos, said.
The fact that Cell C uses Neotel’s infrastructure for its backhaul and the data center for billing probably provides plenty of motivation for the company to prevent the merger.
“One needs to be very careful because spectrum in itself doesn’t create success. Spectrum with investment is what assists you,” says Shameel Joosub, Vodacom’s Chief Executive Officer.
Joosub says Vodacom has the least amount of spectrum despite being the largest network.
The Competition Commission is the field marshal in this battlefield. It was therefore fitting that I sat down with the commissioner, Tembinkosi Bonakele, and Hardin Ratshisusu, the acting deputy commissioner and head of mergers and acquisitions, at the commission’s offices in Pretoria.
In making a decision on mergers, the Competition Commission investigates and analyses the impact the merger will have on competition and public interest issues.
“We are not here to clip wings. Mergers that will bring about innovation and efficiencies, but without reducing competition, are quite welcome,” says Ratshisusu.
In large mergers, such as the one proposed by Vodacom and Neotel, the commission makes a recommendation to the tribunal. The commission says it works on the current market structure and is unable to take into account the mere possibility of other mergers that may occur. It says it essentially tries to predict the future, post-merger, and what the consolidation of market share will do to price and product availability.
There has been a lot said about how long this process is taking. Joosub told CNBC Africa how extremely frustrating it is. He sees Neotel as an opportunity for his company to grow and the mix of mobile and fixed-line as very important for the company’s future.
“The question really is how long can Neotel cope without the requisite level of investment that is needed,” he adds.
The merger approval timeline varies based on the complexity of the issues and stakeholder engagement. There are plenty of stakeholders in the telecoms space. At the time of the interview, Ratshisusu said they were 80% of the way to a decision.
“If they [Competition Commission] do give the go ahead for the deal it’s going to have a list of conditions attached to it, particularly along the spectrum and wholesale,” says Richard Hurst, Senior Analyst at Ovum.
The commission says the market is evolving and it’s hard to say where it is going since it does not know future policies or technological advancements. It also says that it is not for them to deal with the issue of spectrum.
The reality is that it’s cheaper to buy spectrum than increase the number of base stations.
Will the Vodacom/Neotel deal benefit the man in the street? Hurst says there won’t be immediate tangible benefits to customers, but that they can expect greater quality of service. Vodacom customers were shocked to learn that the company was increasing contract prices.
“It’s been a tough two years for the industry in totality and obviously the whole mobile termination rate debacle didn’t help the situation,” says Joosub.
One of the issues the telecoms business is facing is the increase in data consumption – which requires investment in extra capacity. There are also exchange rate and inflationary pressures to deal with. Input costs are high, times are hard and everyone is working to come out on top. Vodacom is not the only one worrying about the future.
MTN has been under pressure at home for a while now, despite doing well in Nigeria. Last September, MTN sold its stake in the Nigeria towers business for $1.8 billion. The operator, along with Vodacom, also bought out their Nashua Mobile subscribers for $176.6 million.
In a cautionary announcement, Telkom said: “Shareholders are further advised that Telkom and MTN South Africa remain in discussions regarding the potential extension of their existing roaming agreement to include bilateral roaming and outsourcing of the operation of Telkom’s radio access network, which if successfully concluded may have a material effect on the price of Telkom’s securities.”
“A deal won’t happen unless something changes significantly,” says MTN Chief Executive Officer, Sifiso Dabengwa.
MTN already has a network sharing agreement with Telkom so it could be waiting to see how the Vodacom/Neotel deal shapes up. There are those that feel that the government’s decision about its Telkom stake is causing the holdup.
“The government will be very reluctant to let go of their shareholding in Telkom. They have plans for Telkom in terms of the national broadband plan,” says Hurst. He says it’s more likely for government to get rid of its 13.9% stake in Vodacom, although it won’t open up enough money to help failing power utility, Eskom.
“Telkom has embarked on a strategy to improve performance and one of the key considerations in respect of this strategy is to grow beyond its core business of connectivity by expanding into ICT services,” said Business Connexion (BCX) and Telkom in a joint announcement.
BCX and Telkom withdrew the application to transfer control of BCX licenses to Telkom for $211 million. The two companies say they did not need Icasa approval for the deal based on their review of the Electronic Communication Act. The Competition Commission recommended that the deal for a change in control of shareholding of BCX to Telkom be approved with conditions.
“Telkom, being the largest provider of wholesale leased lines to downstream customers, has the ability to foreclose its downstream rivals from access to these wholesale leased lines which are essential inputs for the provision of downstream services including managed network services (MNS), value-added network services (VANS), hosting and information technology services (ITS). The commission also found that the merger will result in the merged entity having the ability and incentives to engage in bundling strategies that may result in anticompetitive effects,” says the Competition Commission.
The Competition Tribunal determined Telkom&#8217;s $187.5 million offer for BCX, nine years ago, would adversely affect downstream competition.
“The mergers on the face of it look like they are going to reshape the entire sector, but we don’t know what that world will be like,” says Bonakele.
Hurst believes the ICT sector will focus on efficiency for a while to bring down costs, meaning the industry-wide restructuring we have seen will continue.
Vodacom’s strategy has been to invest heavily in its network, including the Nashua Mobile acquisition. Joosub says the company has spent close to $781.3 million in South Africa this year, with a further $1.3 billion earmarked for next year.
The South African power crisis has, according to Joosub, resulted in the company spending $6.2 million on diesel generators. He would like the industry to work together in powering through some of the issues and share input costs. He also calls for a better relationship between government and the industry.
Vodafone, the majority stakeholder in Vodacom, finds itself fighting a merger in Britain, with merits similar to those Cell C is bringing to the forefront in South Africa. It is not uncommon for global telecoms companies to find themselves on both sides of the fence, depending on what suits them.
Vodafone wants Britain’s Competition and Markets Authority to set tough conditions on the $17.2-billion BT/EE merger. EE is Britain’s biggest mobile operator, the company is owned jointly by Deutsche Telekom and Orange.
It’s still unclear what South Africa’s ICT picture will look like in a year’s time.
With a harsh operating environment impacting company performance, tight regulation and an ever growing demand for data, the Competition Commission, will have its work cut out for it. Whatever happens, there are likely to be casualties.

Telecoms Battlefield

Is there still easy money to be made in South Africa’s cellular industry? For more than 15 years, the sun shone on the country’s two big mobile operators, Vodacom and MTN. The companies enjoyed an effective duopoly – despite the launch in 2001 of Cell C. Their shareholders reaped the dividends.
But about five years ago, the market began changing. Consumers started using their phones more to access the internet and data services, and proportionally less for making calls. Smartphone sales began to boom, and a new breed of over the top (OTT) providers – companies like Skype, owned by Microsoft, and WhatsApp, owned by Facebook – began providing (often free) alternatives to the network operators’ historic profit centers of voice telephony and text messaging.
They did this by leveraging the operators’ data networks. WhatsApp has decimated person-to-person SMS messaging; Skype, Viber and similar voice dialing services that route calls over the mobile operators’ data networks promise to do the same as next-generation 4G/LTE networks expand and as supported handsets proliferate.
The operators have found themselves in a quandary. By building these next-generation, high-speed data networks, they are effectively erecting the infrastructure on top of which the dreaded OTT providers can compete with them head-on in their most profitable business areas.
Industry bosses, like MTN South Africa CEO Ahmad Farroukh – who has warned that operators and OTT providers have to reach some sort of agreement if the former are to continue investing billions each year in network infrastructure – are adamant they won’t become ‘dumb pipes’. This is industry jargon for operators that provide low-margin telecommunications infrastructure in a utility-type model without profiting from the value-added services that flow across this infrastructure.
Operators want to retain their historically high profit margins by tapping into this value-added services business as voice margins decline. They’re looking to provide services like streaming media and mobile banking and e-commerce – taking them into competition with media companies and financial services institutions.
Both MTN and Vodacom have launched mobile banking solutions – the former recently concluded a deal with Pick n Pay, while the latter has relaunched M-Pesa – and both are looking at video-on-demand (VOD) services similar to America’s Netflix. But neither company has experience in the media industry or financial services and profitable success is far from guaranteed.
While all this has been happening, competition from more traditional competitors — the smaller network operators — has hotted up dramatically.
Cell C has taken advantage of falling termination rates — the fees the operators charge each other to carry calls between their networks — to slash call prices. Vodacom has been quick to respond to the challenge; MTN followed later, but only after it lost significant market share to its smaller rival.
Voice tariffs have probably now fallen as far as they will. Cell C, the instigator of the price war in mobile voice, seems to be back-pedaling a little on previous aggressive price cuts, especially in data, where it’s recently hiked out-of-bundle charges. Vodacom, although reacting to Cell C’s aggressive moves, has been able to hang on to higher prices than its rivals in voice and data services, perhaps because it has a superior network.
Cell C, burdened by debt that some industry insiders say runs into well over $850 million, is in a difficult position. Although it’s won market share in recent years, it is still short of the 25% target its former CEO, Alan Knott-Craig, said it needed to ensure its future success.
Telkom, meanwhile, has effectively given up on the idea of being an infrastructure competitor in the mobile market, with its plans to outsource management of its radio access network to MTN. Unless something spectacular goes wrong, that deal should be wrapped in early 2015.
The future of Cell C is what will determine the shape of the industry for the rest of the decade. Are its shareholders prepared to continue fighting a war of attrition against Vodacom and MTN? Or will they look to sell the business? And who would buy it? France’s Orange, perhaps? Or India’s Bharti Airtel? A sale to a well-funded foreign investor keen to shake up the South African market could up the stakes dramatically.

Is There A Future In Cellphones?

No nonsense businessman George Prokas was taught from an early age that you need to stand up for yourself. During his dispute with South African network provider Cell C that is exactly what he did, he literally took it to the streets.
“If you’re first in the queue, you’re first in the queue,” says Prokas.
In 2012, Prokas applied for two cellphone contracts for his children. In 2013, one of the phones needed to be repaired. Being a relatively new phone, Prokas handed it in to the network provider in expectation of a new phone. What he got was the run around.
“Eventually we were getting bounced from pillar to post. After about eight months, I kept going back to the store. I went there, my daughter went there, my wife went there. I screamed the whole of Sandton City (shopping mall) down. We were just falling on deaf ears and in the meantime I was paying the account, I didn’t have the phone but was still paying for the account. The last time I went to Cell C, I had an argument with a guy who runs the store after telling him I was going to stop paying. He laughed at me and said ‘you can’t stop paying because you signed a contract’. I said ‘I beg your pardon; I put my surname on a piece of paper to honor an obligation on a service you have not given me, until I get the phone back I am never going to pay,’” he recalls.
Prokas kept his word and stopped paying for the phone he did not have. A few months later, Prokas walked into a dealership to purchase a car for his wife, the bank turned him down, he was furious. The reason for the rejection was emailed to him soon after and he could not believe it. Cell C had listed Prokas with the credit bureau because he stopped paying for the broken cellphone account.
Prokas tried to solve his problem. He called the Cell C call center, he sent emails and he even tried to locate the owner of the store he was dealing with. With no joy he decided to take more radical action.
He placed a banner – that cost him over R60,000 ($5,200) – on a very busy intersection in Johannesburg. It read: Cell C – the most useless service provider in SA.
Prokas warned Cell C about the banner but they did not budge.
“I sent the mock-up of the banner to Cell C via email. I said ‘if you don’t solve my problem this is what’s going up’. I was looking for a solution and somebody to talk to,” says Prokas.
With his lawyer by his side, Prokas did as promised and put up the banner. Soon after, the banner broke out on social media and Cell C went to court. The High Court in Johannesburg dismissed an application for an interdict by the service provider to have his banner removed. Prokas won the case, got his legal fees covered and kept his banner.
“Cell C had acted incorrectly, they never addressed his concerns, not once,” says Raymond Druker, Prokas’ lawyer.
“What George has put up on that banner was not defamatory, it was fair comment.”
According to a study done by global market research agency Ipsos, the banner brought home that most people have become accustomed to inferior service.
“He (Prokas) basically vocalized what I think a lot of people are experiencing but they don’t have the means or the personality to do what he did. He set such a precedent by doing what he did,” says Renita Kramer, Head of Loyalty Research at Ipsos South Africa.
Ipsos adds that it’s become more important than ever for companies to pay attention to their customers and solve their problems.
Sifiso Falala, CEO of Plus 94, a market intelligence company, has recently released the Plus94it app, a mobile app that allows South Africans to share their experiences in the service industry with the people responsible for those experiences. The app receives over 1,000 comments a month.
“The majority of the consumers that come on to the app are frustrated. We get things like they are too big to care about the little guys, once they concluded the sale they are not concerned with the quality of the product or service,” says Falala.
“Mobile telephonic companies and network service providers tend to really irritate people to a large extent.”
“There has always been a principle in law that contracts can’t be against public policy, but the overriding law in South Africa is that people are bound by what they sign. But you can’t require people to pay when you don’t give them the service they’re paying for. But it hasn’t gotten to the point where if you get bad service you are legally entitled to stop paying. There is a lot of development that has to happen along those lines,” says Druker.
Cell C responded to the matter by saying: “Cell C has resolved the matter with Mr Prokas and has nothing further to add over and above what has already been communicated through various media channels. Cell C is continuously improving its customer service across the various touch points of the business, including the franchises.”
Otherwise the banner of indignation could rise again.

Tag: Cell C

FORBES AFRICA SOCIAL MEDIA

Telecoms Battlefield

Is There A Future In Cellphones?

Revenge Of The Frustrated Customer