DO YOU FEEL THAT YOUR TELECOMMUNICATIONS provider isn’t listening to you, or simply doesn’t understand your business? Unfortunately, the attitude of incumbent telcos in South Africa is based on a take it or leave it, ‘one size fits all’ mentality.

If you recognise this scenario, then the good news is that the commencement of the ECA in July 2005 saw emergence of a new category of telecommunications provider; the Value Added Network Services (VANS). Historically as providers of services, VANS are in an ideal position to tackle this problem head-on and replace legacy telco attitudes with a more consultative and collaborative approach.

South Africa is currently benefiting from a R50-billion rand investment boom in telecommunications infrastructure. What is driving these investments? A rising demand from corporate South Africa for high-speed networks that support converged services. A converged network enables voice and data to be transmitted over a single network, substantially reducing the costs of building and maintaining to separate networks. The technology also enables organisations to increase productivity and improve communications by making it possible to introduce applications such as remote telecommuting, collaborative whiteboarding, multimedia conferencing and unified messaging.

South African telcos are responding to this demand by developing next-generation networks (NGNs), with Telkom, Neotel, MTN and Vodacom Business all making recent announcements to that effect. In my few, digging up the pavements and implementing the physical services is not enough; incumbent telcos must also help their customers navigate the challenges associated with migrating to this new backbone. But it is only when next-generation networks are combined with next-generation mindsets that the incumbent telcos will be in a position to deliver on this critical requirement.

Unfortunately, based on the evidence so far, telco mindsets in South Africa have not shifted, and the traditional attitude of “I cook the food and you eat it” remains the norm rather than the exception. Many continue to operate in the belief that once they have delivered a physical service, then the ‘job is done’, leaving organisations wondering how everything fits together.

Incumbent telcos are technically and operationally restricted in their ability to adopt a collaborative customer approach, preferring to keep customers at arm’s length. Next-generation networks have huge potential to drive and support organizations business strategies, not just now but in the future. However, this can only be achieved through customer consultation and collaboration, extending services beyond the physical layer and delivering solutions based on commercial drivers.

By embedding these attributes into the company’s very DNA, service providers will be better placed to give organisations the confidence that their network will scale with their requirements. The outcome for customers is the ability to fully exploit the potential NGN in order to take their communications forward. The intricate alignment of capability and mindset gives them the control and choice of telecoms services that they need to make themselves successful. For many South African companies the next-generation has arrived not a moment too soon.

Two years after the Electronic Communications Act (ECA) came into effect, ICASA has finally issued the new electronic communications licences. However, until ICASA introduce the pro-competitive regulations mandated in the ECA, the issuance of the new licenses will have minimal impact on the industry, as licensees will still be operating in a climate of uncertainty that favours incumbents and hampers competition.

Unfortunately the ECA can only be implemented by ICASA by regulation. Until this happens the old regulations made under the Telecommunications Act, which was repealed by parliament more than two years ago still apply. This is problematic for a number of reasons, not least of which is that they are discriminatory and exclusive i.e. they only apply to the incumbent operators.

New pro-competitive regulations which align with the principles of the ECA are desperately needed in the following areas: non-discriminatory numbering, fixed line number portability, cost based interconnection and facilities leasing, carrier pre-selection (CPS) and local loop unbundling (LLU). We support the right of all (not just a select few) VANS providers to self-provide their own networks, but we do not think it is the ‘silver bullet’ that many industry insiders believe it be.

The total size of Telkom’s network currently exceeds 100 million circuit kilometers; the possibility of any local player replicating that capability even in the long term is very unlikely. Therefore it is our view that the focus and priority should be on forcing Telkom to share its network with new entrants on competitive terms. Rapid implementation of a comprehensive set of pro-competitive regulations will have a much greater impact on choice, prices and services than the provisioning of more wireless broadband networks with limited scope and scale.

In the UK the implementation of comprehensive pro-competitive regulations has resulted in BT losing approximately 42% of its market share to new entrants in the past five years with very little prospect of them winning that market share back – indeed the evidence suggests that the gap is widening and gathering pace. More than 10.7 million households and businesses now use providers other than BT for their voice services and as a result the UK has some of the highest quality, least expensive phone calls in the world.

It is very difficult in the current regulatory environment to develop a sustainable business model that can compete with the incumbents as it is not a level playing field. The current situation is so serious as to constitute a threat to the future of the competitive process itself. This is because new entrants are required to carry disproportionately high business risks resulting from a lack of clarity and certainty.
The new entrant’s risks go far beyond those that one would expect in a healthy market and include the very real and significant risk that the incumbents could unexpectedly vary terms of supply or adjust tariffs deliberately to undermine competition. In the current climate we are also concerned that ICASA may not be able to adequately protect the new entrants. Can it, or more importantly, will it intervene quickly and decisively enough. As a consequence, many new entrants are unable to raise the funding required to challenge the incumbents effectively.

Upsetting the Status Quo

Exacerbating this unhealthy situation is the incumbent operators’ efforts to prevent new entrants from establishing a foothold in the liberalised market that has emerged since the Minster of Communications’ watershed determinations in September 2004.

Vertically integrated operators that control key upstream services have strong incentives to deny access to competitors at the downstream level. The incumbent’s imperative is to drive shareholder value by controlling retail markets and eliminating competitors, while the ECA requires them to undertake activities that are necessary to enable competition.

Therefore they adopt a rational and legal strategy of complying with the formal requirements for providing the absolute bare minimum level of access, while testing the resolve and limits of the licensing and regulatory regime and vigorously opposing any new pro-competitive access requirements.

The end result has been that the incumbents, like any other monopoly provider, have sought to minimise the impact of change in the market, specifically by ensuring that competition does not upset the status quo that has them at the apex of the ‘food-chain’.

The incumbents own attempts to manage these tensions, through the creation of divisional boundaries that attempt to separate wholesale from retail operations are at best limited in their effectiveness. Protestations of a general commitment to transparency lack credibility because the underlying pressures on them are to prevent the reality from ever matching the rhetoric.

From their perspective this is rational, value-adding behavior and it is easy to see why - all other things being equal, the more successful we are in the market, the less revenue and margin there is for them. Unfortunately without a vigilant and robust licensing and regulatory regime in place to prevent this, very little will change and their anti-competitive behaviour will simply continue.

Nowhere has this been more evident than in the provision of competing voice termination services. ECN as a leading provider of services in this market has been at the forefront of this fight for the past two years and our assessment is that the efforts of all the VANS have only yielded marginal benefit, for the following reasons:

• The incumbents interconnect rates are not cost based and do not allow competitors to make a reasonable margin

• The incumbents provide preferential interconnect rates to other incumbent network operators, despite the ECA mandating non-discriminatory pricing.

• The incumbents’ predatory pricing policies in respect of discounting the retail rates of large Corporates, further erodes new entrants’ profit margins and value proposition.

• Although VANS providers offering competing voice-over-Internet Protocol (VoIP) services were issued ‘087’ numbers by ICASA, the majority of PABXs still block calls to these numbers, rendering the number range almost useless.

• The de facto exclusive right of Telkom and Neotel to geographic numbers, e.g. 011 etc even if they are used in conjunction with VoIP technology severely discriminates against new entrants; and

• The absence of effective carrier pre-selection and fixed line number portability regulations severely hamper the ability of new entrants to compete.

Conclusion

Competition in the SA telecoms market is almost non-existent and is exacerbated by the lack of clarity and progress in the licensing and regulatory regime. It is very difficult in the current circumstances for new entrants to place the incumbents under any real competitive pressure. There are too many players chasing a narrow set of opportunities in the face of uncertainty about almost every aspect of the business.

However, thanks to the loyalty and goodwill of our amazing customers, the strength of our value proposition and the courage and passion of our brilliant staff, we have successfully managed to churn a significant volume of customers and traffic away from the incumbents’. The state of deregulated telecommunications in SA, as a whole, is much less promising.

In a well-functioning market, competing suppliers are incentivised to reduce costs, pass reductions to consumers and innovate with new products and services. The current ‘Regulatory Roadblock’, is preventing this from happening in SA and the ultimate loser is the long suffering consumer who has to put up with dysfunctional suppliers, under performing products, poor customer service and unacceptably high prices.