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Why a second network WILL make a difference

By Malcolm Driessel

The provision of the right product at the right price, accompanied by the appropriate service levels will be the key differentiating factor among competing telecommunications networks. Thus consumers can look forward to significantly cheaper telephony once the second network operator (SNO) and seven regional network operators have been appointed. In fact, the battle to provide affordable communication to the masses will result in the onset of a “price war” between Telkom and its new competitors.

This is already evident by the strong competition for connectivity between the cellular phone operators. Of South Africa’s total population, only about 12 million are economically active and only 8-10 million of these have the means to communication. Consequently, the economically active South African market is quickly becoming saturated.

Even one competitor will make a difference to the pricing tables, and there will be savings to be made. Telkom will not only have to compete against a SNO and the seven regional network operators, but they also have the three cellular network operators to contend with. Although Cell C’s tariffs are currently governed by ICASA, they are still able to offer bigger kickbacks to the vendor. These kickbacks are offset against giving the customer a cheaper and more value-for-money tariff.

Although ICASA will govern the price of calls, the new networks operators will get around the tariff tables by differentiating between time slots for differently priced calls (such as Telkom’s Callmore Time). The customer will be able to switch through different services at different times in order to achieve savings.

The entry of other network operators into the market will undoubtedly result in a loss of connectivity for Telkom, which is why the telecommunications provider is currently focussing on the provision of data services and trying to lock users into long-term contracts. They must be able to provide value-for-money to the user over the long term when there is more than one operator offering connectivity.

Service levels will therefore be the key differentiating factor in the new competitive telecommunications market.

The operator that can provide the best combination of price and service will emerge as market leader at the end of the day. Whether it will be Telkom remains to be seen. Although their service levels have improved dramatically, their pricing still leaves much to be desired.

The new regional operators will find it difficult to achieve profitability, in that they have to establish a brand-new backbone. Infrastructure telecommunications costs are high, and each operator’s life depends on the amount of users who connect to their network. They must decide whether their backbone will be wireless, or whether they are going to share networks with Telkom.

Although technology is moving increasingly closer to the wireless scenario with the emergence of technologies such as GPRS and Bluetooth, price and speed are still inhibiting their adoption by the market.

The wired LAN remains by far the cheaper and more reliable option. It will be a long time before the wireless network becomes affordable to the SMME and GPRS is still far too slow to be a major player in moving data in the corporate market. The same is true for Bluetooth. It may be good and fast, but it’s currently too expensive.

At the end of the day, the pie is only so big. Although networks will initially lose revenue, the market will eventually stabilise and move into the wireless network sectors. GPRS, for example, has tremendous potential in the rest of Africa where no backbone exists. The market leader will be the operator who not only identifies these opportunities first, but also grabs them.

Malcolm Driessel is CEO of MIA Samsung Telecommunications, part of the Samsung group, a major player in world communications with a presence in 65 countries. He can be contacted on Tel: +27 11 799 7720 or by e-mail on mailto:malcolmd@mia.co.za

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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