Comment: Despite poverty South Africans get connected

Mobiles fill the gap where landlines are unknown

South Africa has always been and will always be a land of contrasts.

From the lush sub-tropical forests of its east coast to the barren semi-desert of its west coast, diversity has underpinned South Africa’s natural, economic and political history.

As this writer discovered on a recent visit back to South Africa, the country remains deeply divided – however no longer as much along racial lines, as along economic lines.

This division is nowhere more evident than in the country’s infrastructure.

Former black residential areas and rural communities still suffer from decades of underinvestment on basic housing, transport, sanitation, health, education and communication infrastructure. Since it came to power in 1994, the ANC government has stepped up development in previously neglected areas, but services remain starkly inadequate when compared to the first-world facilities found in the country’s more affluent areas.

However, while large portions of the population still do not have access to fixed-line telephone services, it does not mean South Africans are not connected.

Here again the contrasts in the country are remarkable. Despite high unemployment and pervasive poverty, South Africa’s population is among the most connected in the world, for just about every South African owns a mobile phone.

In fact, the mobile phone penetration rate in South African recently broke through the 100% threshold.

According to the latest market figures released by UK mobile telecommunications research firm The Mobile World, the South African mobile phone penetration level reached 101.8% in the third quarter of 2008.

And while the market has grown at a slower rate in the past year, year-on-year growth for the same quarter was still 10.7%, according to The Mobile World figures.

By comparison, the market grew by 24.2% for the 12 months ending 30 September, 2007.

Meanwhile, a report released last year by IE Market Research estimates that by 2010 South Africa will have 48.5 million mobile phone subscribers.

These are staggering statistics, considering mobile phones were only introduced in South Africa in 1994 and for years were the reserve of business people or the better-off sections of the population due to high entry and usage costs.

This rate of adoption can largely be credited to the highly competitive mobile market that exists in South Africa, with three carriers vying for customers.

Vodacom, in which the Vodafone group is in the process of taking a controlling stake, remains the dominant player with a 50.5% share of the market, representing 22.48 million customers, as at the end of the third quarter of 2008. Its lead is diminishing however – its market share was 56% a year earlier.

Its nearest rival, home-grown MTN, had 16.2 million customers at the end of Q3 2008 – up 2.1 million from the previous year.

However, it is the relatively new kid on the block, Cell-C, launched in 2001, that is seeing the fastest growth. It grew by 61.5% in the year to 30 September 2008, according to The Mobile World figures.

According to financial data released by Cell-C for 2007, it’s first profitable trading year, the company had a base of 4.8 million subscribers, up by 44% from the previous year.

It is another metric in Cell-C’s 2007 results that points to the driving force behind the growth of mobile phone services in South Africa.

During the 2007 financial year, Cell-C connected more than 3.5 million prepaid subscribers compared to just 177 000 on-contract subscribers. In 2006 it gained 1.8 million prepaid connections and 175,000 postpaid subscribers.

In announcing the figures, Cell-C CEO Jeffrey Hedberg says: “We are delighted that the market is responding so well to our value for money offerings.”

This illustrates the impact a third operator can have in breaking down the duopoly of two incumbent players and in driving down costs for customers.

Currently all three South African network operators offer highly competitive pre-paid packages, which have fuelled the market.

South Africans can buy a pre-pay connection pack for as little as two Rand — which equals NZ$40c, which helps explain why pre-pay subscribers make up more than 80% of all mobile phone users.

As a result, low-cost, pre-pay mobile phone services have become the de-facto communication tool for many South Africans.

Low-cost text messaging provides South Africa’s millions of transient labourers, who leave their rural homes to work in the major cities or towns, with a vital link to loved ones back home.

Pre-paid top ups can be bought in an astounding array of outlets from major supermarkets to street stalls and even at cinema counters. In fact most stores, regardless of what their main business is, sell “airtime”.

Regulation has also played a role. Last year South Africa’s telecommunications regulator, ICASA issued regulations to ban long-term contracts in exchange for handset subsidies, as well as SIM locking of handsets.

Under the regulations, contract terms will be limited to either six, 12 or 18 months and will never exceed two years.

As well, in a country still dominated by a monopolistic landline provider and where broadband is not yet broadly available or prohibitively expensive, 3G services have emerged as aviable alternative.

In the third quarter of 2008, 7.7% of Vodacom’s customer base was using 3G in the W-CDMA format – with increases of 3.5% year on year, while MTN’s 3G base grew to 9.4% off 4.4%.

The South African scenario does raise the question of how a third operator will affect competition in New Zealand.

Here, a Vodafone pre-paid start-up pack costs $35 – a far cry from the 40 cents its sister company and other carriers charge in South Africa.

True, the South African market is much larger – with even the smallest player boasting nearly more customers than the size of the New Zealand population.

Yet, even with New Zealand’s scale, neither Vodafone nor Telecom are making a loss on their mobile operations. Therefore, it stands to reason there must be a little fat that can be cut to give customers a better deal.

— Louis van Wyk is communications and marketing manager for TUANZ

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