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Johannesburg - Radio frequency spectrum is becoming a battleground for South Africa’s biggest mobile network Vodacom in its bid to provide faster broadband, according to analysts.
On Tuesday, the Competition Commission gave Vodacom the green light to buy Neotel for R7bn. The next step in the process is that Vodacom must wait for a hearing on the matter by the Competition Tribunal.
A successful acquisition would mean that Vodacom, which already has around 30 million local mobile subscribers, gains Neotel’s fixed-line infrastructure as well as its spectrum.
Spectrum is vital for telecommunication companies in rolling out faster broadband and the resource is difficult to come by in South Africa owing to the country failing to launch its digital migration process.
Broadcasters have to move from analogue to digital signals as part of the migration process to open up frequencies for telecom companies.
Because South Africa’s digital migration process has faced delays - owing to battles among broadcasters over issues such as set-top box encryption and slow government action - Vodacom has had to look elsewhere for spectrum.
“The only challenge that they’ve (Vodacom) got right now is that they really are struggling with spectrum; there’s no question about it,” chief executive officer of research firm Strategy Worx, Steven Ambrose, told Fin24.
“The growth of data is exponential,” said Ambrose.
In its annual results for the period ending March 31 2015, Vodacom said that its data revenue grew 23.4% to R13.5bn boosted by more affordable devices, increased bundles sold and greater coverage.
Growth in data usage is key for Vodacom and keeping up with this pace of demand is challenging in an environment where consumers constantly want faster internet services.
Vodacom was the first operator in South Africa to launch LTE, or long term evolution, in 2012. This broadband technology offers faster mobile internet than 3G services.
However, all mobile networks in South Africa have been limited in rolling out LTE coverage and resort to re-farming spectrum because of the country’s failure with digital migration.
Subsequently, South Africa faces a broadband crunch when faster internet technologies such as 5G are expected to be introduced in future.
“Today the whole evolution from 4G to 5G and the whole evolution of cloud, the whole evolution of the data centre, the whole change in the way that technology is infiltrating everything and everything that we do, like cars, like homes, connected everything, is pushing the whole radio and telecommunications industry in very different ways and very interconnected ways,” Ambrose told Fin24.
“So, you can’t move from 4G to 5G without all that stuff being in place,” said Ambrose.
“The whole spectrum thing is just becoming a huge challenge for the country,” he added.
Last week, a flicker of hope emerged regarding South Africa's digital migration process as a key challenge was dismissed by the Gauteng High Court.
Broadcaster e.tv lost its bid to turnover a decision by government to not encrypt set-top boxes, the devices designed to allow analogue television sets to access digital signals.
"The BDM (Broadcasting Digital Migration) process must also get under way as a matter of urgency, and is something that affects the whole country,” said Judge WRC Prinsloo in the judgment regarding the case.
Conditions on spectrum
While buying Neotel would boost Vodacom’s spectrum stakes, conditions set by the Competition Commission could still hamper the company’s mobile broadband ambitions.
Conditions set out by the Commission include that Vodacom must increase its fixed network investment and grow its black economic empowerment shareholder numbers.
But the Commission has also stipulated that the tie-up can only happen if Vodacom does not use Neotel’s spectrum for two years.
Rival networks such as Cell C have previously raised concerns that Vodacom’s increased access to spectrum could be uncompetitive for the market.
Subsequently, not having access to Neotel’s spectrum immediately could leave a bad taste in Vodacom’s mouth, according to the International Data Corporation (IDC) associate vice president for Sub-Saharan Africa Mark Walker.
"The spectrum issue: That is a big problem,” Walker told Fin24.
"I'm sure one of the considerations of Vodacom looking to link up with Neotel was access to spectrum.
"My feeling is that if I was Vodacom and I'm paying big money for Neotel, the position I'm wanting is competitive advantage,” said Walker.
Walker further explained that spectrum could be tapped from other sources.
The likes of the military and amateur radio specialists also hold additional spectrum that could be accessed by the likes of Vodacom.
Another way to win over more spectrum in the meantime for operators could also be buyouts of other companies that are holding onto frequencies that they don’t use.
"Companies that are holding spectrum and not utilising it fully or not utilising it completely effectively will then become acquisition targets or competitive targets,” said Walker.
In time, though, having sufficient bandwidth will become a key resource for South Africa as it migrates further into the information age.
Walker said that reasons why telecom companies are looking to offer faster internet include the ability to offer more offerings such as software as a service and cloud offerings.
Telecom companies are also increasingly coming under pressure regarding their voice services, which are facing intense competition from over-the-top offerings like WhatsApp.
For example, Telkom's total number of fixed access lines, which includes voice users, fell 4.9% during the period from 3.618 million to 3.439 million for the full year ending March 2015.
Telkom’s fixed-line voice usage revenue decreased 13.5% during the period to R6.867bn (March 2014: R7.934bn).
"As they go forward, more and more products and services are going to be delivered over bandwidth," said Walker.
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