Storm from India set to uproot SA’s mobile model

MOBILE network operators in South Africa must change their business models or face steady decline. This warning came from senior executives at this week’s Mobile World Congress, the largest gathering of mobile industry professionals.

The annual event drew 100 000 delegates to Barcelona this year.

A crucial talking point was the fact that data demand and revenue continued growing, while revenues as well as margins for voice were falling.

“The biggest trend we see in the African mobile industry is competition to acquire customers for data because it offers margins far greater than for voice,” said Sherry Zameer, senior vice-president of Gemalto, a digital security company that is also the world’s largest manufacturer of cards. “We’re starting to see very aggressive competition for tariffs, especially around data services. But, just as with voice, the average margin per user of data is also on decline.”

This posed a massive challenge to networks since an increase in volume of demand paired with a decrease in tariffs made it more difficult to run a network.

“Operators in Africa, including South Africa, will have to do things differently,” said Zameer. “One of the trends is to complement existing volumebased charging with valuebased charging for services like successful identity authentication or managing security on mission-critical services. Such creativity will give them new revenue sources, but it’s difficult to be creative when you’re used to profits on margins, not valuebased economies of scale.”

Chuck Robbins, CEO of global networking hardware giant Cisco Systems, cited Reliance Jio of India as a good example of a new kind of telecoms operator. When Reliance decided to become a data-oriented business, it had to build a network based on the Internet Protocol for moving data packets, rather than the traditional circuitswitched system.

“We built out the largest allIP network across all of India. Reliance reached 100 million subscribers in 170 days, and at its peak was signing up more than one million new subscribers daily,” Robbins told a media briefing.

While selling data at low cost, Reliance Jio offered subscribers unlimited free calling, thanks to having an IP network as its backbone — and cut the cost of data from $40 (about R525) per gigabyte to just 15c.

“It was the perfect storm for Indian consumers,” said Reliance Jio president Mathew Oommen.

The result was that Reliance Jio became the fastest telecoms company to reach 100 million users and is now targeting the 400 million mark, working with Cisco to double the 150 000 data routers on its network in the next six to eight months.

“The next opportunity we see is in democratising voice and data,” he said. “We do not know why anyone should charge for voice in 2017. The only reason DEMAND FOR DATA: Sherry Zameer says operators in Africa will have to do things differently we can see is that 76% of our competitors’ revenue is generated by voice, so we would love to ensure that no one in India pays for voice. That will hit the global space.”

Across Africa, operator business models remain focused on voice networks with data an add-on, rather than the model IP makes possible: data networks with voice on the side.

Yvette Kanouff, senior vicepresident of Cisco’s service provider business unit, said the situation required an interim solution based on software, not a hardware overhaul.

“We’re trying to build easy

Move to managed services or struggle

bolt-on technologies,” she said. “With an existing deployment, you can use software to create higher levels of agility for existing customers. With multiple locations, automation is essential. We’re working to orchestrate devices across many new applications and services, across many networks, otherwise manual integration becomes complex and expensive.”

Zameer said: “It doesn’t make sense to throw out what you have today and replace it, because there is still a lot of value in what operators have.

“We have also seen a lot of them move to managed services, away from network management, and reinventing themselves as marketing companies, while still owning the network. Those that do, will take a lead. Those that don’t, will struggle, and that could potentially spark consolidation in the market — as happened in Pakistan.”

Many operators, especially in South Africa, hope to make up for falling voice revenues by selling more services, ranging from video-on-demand to appbased offerings. However, Zameer believes this could be a mistake, if they are trying to draw new spending from the same customers.

“When it comes to traditional services, the consumer has a very defined wallet size. If you launch new services, especially in low average revenue areas, it is very difficult to extend $1 to $1.20. So if the service succeeds, it will cannibalise an existing service. That only makes sense if it is part of a customer retention programme.”

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