Spectrum share holds key to mobile growth

WHILE all the focus in the telecommunications industry is on the fight over call termination rates, an even more important battle is looming over access to radio frequencies.

Billions of rands are at stake as South Africa’s big telecommunications operators — and potential newcomers to the industry — seek access to highly valuable spectrum bands that are well suited to building fourth-generation (4G) wireless broadband networks.

Incumbent operators who are not able to get access to these bands will find their growth prospects choked off as they become unable to keep up with rapidly growing demand from consumers for high-speed data connections.

Access to spectrum is said to be the driving force behind the looming acquisition by Vodacom of Neotel, the operator licensed in the mid-2000s to challenge Telkom. Vodacom has almost completed its due diligence of Neotel. The two companies have been in talks for months and are expected to announce the details of their deal, which could be worth as much as R10-billion, within weeks.

Neotel has access to spectrum bands

The government is also likely to want to use the licensing process to foster competition

that will allow Vodacom to potentially power ahead of its rivals in deploying 4G technology. The deal could give it a huge advantage as the mobile industry moves from the era of voice telephony to one dominated by broadband data.

To provide 4G services, Vodacom and its main rival in mobile, MTN, have until now relied on the re-allocation of spectrum bands traditionally reserved for voice. This is far from ideal, because the bands in question are already congested and cannot cope with future demand and deliver next-generation broadband speeds.

But MTN’s SA CEO, Zunaid Bulbulia, expressed doubt this week whether, under current legislation, Neotel would be allowed to transfer its spectrum assets to Vodacom. Although the National Development Plan advocates spectrum trading, the necessary legislative changes may not be introduced for a year or two yet.

Nevertheless, Bulbulia made it clear that MTN had lined up a number of “options” should Neotel be allowed to sell its spectrum assets to Vodacom.

As this column was going to press, the operator announced it had signed a heads of agreement with Telkom, in terms of which the latter will outsource the financial and operational management of its radio access network – the wireless bit that connects consumers to its core network. The parties will also allow each other’s customers to roam on their respective networks. The roaming agreement appears to give MTN access to Telkom’s 4G network, though more detail is needed.

Another option for MTN, though possibly less likely now in light of the Telkom tie-up, is a deal with Wireless Business Solutions (WBS), which owns wireless service provider iBurst. The underfunded WBS has been unable to take full advantage of its spectrum. MTN, which has a capital expenditure budget of about R6billion a year, could use the spectrum assets to expand its 4G offering.

None of this impending corporate action would have been necessary if the government and communications regulator Icasa had got a move on years ago in licensing access to so-called high-demand spectrum bands.

The industry is still awaiting a formal policy position on high-demand spectrum from the Department of Communications. Director-general Rosey Sekese said this week the policy was being finalised and should be published soon.

That won’t stop the industry from hedging its bets. High-demand spectrum bands look likely to be made available on an “open access” basis only — meaning licensees would have to open their networks to third parties in some or other form. This may not appeal to the incumbent mobile operators.

The government is also likely to want to use the licensing process to foster competition, meaning MTN and Vodacom may not necessarily be guaranteed access, even though they have the resources to get the job done.

The mess that is South Africa’s migration from analogue to digital terrestrial television is also holding back the licensing of the “digital dividend” that will be freed up by broadcasters. The dividend is a crucial band for delivering 4G services in urban and rural areas.

With all this uncertainty, no one should be surprised that the big operators, keen to secure their growth, are drawing up alternative plans to meet the explosion in demand for broadband.

McLeod edits TechCentral.co.za. Find him on Twitter @mcleodd