The ICT sector is growing rapidly in terms of numbers connected, speeds attained and services provided. The industry as a whole is by far the largest and most sophisticated on the continent, contributing around 6% to GDP. Robust growth has benefitted in part from strong government support and high levels of corporate consumption; however, it has also faced challenges with last-mile linkages and infrastructure constraints. South Africa is working to expand broadband access and for good reason: a 2010 World Bank study found a 10% rise in broadband penetration in low-to-middle-income countries led to a 1.38 percentage point increase in GDP.
The ICT sector is governed by the 2005 Electronic Communications Act (ECA) and regulated by the Independent Communications Authority of South Africa (ICASA). After the May 2014 election, President Jacob Zuma restructured the overseeing ministry, splitting its various functions into two bodies: the Department of Communications (DoC) and the Department of Telecoms and Postal Services (DTPS). The DoC joins remnants of the Government Communication and Information Systems unit with Brand South Africa, the Media Development and Diversity Agency, ICASA and the South African Broadcasting Corporation.
DTPS took over Broadband Infraco, the post office, the State Information Technology Agency (SITA) and broadcasting signal distributor Sentech. Shortly after the split ICASA was transferred from DoC to DTPS. SITA, the government’s IT procurement agency, has traditionally been seen as one of the most corrupt and inefficient state-owned entities in the country; however, the appointment of a new CEO in 2013 to lead the agency’s turnaround is promising.
Two significant policy papers over the last year have provided clearer frameworks for ICT development over the medium term. In December 2013, the government set out the country’s broadband policy, setting ambitious targets for broadband cost and speeds. In January 2014, an ICT green paper provided the first sector policy overview in more than 15 years. Another step in the consultation process, the paper was published for public comment, with public hearings and the publishing of a white paper to follow.
The national broadband policy, dubbed South Africa Connect, was approved and gazetted in December 2013. Arthur Goldstuck, managing director of World Wide Worx, told OBG that, while “three previous iterations of the policy were meaningless”, the current version is “a good start”.
The plan targets a universal download speed of 100 Mbps by 2030, with half covered by 2020. In addition, 50% of the population should have a 5-Mbps connection speed by 2016, increasing to 90% by 2020. Additional connectivity targets are in place for schools, medical facilities and the public sector. Furthermore, the policy will aid a larger government effort to create 5m new jobs by 2020. The broadband policy also emphasises the necessity of public-private partnerships, like the Broadband for All initiative, which uses wireless networks to deliver broadband infrastructure to underserved areas, such as South Africa’s more than 17,000 rural schools.
Most provinces are developing their own broadband policies to complement the national vision. Gauteng Province, the single largest contributor to the country’s economy, is investing R1.2bn ($113.6m) in its five-year Gauteng Broadband Network project, which will extend coverage across the province and promoting government efficiency. Western Cape Province is also rolling out a R1.3bn ($123.1m) broadband expansion from 2014-17, with plans that include partnering with NGOs to provide free WiFi and a wireless mesh network extending affordable high-speed broadband to every town and village.
These national and provincial plans will help to promote infrastructure improvements, which marks a welcome change from previous policy for the tech industry. “There has not been the political will among government to push infrastructure growth in the past. The South African Cabinet does not believe that broadband is relevant to the masses, but rather that it is a tool of the elite,” Goldstuck told OBG.
The paper outlined strategies for ICT sector development, policy goals, inclusive access, human capital development in the software and applications space, trade support initiatives, infrastructure investment plans and e-government promotion. Industry observers lauded the paper for pulling together what has been an increasingly fragmented sector. Following stakeholder consultations, the resulting white paper was to be issued in August 2014, but has been delayed until March 2015.
Pipes & Wires
In terms of overall internet penetration, the International Telecommunication Union ranked South Africa 80th of 191 countries, with penetration of 48.9%, up from 41% in 2013, according to the 2014 broadband commission report. Fixed broadband penetration rose from 2.2% in 2012 to 3.1% in 2014, with household internet penetration up from 25.5% in 2012 to 39.4% in 2013. The balance between mobile and fixed has dramatically changed over the past decade. Originally accounting for 92.3% of all broadband access in 2004, fixed-line access fell to 26% in 2013, according to Telkom.
South Africa has roughly 180,000 cable km of fibre-optic backbone, over 80% of which is owned by Telkom. The industry shift to fibre is being driven in part by the expansion of mobile data consumption. Without fibre backhaul between base stations, long-term evolution will never be a reality, with mobile networks straining under existing 3G activity, explained Juanita Clark, CEO of FTTH Council Africa.
Copper theft is also a challenge because of the metal’s high resale value, costing South Africa an estimated R5bn ($473.5m) per year.
“ADSL is not a long-term solution and whilst we note attempts to sweat copper assets, deploying copper in greenfield projects is not sustainable,” Clark told OBG. “Fixed-line infrastructure coverage is poor in Africa in general. South Africa has performed far better than other African countries in rolling out fixed-line infrastructure, but penetration is still low by global standards,” Thecla Mbongue, senior research analyst at Ovum, told OBG.
The Akamai “State of the Internet” report for the second quarter of 2014 found that South Africa had the slowest average connection speed of the European, Middle Eastern and African countries included, at 3.0 Mbps, but is improving quickly, with a 32% year-on-year rise, according to the report. An average peak connection speed of 13.2 Mbps also earned the country last-place billing in the group despite a 59% year-on-year improvement. The increasing deployment of fibre means that broadband performance is set to improve even further, as fibre has latency of 1.5 to 2 milliseconds, whereas digital circuits are over one hundred times slower.
The Akamai report also revealed that South African broadband adoption for speeds over 4 Mbps was 13% – high for Africa, but low compared to peer economies like Turkey (68%), Poland (75%) and the global average (59%). Nonetheless, the 66% year-on-year growth was impressive. In terms of speeds over 10 Mbps, however, South Africa’s adoption rate stood at a mere 2.5%, albeit up 81% from the first quarter and 61% higher than the previous year.
From a single African undersea cable system landing in 2009, the continent now boasts more than half a dozen, with a new 12.8-Tbps BRICS cable being discussed that would stretch 34,000 km and cost over $1bn. South Africa also shares fibre-optic land links with its neighbours through Liquid Telecom’s 17,000-km pan-African fibre network.
However, cross-border connections are not easy. Clark explains that when companies want to cross borders to deploy infrastructure in landlocked countries, they need to get permission from border officials, who often have a limited understanding of telecommunications infrastructure, as opposed to a communications ministry. “Border crossings remain a slow and cumbersome process. It is imperative that regulators and departments of communications in landlocked countries educate the respective departments responsible for providing access to cross borders. If we can overcome this we will have a continent that is set for rapid deployment and this will result in a connected Africa,” said Clark.
The government has noted the importance of easing cross-border issues and has taken steps in this direction. Indeed, in a speech made in February 2014 the former communications minister, Yunus Carrim, said, “By ensuring that telecoms operators invest in interconnected networks, neighbouring governments can reduce cross-border communication costs, as well as benefit from economies of scale brought about by consolidated buying power.”
While South Africa has high-capacity backbone and sizeable cross-border connections, the access network remains a concern. “Policy uncertainty is definitely having an impact on investment, and nowhere more so than the access network, which is the most expensive component of the network to deploy. South Africa is somewhat unique in how it deploys networks. For example, you have companies that only focus on national longdistance networks, and companies that will only build metro networks, and then companies that specialise in last-mile connectivity. Recently, however, we have seen these lines blur to some extent – simply because of demand,” Clark told OBG.
The main impediment to building fixed-line wireless infrastructure, according to FTTH Council Africa, is the requirement that operators get approval to build infrastructure from municipal governments instead of at the national level. Rapid deployment guidelines (RDG), which would help facilitate lastmile connections, were provisioned for in the 2005 ECA, which outlined processes and procedures for obtaining right of way approvals to deploy fixed-line infrastructure. However, the RDG have yet to be finalised by ICASA and the DoC.
Some companies have waged legal battles over the long delays in getting permission to deploy infrastructure. Dark Fibre Africa (DFA) – a domestic firm that builds and operates carrier-neutral, fibre-optic infrastructure – won a Supreme Court of Appeal case against the Msunduzi municipality in October 2014. The municipality filed a case against DFA in February over laying fibre for the national government, for which Msunduzi had not granted wayleaves. After waiting weeks for permission, DFA exercised its rights as an operator under Section 22 of the ECA, notifying the municipality that it was proceeding.
As of the end of 2013, South Africa had approximately 912,000 connected ADSL lines – a low degree of penetration given the country’s population of 52m. PwC forecasts that the balance will shift even further to mobile, with 72% accessing the internet through their mobiles by 2018. Goldstuck explained, “For most people, access is mobile and it’s very slow – 2G mostly; however, free Wi-Fi is proliferating and smartphone penetration is accelerating.”
In terms of what South Africans profess to be doing on the internet, checking email tops the list (86.8%), followed by banking (61.8%), research (60.7%), news (58.5%) and social media (55.5%). On the e-commerce side, users are making online purchases of tickets to events and shows (40.3%), books (39.3%), travel tickets (38.2%) and hotels (31.7%).
Fixed-line competition has led to price reductions in last few years, with 2013 seeing sharp fibre price cuts, which triggered a rise in fibre-to-the-building installations. Thanks to this drop in fibre prices, a 1-Mbps service can now be purchased for as little as R1500 ($142.05) for the installation and R1500 ($142.05) in monthly subscription fees.
As the industry continues to expand, online privacy has become an increasing concern in recent years. In 2013 the Protection of Personal Information (POPI) Act, nine years in the making, was passed after 13 drafts. Scheduled to take effect in 2014, POPI mirrors similar legislation in the UK and the EU. It is designed “to ensure that organisations and individuals act responsibly with personal information”, explained Ridwaan Boda, corporate commercial director of the telecoms and IT practice at law firm Edward Nathan Sonnenbergs.
Affected companies will be required to expand the roles of their corporate information officers, and will be given one year to be in full compliance with POPI. Certain categories, such as law enforcement agencies and the military, are exempt from the new regulations. “As data security is currently largely self-regulated, if properly enforced, POPI will be a game-changer,” Boda told OBG. Nancy Meyer, operations director at Kyocera, likewise heralded POPI as “a key development in international standard compliance, and the punitive measures within it reflect the level of seriousness from government”.
In March 2014 the accountancy firm Grant Thornton said that, according to feedback it had received from the country’s business community, most South African firms were not ready for POPI implementation, let alone compliance. POPI is expected to place heavy cost burdens on businesses, as they will need to implement an additional degree of administration in order to achieve compliance. Nevertheless, the firm’s director of IT advisory believes that the long-term benefits of increased data security from POPI will outweigh any compliance costs.
The government also inaugurated the National Cyber Security Advisory Council (NCSAC) in October 2013 after the council’s framework was passed by the Cabinet in March 2012. The NCSAC is tasked with advising the government, including several departments, on policy related to cyber security.
On the business side of internet privacy, a new company has launched in an attempt to combat the growing number of cases of online personal fraud in the country, with reports up 16% since 2013. ThisIsMe – South Africa’s first personal online verification authority – launched in October 2014. The new service acts as a third-party identity verification system that allows customers and sellers interacting online to be certain of who they are interacting with, distinguishing legitimate users from false personas.
Up In The Cloud
Demand to outsource data centres is growing, according to Frost & Sullivan’s “South African Data Centre Market Report” from February 2014. Based on the reports’ findings, cloud computing and virtualisation can be expected to drive growth in South Africa’s data centre market through 2018.
Telkom’s head of product portfolio, architecture and innovation, Vaughn Naidoo, was cited in local media as valuing the total market for cloud computing services in South Africa at $185m in 2014, which was expected to double by 2017 thanks to an uptake in cloud services among small and medium-sized enterprises (SMEs). Naidoo placed the global cloud market’s value at $131bn in 2014, forecasting that it would reach $180bn by the end of 2015.
Several domestic companies have already begun rolling out cloud services. In April 2013, MTN launched cloud pilot projects to target companies across Africa, extending its product offering to South Africa in July 2014. MTN’s cloud services in the country will focus on the SME market, which is experiencing growing demand for cloud services yet lacks the capital to implement its own infrastructure.
Investment & Expansion
South Africa’s software industry will be bolstered by a 10.5% increase in spending to reach $518m in 2014, according to International Data Corporation (IDC)’s “South Africa Enterprise Application Software Market 2013–2017 Forecast.” It also predicts robust growth in overall enterprise application software expenditures from 2013-17, set to reach $787.2m by 2017 with a compound annual growth rate of 11.6% over the period.
The banking, telecommunications and public sectors are expected to be the biggest buyers; however, international software vendors with a presence in South Africa may very well be the greatest beneficiaries of the uptick in spending. Foreign-based SAP, Oracle, Sage and Microsoft Dynamics accounted for a combined 91.3% of software sales in South Africa in 2012, according to the IDC’s data.
The next biggest vendor was Syspro, the only wholly South African owned company in the bunch, with 3.5% of the 2012 market share. The large foreign presence may be misleading though, as the IDC report finds that these international giants are increasingly teaming up with independent vendors to develop software, to the benefit of the local industry.
Growth in the ICT sector will continue to be robust, as strong levels of investment are maintained and SMEs sustain demand in promising sub-sectors like cloud computing. Looking ahead, the industry will proceed with clearer direction, in line with government-issued broadband and ICT policies; however, more clarity is still needed, particularly in areas such as rapid deployment. Until this can be fully realised, fixed installation in South Africa will be unable to keep pace with market demands.
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