5 July 2012

Southern Africa: Infrastructure Development Opens Opportunities for Broadband Operators in Southern Africa


Massive infrastructure development in Southern Africa is presenting opportunities for broadband operators. Research analysts at professional services firm, Frost & Sullivan, Gladys Mujuru and Sarah O'Carroll, write that these developments are likely to drive infrastructure development in the region for the next ten years.

The Southern African region is undergoing a major transformation; the scale of investment in infrastructure has grown substantially. Investment within the road, rail, energy and power sectors is expected to reach $148-billion in the next ten years. Information and Communication Technologies (ICT) has improved immensely in Southern Africa, driven by the realisation that ICT is a key enabler of economic development.

South Africa has indicated that expanding telecommunication connectivity to rural regions is a key initiative. There are major ICT projects currently being pursued in most countries, such as the national fibre roll out in Angola, which is expected to cost $500- million.

South Africa is expected to lead the investment initiatives, and will spend over 60% of the total revenues on infrastructure development. This will translate to expenditure of $91-billion on road, rail, and energy and power infrastructure. However, in 2012, almost $2-billion will be spent on development of terrestrial telecommunications infrastructure. The bulk of the telecommunications investment is expected to be focused on upgrading mobile networks, which have been the primary drivers for internet and voice uptake in African countries. Major operators, such as MTN and Vodacom, have been upgrading their infrastructure to prepare for the expected increase in demand for data services.

Mozambique has also picked up infrastructure building with an investment of $27-billion expected in 2012. Mining companies, such as Ncondezi, Rio Tinto and Vale Mining, contribute 17.1 % of investment in the country. Regarding telecommunications, the incumbent operator still serves as the major provider, despite awarding of licenses to other players. Other countries with incumbent operators driving telecommunications include Angola and Namibia. These operators have already launched advanced LTE networks ahead of South Africa, the traditional leader in development.

Infrastructure developments, such as the activation of undersea cable systems, WACS and EASSy, have seen a decrease in the cost of international bandwidth. At the same time, inland infrastructure initiatives have also gained momentum with South African firms such as Cell C, Internet Solutions and Convergence Partners launching FiberCo, in a bid to improve terrestrial capacity. Mobile technologies remain the major driver of broadband penetration in Southern Africa where fixed line infrastructure is below 3%. Mobile operators are focused on upgrading their data networks in order to compliment declining ARPU in voice services. Traditional technologies for broadband connection, like dial-up and VSAT are now experiencing a gradual decline in subscriptions in the wake of reliable mobile broadband technologies like W-CDMA, WiMax, HSDPA and HSPA+.

While there continues to be focus on telecommunications infrastructure development in Southern Africa, it is unlikely that the region will realise complete coverage through competition alone. The thin distribution of the population does not make it viable for most operators when looking at the revenues that can be realised versus the investment required for infrastructure roll out and maintenance. Therefore, while competition will drive infrastructure development, the extent is limited. In such areas where the costs of deployment outweigh the realisable revenues, government subsidies may be required.

Aside from telecommunications, the expansion and rehabilitation of the energy and power and rail sectors is of particular importance in the region, with investment in each sector amounting to $58-billion and $74-billion; respectively, for the next ten years. Development in these areas will stimulate commercial growth in previously marginalised areas and lead to higher demand for telecommunication services; hence motivate for further telecommunication infrastructure development. Overall, these developments are likely to drive aggressive infrastructure development in the region for the next ten years.

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