New spectrum: A good thing, but temporary

It’s taken the Covid-19 crisis for the government to finally free up desperately needed spectrum to SA’s mobile operators, which have experienced a surge in demand for data as the lockdown forces most corporate employees to work from home.

Two weeks ago Stella Ndabeni-Abrahams, minister of communications & digital technologies, instructed the Independent Communications Authority of SA (Icasa) to issue new spectrum to allow operators to expand the network during the nationwide lockdown.

Spectrum is the radio frequency on which data and information are carried. And for at least a decade operators have been pleading with the state to release more of it.

The caveat, though, is that this sudden largesse is only temporary.

Ndabeni-Abrahams, in an interview with the FM, said the allocation was strictly for the lockdown period, and would run parallel to a long-term allocation process which was (finally) set in motion at the end of last year.

Ndabeni-Abrahams wishes the process was faster, but alas

"The one thing about spectrum allocation is that it is a long process. It’s highly regulated," she says.

Even the temporary allocation is cumbersome. Icasa first asked for an indication from the industry as to which spectrum bands to issue, then issued regulations for the process this week, inviting telecoms operators to apply, and only then will assign the bands: 700MHz, 800MHz, 2.6GHz and 3.5GHz.

But Ndabeni-Abrahams appears to recognise that spectrum allocation is the key to helping SA’s economy. She admits that the slow pace of digital migration was one of the factors that led to Moody’s Investors Service downgrading SA to junk status last month.

In the meantime, SA’s mobile operators are, if not coining it, certainly benefiting from enforced social distancing.

MTN has had a "double digit increase" in data traffic since President Cyril Ramaphosa announced a state of national disaster last month, says Godfrey Motsa, chief executive of its SA unit.

But he says the revenue uptick is not as dramatic as it might be because many people are still finishing off previously bought data bundles.

MTN plans to cut mobile data prices by up to 50% from mid-April, in response to the Competition Commission’s demand that mobile connectivity prices come down, and as a means to help South Africans cope with the increased need for data services.

Vodacom was the first major operator to reach an agreement with the competition watchdog, reducing its data prices by up to 40% from the start of April.

This move will cost the country’s largest operator R2.7bn. But Vodacom’s CEO, Shameel Joosub, tells the FM that it expects to recover this amount through increased volumes of data traffic on its network over time.

Telkom CEO Sipho Maseko says it has experienced some increase in network demand and usage as more people work remotely or from home. However, he says much of this is "not new demand" but rather a "rebalancing" as the increase in data usage on home or mobile networks is offset by a decrease in demand from head offices.

Telkom has differentiated itself by having the most affordable data prices in the market in recent years.

And Maseko says the recent price cuts by its larger competitors are still not enough to match Telkom’s value, which is why their Covid-19 efforts have been more focused on zero-rated services like health and education. All four operators have made efforts to support zero-rated services.

Cell C’s CEO Douglas Craigie Stevenson says such services go a long way to address the challenges faced by people trying to access essential services online and supports the government’s agenda to grow the economy.

But the lockdown is hardly ideal.

Motsa says Covid-19 is likely to destabilise the economy significantly.

While MTN may benefit from more people connecting with each other electronically, he says the danger of people not going to work and businesses shutting down is a real risk for the company.

Shares in most of SA’s telecoms players fell, in line with the rest of the market, last month — except for Vodacom, which held steady.

Cell C’s largest shareholder, Blue Label Telecoms, dropped 27%.

Telkom lost about 23%.

MTN slumped as much as 60%, thanks to its extensive exposure to oil-producing countries including Nigeria (its largest market), which have been caught in the crossfire of an oil price war between Saudi Arabia and Russia.

Ofentse Dazela, director of pricing research at information communication technology consulting firm Africa Analysis, says network capacity is the big issue for the operators right now. He singles out MTN, which had already seen rapid growth in network traffic introduced by Cell C through its expanded roaming agreement with its smaller rival.

Unum Capital portfolio manager Henk Lindeque says Covid-19 "will no doubt affect economic activity and as a result will have an impact on earnings. However, telecoms typically have relatively stable revenues throughout economic cycles, almost like that of utility companies."