Wired up: Planned investments in broadband infrastructure aim to connect the country and support the IT services industry

In the most affluent parts of large South African cities, ICT infrastructure is often world-class, with high-bandwidth fibre-optic cables to long-term evolution (LTE) mobile connectivity and a range of service providers. But, reflecting its stark disparities in income and the contrast between urban centres and the less-developed countryside, South Africa has a sizeable “digital divide”. Addressing the gap between the technology haves and have-nots is a national priority.

In the sphere of backhaul infrastructure, the private sector has a strong presence and is increasingly extending high-quality services to areas of high demand. Over the next decade, the relationship between the public and private sectors could determine the success of South Africa’s ICT development drive.

Internet Usage

South Africa’s 2011 census indicated that 64.8% of households were without access to the internet. Of those that did, 16.3% accessed through mobile telephones, 8.6% from home, 4.7% from work and 5.6% from elsewhere, such as internet cafes. Due to the growth of take-up and the proliferation of devices, these figures most likely underestimate current household internet usage.

One issue limiting broadband adoption is its retail cost, which varies from under R100 ($12.19) to more than R20,000 ($2438) per month, according to the Department of Communications (DoC). While five-digit charges are obviously reserved for major businesses with high-volume needs, the average cost of R141 ($17.19) per month (excluding more expensive satellite broadband) is still relatively high; including equipment costs it puts broadband out of reach for many less well-off South Africans – a third of whom earn less than $2.50 per day at purchasing power parity.

Broadband Usage

Broadband access more than doubled in the two years to the end of 2012, thanks largely to the spread of mobile internet, as data costs fell and networks expanded. The number of broadband subscriptions in South Africa rose 128% from the end of 2010 to 8.2m at end-2012, according to a study by World Wide Worx, a South African technology research firm. Individual broadband users rose by 140% from 2.8m to 6.7m in the same period; many people have two or more broadband subscriptions, for example a household connection as well as 3G on their phone or a USB modem. This gives South Africa theoretical broadband penetration of 15.8%; while only 11% of South Africans have their own broadband connection, according to World Wide Worx, many are likely to access the internet through a shared device.

Room To Expand

Sector growth is primarily coming from mobile use – mobile subscriptions now outnumber fixed broadband lines by eight to one, and Telkom (the legacy fixed-line operator) has broadband market share of just 10.6%. Arthur Goldstuck, the managing director of World Wide Worx, said that in five years’ time, fixed-line broadband would be “increasingly confined to small business”, with mobile becoming an ever more important presence. The planned roll-out of LTE mobile high-speed broadband, which started in late 2012 and is expected to slowly gain momentum over the next few years, may accelerate this trend.

Goldstuck sees the rise of broadband as inexorable, particularly as costs fall and more middle- and low-income South Africans gain internet access, and asserts that the development will be a boon to the ICT sector as a whole, driving demand for content providers and stimulating the growth and development of small and medium-sized technology companies.

While the private mobile operators are in the process of developing mobile broadband, there is a widespread sense that the government is not doing all that it can to support broadband development, and that the country is lagging behind its peers in this area. The World Economic Forum’s (WEF) “Global Information Technology Report 2013” ranks South Africa 70th out of 144 countries in terms of broadband access, behind Russia, China, Brazil and India –countries with which it is associated as part of “BRICS”, a grouping of five major emerging markets that South Africa joined in 2010. The WEF noted that all the BRICs have underperformed in broadband expansion, and that this could be costing them growth. The World Bank estimates that every 10% increase in broadband penetration accelerates growth by 1.38 percentage points.

Fibre Optics

As of 2012 South Africa had approximately 160,000 km of fibre-optic cables, with some 144,000 km (90%) controlled by Telkom, the majority-state-owned operator, according to the DoC. The networks are largely concentrated in urban areas in which usage is heaviest – Johannesburg, Cape Town and Durban – and with the profit-driven private sector currently leading the way in installing fibre optics, these areas are the focus for development at present. In rural areas, where distances are large, populations more sparse and incomes tend to be lower, fibre-optic infrastructure is much less widespread.

Juanita Clark, CEO of the FTTH Council Africa, an organisation that advocates fibre to the home, told OBG that the frequent weakness of last-mile connectivity is another issue. She cites the example of gated communities, a niche market for infrastructure providers, which have excellent internal networks but face “bottlenecks at the gate”. Her organisation calls for the development of end-to-end cable infrastructure, providing seamless high-capacity connectivity from the ports where South Africa’s international cables come onshore to citizens’ homes and businesses.

South Africa is already seeing an emphasis on developing fibre cabling instead of copper cables for telecommunications. The advantages of fibre over copper are well-documented: higher bandwidth, smaller diameter, greater longevity, and better strength and reliability. Furthermore, there is an acute problem with copper theft in South Africa, which costs the country R5bn ($609m) per year, according to the police – a significant proportion of which is from copper telecoms cables. Advocates of fibre assert that these benefits mean that it provides better long-term value than copper. However, the high cost of up-front capital investment in fibre means that South Africa still lays copper, including to replace existing cables that have been damaged. The FTTH Council has called for a moratorium on laying new copper, but Telkom’s cash issues and the size of its network suggest that the company will continue to use metal cables where it sees fit.

Draft Policy

After widespread negative reports about how it was undershooting its ICT development targets in the first half of the 2012/13 fiscal year, in April 2013 the DoC published a renewed draft National Broadband Policy. The document reaffirmed the importance of broadband expansion to economic and social development, and the government’s key goal of generating 5m new jobs by 2020.

Infrastructure investment is a catalyst for both short-and long-term growth, and ICT infrastructure is no exception. The Presidential Infrastructure Coordination Committee, which is charged with planning, coordinating and implementing national IT infrastructure goals over a 20-year planning framework, considers broadband development as one of its chief priorities.

As well as supporting the growth of the economy more broadly, greater broadband connectivity, particularly that which harnesses South Africa’s excellent international connections, should help foster the growth of the domestic ICT industry, which has considerable potential and is showing promising signs (see analysis).

As the policy notes, broadband will also help the government improve the provision of education, health care, and other public and social services, as well as sustain rural communities that suffer from economic isolation. One of the avowed goals of the programme is to create an “e-literate” society. The programme states that it aims to “fast track the development of high-speed broadband infrastructure such as fibre-optic backbones, wireless and international connectivity [...] and the development of targeted policy interventions to encourage the uptake and usage of broadband services across the country, particularly in rural areas.”

The end goal is universal, affordable and reliable broadband for all South Africans by 2020 – an ambitious target given the economic, geographical and social challenges that are currently facing the country.

Primary means of internet access, 2010 POLICY AREAS: While the document is broad and still light on specifics by nature, the draft policy identifies a number of areas in which concrete steps must be taken to achieve its goal. These are access to international backbone networks, access to national backbone networks, local access networks, and increasing uptake and usage of broadband services. Under each category, the DoC lists policy priorities. On international connectivity, it calls for greater investment in undersea cables, more competition (which should help bring prices down) and encouraging the private sector to take the lead in capacity expansion, but with the government ready to intervene to promote affordable connectivity. Several satellites provide 100% coverage of South Africa, so the DoC intends to use them as part of the broadband roll-out. While the private sector is expected to be an important contributor at the national level, the government – particularly through Telkom – is committed to playing a more active role, especially in rural and remote areas seen as less commercially viable. The government already owns substantial stretches of fibre cabling through organisations other than Telkom, such as that of Broadband Infraco, with a national backbone of some 14,000 km. “The aim is to aggregate networks and build on synergies between them,” said Dobek Pater, the director of IT specialist Africa Analysis. Wholesale networks developed by the public and private sector will open access to promote competition and innovation. Pater asserts that such extensive backbone fibre infrastructure will be a prerequisite to the LTE expansion by mobile operators, which cannot merely rely on microwave technology; the public and private sector’s common interests could thus accelerate development, at least in the more economically viable areas of the country. “There is room for growth and more business to be won from the government,” Richard Buttle, the CFO of information and records storage management company Metrofile, told OBG.

The trend towards infrastructure sharing among GSM operators – ranging from running cables in the same ducts to pooling base stations – can be seen as a sign that cooperation can be mutually beneficial, even among competitors. The policy seeks to address South Africa’s patchy last-mile connectivity by connecting as many homes and businesses as possible to fibre-optic cables, though acknowledging that radio-based technology will be the only realistic option in some parts of the country. In economically viable areas, competition on services and infrastructure will be promoted, while in less viable districts, infrastructure sharing will be the rule, lowering capital costs. Therefore, two of the priorities under the heading of enhancing local connectivity are increasing access to radio frequencies and ensuring that infrastructure investment is as affordable as possible.

Clark, of the FTTH Council, is upbeat about the new policy. “It’s commendable that they’re coming up with a strategy,” Clark told OBG. “Also that they’re looking at filling gaps where the private sector won’t go.” She added that Telkom’s “phenomenal infrastructure” and “exceptional skills base” make it well-placed to take the lead in broadband development.

Demand Side

The private sector and policymakers across the world are increasingly aware that installing infrastructure is not in itself a solution, and that the evolution of an online, e-literate society entails ensuring there is demand too. The policy outlines measures to improve access to end-user equipment, and for the development of content and applications. The draft recommends that government departments and services increase their usage of online resources, and offer more to citizens online. It also states that it will establish a research and development programme to support local content and applications. This will include the private and public sectors, universities and research institutions. It is specific about how to get equipment to South Africans – the cost of smartphones, tablets and laptops is still too high for many – though it hints at recommending a reduction in import duties, which it says “contribute to the high access cost of equipment, making them unaffordable to the majority of people”.

Criticism

While the importance of broadband expansion for the economy – and a society with a deep digital divide – is accepted, the government’s plans have been greeted with scepticism in some quarters. A particular focus is uncertainty about Telkom’s role. While the draft makes it clear that the company is expected to be a driving force in building up broadband infrastructure (at a national level, in particular), questions have been raised about its capacity to do so in its current situation. An article in the national publication TechCentral argued that the plan omits to say precisely how Telkom will “provide the bulk of the core backbone”, as it suggests. The difficulties the government has encountered in meeting its broadband targets to date should serve as a reminder that implementing an ambitious strategy will not be straightforward.

Progress has been impaired by multiple factors, including reallocation of resources to other areas at a time when the broader state budget has come under pressure, as well as administrative uncertainty and duplication caused by fact that responsibility for implementing the policy will be spread among several government departments. The latter issue the new draft seeks to address via the creation of a committee overseeing the policy’s implementation. Still, some say the lack of Use of social networking & IM on mobiles, 2012* financial support from the state hurt new businesses. “There are a number of government programmes supporting IT start-ups, but they are not well-marketed and often people do not know about them,” Schalk Nolte, CEO of Entersekt, told OBG. Criticism of the government’s intention to roll-out universal broadband, including the possibility that it will do so via Telkom, emphasise the cost and operational difficulties of such an operation, and the limited returns they may entail. Such criticism may be valid and helpful as the policy is formulated and implemented. Although the draft policy is just that, and the strategy must come before the details, the slow progress thus far and the ambitious targets set mean that those details must be laid down sooner rather than later. As they stand currently, thorny issues such as Telkom’s capacity to drive infrastructure expansion, where the resources for implementation will come, and which other organisations and companies will be responsible, still have to be addressed.

Acting Locally

At a national level, broadband roll-out is still clouded by uncertainty; there are several examples of regional and local networks being implemented, often in public-private partnerships. These often circumvent the cost and long lead times of Telkom infrastructure. One such effort is the R1.2bn ($146m) BW ired, a joint venture between the City of Johannesburg and Ericsson South Africa, which aims to create a “smart city” network. Initially, the system links all municipal buildings and major business complexes in the city, but it is expected to develop to be an extensive fibre-to-the-kerb network from which other operators can buy capacity and deliver fibre to homes and businesses. The first phase of the network was completed in 2012, connecting the City of Johannesburg data centre with the Braamfontein Civic Centre. All municipal offices and service providers should be connected by 2013, and by 2015, BW ired aims to be the preferred open-access medium for fixed broadband in the city, with access points no more than 100 metres away in the Central Business District and other high-density areas like Sandton. Buildings in other districts will have access points between 250 and 450 metres away. The network, which has 1.2-terabit per second (Tbps) core capacity and 940 km of fibre, is designed to be scalable, and could be double the size in 10 years. BW ired also hopes to provide wireless access in places where fibre connections are impractical. Century City Connect, a fibre-optic network offering open-access carrier-neutral backbone and last-mile connectivity in the new upscale Cape Town suburb of Century City. Century City Connect first went live in 2011, and claims to be the first network of its kind in South Africa.

Outlook

South Africa’s internet penetration and broadband usage may seem quite low, given its income level and its otherwise strong infrastructure and utilities. While it certainly reflects wealth disparities and geographical challenges, administrative confusion and a lack of direction have also held back development. With the renewed draft broadband policy, South Africa now has a framework for developing the ICT infrastructure that will help its economy modernise and thrive.