“Knowledge-based activities have become increasingly important and pervasive worldwide. ICT is the foundation of this knowledge-based world. It allows economies to acquire and share ideas, expertise, services and technologies locally, regionally and across the world… ICT can help create and sustain new opportunities for economic development. Accelerated knowledge transfer and technological diffusion amplify the competitive advantages of fast-learning economies.”

– Information and Communications for Development 2009: Extending Reach
and Increasing Impact, a World Bank report

Until 2006, South Africa had no telecom market to speak of. All communications were carried by a single fixed-line operator and three wireless carriers. Telkom, the state-owned but commercial fixed-line operator, had enjoyed a monopoly on the country’s entire IT infrastructure since its formation in 1991. It also owned and operated the only off-shore cables that connected Sub-Saharan Africa to the rest of the world.

Today, South Africa’s telecom sector is looking at a potential explosion in competition, with a second intercontinental cable operator online since last week and 250-300 new operators eyeing own fiber in the near future.

What happened?

Choose your opponent

First blow to the monopoly came about four years ago, when the nation’s government intently allowed a second fixed-line operator to enter the arena. Neotel (formerly SNO Telecommunications) launched its first services to wholesale telecommunications clients in August of 2006, after the state’s communications department issued it a license to do so at the end of 2005, according to a Neotel statement issued at the time.

The move was part of the government’s “managed liberalization” strategy for gradual telecom deregulation.

Also that August Neotel closed on the purchase of portions of fiber infrastructure in several major metropolitan areas owned by Transnet. Transnet was a state-owned commercial transportation monopoly that had an internal network, according to a Robert Horwitz essay published by Columbia Business School’s Virtual Institute of Information.

Interestingly, the Neotel announcement of its deal with Transnet said the transportation company had developed much of the fiber sold “in anticipation” of SNO (Neotel’s name at the time). In August of 2006 Transnet held 15 percent of SNO (Second National Operator) stock.

Four days after the aforementioned announcement, SNO announced another deal, in which it secured access to an intercity network owned jointly by Transnet and another state-owned enterprise Eskom, which – according to Horwitz – enjoyed a monopoly on electricity supply in the country and was also an SNO shareholder.

 After securing its access to existing infrastructure, Neotel continued to build out its network assets. In March of 2007 the company entered into agreements with market leaders such as Siemens, Juniper, Motorola and Cisco to continue extending its fiber’s reach.

So what?

Monthly Internet-service rate in South Africa went from about $60 in 2006 to less than $30 in 2007, or about a 50-percent drop in one year, according to the World Bank’s Information and Communications for Development 2009 report.

The same report correlates the number of broadband subscribers per 100 people in a nation to that nation’s gross national income per capita. In Chile – where about six percent of the population subscribes to broadband Internet – the GNI per capita is about $10,000.

About a fifth of Austrian population subscribes to broadband Internet. Austria’s GNI per capita is about $40,000. The graph does not include South Africa but the relationship is true for majority of nations on it.

Well…not completely “managed”

A more recent series of events that led to further deregulation of South Africa’s telecom market unfolded last year when a value-added network service (VANS) provider took a telecom licensing agency and the government’s top communications official to court and won.

Prior to the court battle, the government had allowed hundreds of firms to operate last-mile fiber and deliver Internet services but disallowed them from building their own physical network infrastructure.

When Altech – one of such VANS providers – caught wind that the Independent Communications Authority of South Africa (ICASA) and then Minister of Communications Ivy Matsepe-Cassabury had taken to allowing a select few VANS providers to build their own networks but not the rest, it sued the agency for selective application of the law.

Altech demanded that it too be issued a license to lay its own cable and complained that Matsepe-Cassabury had acted “beyond the scope of her statutory powers” when directing ICASA to issue electronic communications network service licenses to some VANS licensees and not all.

In a statement issued in August of last year Altech announced that a high-court judge had ruled in its favor on complaints against both ICASA and Matsepe-Cassabury. The minister attempted to appeal the ruling but the court denied.

With the court ruling on the books, all existing VANS licensees can now develop their own networks. There are up to 300 such VANS providers in the country.

 Enter Seacom

“We went from three mobile operators and one fixed line a year ago to 250-300 potential competitors,” said Aidan Baigrie, Director of Business Development for Seacom. Baigrie’s company made news last week when it became South Africa’s first fixed-line operator besides the state-owned Telkom.

In addition to asking Telkom to move over on the domestic fixed-line front by leveraging Neotel’s infrastructure for backhaul, Seacom also built a 17,000-kilometer submarine cable, connecting the continent to the rest of the world. The cable’s landing station is in Mtunzini, a small town on South Africa’s east coast.

Next week: Part 2 will explore Seacom’s entry to the South African market and implications of this rapid telecom liberalization for the nation and its data center industry.

Picture: Courtesy of Tyco Telecommunications