In South Africa the telecom industry – and subsequently the data center industry – are undergoing unprecedented growth after a string of events has led to shattering of a government monopoly on network infrastructure. In Part One of this feature we explored the occurrences that led to this liberalization. Now we look at some of the consequences.

The entrance to the market of a second intercontinental cable provider in July was the latest in a series of developments to have taken place in South Africa over the last five years, leading to an IT sector boom. This enables Seacom to become competition for Telkom – a government-owned monopoly that previously operated the only fiber exit to overseas territories.

Lower transport prices and higher capacity, the results of the newcomer’s entry into the market, have opened new business opportunities for companies such as Dimension Data, one of South Africa’s largest data center operators. The firm has three large data centers in the country as well as several international points of presence. It also operates a managed-service provider called Internet Solutions.

“It’s revolutionary in the sense that the amount of capacity Seacom is offering has allowed us to unleash (a wider gamut of) international services,” Dimension Data CTO Mayan Mathen said about the new network’s launch.

Geography

Africa’s geographical position is well-suited for international outsourcing and adding more, better and cheaper off-shore transport was key to IT industry players’ being able to take full advantage of their physical location. This in a nutshell is the country's pitch for growing its off-shoring business. 

“We (South Africa) lag behind in the ICT sector and it’s largely because of the cost of international bandwidth,” Seacom Head of Business Development Aidan Baigrie explained. “Being able to drop the international-cost element of it opens up” opportunities that simply had not existed until now. “It opens up business cases for companies to do international business that they couldn’t do before.”

Besides creating more international business opportunities for South African companies, Seacom is leveraging an older company’s backhaul infrastructure to provide connectivity in country. Doing so, the company is taking part in the ongoing explosion in the connectivity market on the domestic front.

Arrival of Neotel (the aforementioned backhaul network operator) on the market in 2006 was first in the series of events that led to the current boom. Letting Neotel launch after years of Telkom's monopoly was part of the South African government’s strategy of gradual, or “managed,” deregulation of the telecom market. Much of the company’s stock belonged to government-owned companies.

But the current growth rate in the market is owed to a lawsuit when last year one of the country’s Internet service providers filed an action against the telecom regulatory agency and won. The court’s decision to side with the provider created an opportunity for all 250-300 providers in the country to lay their own cable, causing a potential competition explosion. (Read in more detail about the lawsuit and the arrival of Neotel [lSee Part 1).

Redundancy

Another benefit of Seacom to South Africa’s telecom and IT industries is a boost in availability of international fiber. With Telkom being the only international provider, there was no back-up network, other than very costly and slow wireless connectivity.

“We’re providing redundancy to South Africa,” Baigrie said.

Seacom has also taken a unique – if somewhat risky – open-access business model. Baigrie said this “customer-agnostic” approach was important for the company to push further liberalization of the market.

The easy route would be to partner with the incumbent provider Telkom for distribution of network capacity in exchange for a “preferred distributor” status. Had Seacom chosen to go that route, it could have pre-sold most of its bandwidth before the launch.

While missing out on the large amount of sales and guarantees at the start, the company gains more independence from the government. It provides the same pricing for everyone, stimulating more competition.

“It’s a liberalizing model,” Baigrie said. “For us that was an important part of it.”

Along with lower bandwidth prices and greater network access came demand for a wider variety of IT-related services and new business opportunities to satisfy that demand. Of course, where there is growth in demand for IT resources, there is growth in the data center space.

Dimension Data is one of the companies that have been reaping the benefits of the country’s recently more open telecom market.

Not only is Mayan Mathen (Dimension Data CTO) seeing a jump in demand from consumers – a lot more of whom now have access to the internet – he is seeing growth in demand for more and better services from businesses. Now that the infrastructure availability has increased and bandwidth costs have shrunk, opportunities have opened up for enterprises to deploy virtualization solutions.

Corporations are looking to optimize their resources through data center and branch-office optimization initiatives. The new breadth of possibilities for add-on services has given providers like Dimension Data more “stickiness” with their customers, Mathen said.

The company is moving toward being able to deliver IT as utility – commoditization of all IT services.

Utilities

Companies are also turning to virtualization because of the country’s underdeveloped electrical grid. Energy has always been on the industry’s radar, according to Mathen, but market growth has made it more of an issue recently.

The government has recently invested tens of millions of dollars into electrical infrastructure but time must pass before those projects are complete, said Tim Parsonson, CEO of Teraco, in an interview in July. Teraco is another South African data center operator and the only one to offer carrier-neutral colocation in Sub-Saharan Africa, according to Parsonson.

And Seacom? They’re glad they met one of their priorities: getting the network up and running in time for the 2010 Fifa World Cup in South Africa.