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South Africa: VoIP begins to change the landscape for both consumers and business users

The opening up of VoIP in Africa’s more liberalized territories over the last five years is beginning to make a small but increasing impact on the market. It is one way in which all voice will become data in the next 5-10 years, which will have profound consequences for how telcos operate. Russell Southwood looks at a couple of early birds disrupting existing models.

This week saw Comcast in the USA offering a voice service where you can use your home number to call from Wi-Fi hot-spots. This is just another sign of how voice – which is a low bandwidth application compared to video – is ripe for transitioning to data carriage.

The two South African examples that follow – one of a consumer ISP and the other of a corporate provider – are not yet doing huge volumes of minutes but they provide clues as to how the telecoms business will change.

They are both businesses built on providing things customers want on the services and applications layer and they have come into being because there is a functioning interconnect regime that allows more or less anyone to break out into other operator’s networks.

It’s a multi-layered world in which different companies provide services at different levels. However, both of the examples are about how this new ecology throws up new business opportunities for companies focused on niche opportunities.

These companies provide a different level of service to the “hundred pound gorillas”. The vertically integrated providers have customer relationship staff who are the meat in the sandwich as they attempt to bring together several different departments. The call centre staff all ask the same mind-numbing questions before they pass the problem up to the next level. With these niche companies, you get straight through to the person who can fix it.

Local operator finding a service niche that other operators find hard to reach

Johan Kruger started Safricom Telecommunications in Potchefstroom in 2006 to provide wireless internet services for farms, small businesses, and university students in the area. But it has built its business around providing for Potchefstroom’s (total  population: 300,000) key market, students.

The North West University has 20,000 students and Safricom has both provided connectivity to the University and into student housing: 18,000 of the students live off campus and many have no proper Internet connectivity: “We have 250 outdoor Wi-Fi hot-spots which we use as the primary means of Internet access (for these students) and 3,000 students are currently accessing it this way.” You either pay monthly on a credit card or purchase a pre-pay voucher.

It has also signed an agreement with the University whereby students can get a discounted voucher that gives them access both on campus and in their accommodation. It also gives Safricom access to the 1 Gbps connection that the University gets from TENET. But it’s not just students but also farmers and lodges that he offers connectivity to and form key cornerstones of his business. For example. he has 250 farmer clients.

The service is delivered on unlicensed Wi-Fi and Safricom is installing a 20 kms metronet on a co-build basis with Dark Fibre Africa that connects all of the towers. It is also extending its coverage area into Vanderbijlpark and Mafeking, which has two other North West University campuses.

But the recent consumer-grade VoIP development is almost as interesting. It competes head-on with Telkom and recently the company has stopped re-provisioning its fixed lines on the edge of town after copper cable vandalism. So Safricom now provides a phone service in partnership with local VoIP provider ECN. Calls to existing customers on its network are free and calls across the network offer 30% savings over Telkom:”The fibre connection gives quality and this was the missing piece for doing proper IP-based voice.”

Smartphone customers using a SIP client can access voice calling through any public hot-spot or decent broadband connection:”3G coverage is totally overloaded in our market and there is no voice coverage in some student housing.” He is also looking at solutions that connect out into the 3G networks on the same SIP client basis.

Currently, they are only doing 50,000 minutes which is tiny but it’s clear that there is potential for a focused local provider to give a service that a larger company like Telkom will find hard to match. Also there’s no real competition from the mobile operators. However Kruger observes:”Number portability has been really important and the introduction of new, lower interconnection rates.”

This kind of highly localized provider is not just operated by Safricom. WAPA (the Wireless Access Providers Association of South Africa) currently have 123 members and 49,996 clients as of 2011 and its members also operate 600 public hotspots.

Of course, South Africa is wealthier than other Sub-Saharan countries and the model described will port across seamlessly to other places. But there are many towns where there are either large Government installations, private sector facilities like mines or education facilities where this kind of focused like voice and data service has every chance of success.

At a broader level, it’s clear both from South Africa and the more liberalized markets of South Africa that VoIP calling (except over Skype) has been slow to take off. It’s a combination of old habits die hard and that although SIP clients have become increasingly easy to use, there’s still something slightly techie about soft-phones. There needs to the equivalent of an Apple-like interface that allows for easy set-up and seamless operation.

Recently someone called me internationally on a mobile using a TelFree client and the call quality was more or less perfect. If you’re a mobile operator, you can see where this is going. Customers will use local hot-spot providers to make calls over IP and only use the mobile network when it’s absolutely necessary. That’s the logic and operators are currently protected by a lack of customer knowledge, a lack of easy Wi-Fi hot-spot roaming regimes and the natural conservatism people have for new things.

Business customers going over to VoIP PBX’s as costs fall

Connection Telecom started in 2005 when VoIP was legalized in South Africa. It started by doing Asterisk-based PBXs and services built around them as well as distributing equipment. It then introduced a multi-tenant, carrier grade platform which manages a whole set of services which it put out into the market under the label Telviva.

Corporate customers can register IP phones into the platform and use handsets like those from Polycom and SNOM. There are also apps that will allow customers to use smartphones on their campus Wi-Fi. But as Rob Lith, Connection Telecom points out:”You can also use the phone as a SIP client when you have good enough coverage. At present 3G coverage is too variable but things will change with LTE.”

The transition to VoIP of this kind will accelerate with the changing interconnect regime. Next year rates will come down to R0.40 (US4.7 cents) a minute:”This is stil high but it changes things.”

So how many companies are using the platform? Connection Telecom has a couple of key “blue chip” customers. The bank FNB is using it in its own private environment and currently has between 5-6,000 extensions. The system has been provisioned to have 20,000 extensions. Retailer Ellerines is currently rolling out and has 150 branches with 1,200 extensions. It will have between 8-9,000 extensions when the roll-out is fully implemented. It also has Old Mutual Financial Services which has 176 branches with 10 extensions per branch.

It also provides wholesale services for ISP players targeting the same market like Vox Telecom’s Vertu and Datapro’s PowWow. These services are targeted at everyone from SMEs to larger corporates. Between them, these services have 4,500 extensions. And as Lith notes:”There’s a bit of a trend to use us as an entry level call centre application and with queuing for agents in contact centres.”

Currently the majority of calling goes through closed corporate networks but it has hit 1.9 million minutes going out through the public extensions platform. This is modest in the grander scheme of things but both the improving interconnect regime and the lowering of installation costs will begin to move more into this market.

“The cost of extensions go to a point where it used to cost R150-160 for a customer to have a hosted PBX solution and this has dropped to R65 for entry level. VoIP handsets from Polycom and SNOM have come down from US$1,500 to US$750. The national fibre network is now in place. Local loop fibre is increasingly available, making it easier to get services off hosted platforms. Customers are realizing that they can use the central control of calling costs to monitor their expenditure, get the benefit of cheaper calling costs and have additional services like conference calling.”

“There are still some hurdles to overcome as potential customers have reliability concerns. Therefore we go through a roadmap that takes them along a path that is hybrid. When IP fails, there is an analogue back-up.”

Competitors in this space at the large end include Euphoria Networks, MTN Business and Internet Solutions with smaller players like Dial Networks also in the market.

In Africa’s more liberalized markets like Kenya all of the things described above have happened and will continue to grow. Liberalisation allows whole new categories of operators to come into the market with everyone from local loop fibre providers (connecting corporates to the news national fibre backbones) as well as the service and application operators that ride on the networks.

•    To follow the exchanges about this news, you need to be on Twitter. Follow us on @BalancingActAfr

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