Slow Growth Likely in Telecoms Sector in South Africa

Mergers, Acquisitions and Financial Results

The reduction in how much cellphone operators pay to connect calls on each other's networks, together with increased competition, will slow down growth in the telecommunications sector, according to the latest report by research firm BMI- TechKnowledge.

Slow growth in the telecommunications sector is expected to continue until the end of the year, in tandem with the economy's slow recovery from the first recession since the early 1990s.

Revenue from business customers will continue to be negative, despite growth in the mobile data and internet markets, and increased competition in the sector. Growth in the sector is estimated at only 5% over the next five years, a dip from several years of double-digit figures, according to Tertia Smit, an analyst with the group.

Most of the growth will come from internet and other data services. Both sectors are estimated to have good growth rates of about 10%, BMI-TechKnowledge said.

An analyst, who did not want to be named, said telecommunications operators have said lower cellphone termination rates will have a negative impact on consumers and shareholders, but "that is not true".

"If the reduction is passed on to consumers, the voice calls volumes (especially in prepaid) will increase, making up for any income operators say they will lose," he said.

BMI-TechKnowledge estimates that the total telecommunications services market, excluding interconnection fees and expenditure on wholesale services and equipment, was worth R103bn last year, of which R45bn came from businesses and the rest from consumers.

The research firm expects a 4% fall in fixed-line connections, mainly on the residential side where consumers continue to substitute land lines with cellphones. This is expected to lead to flat revenue growth in the fixed-line voice market.

Growth in the fixed-line voice market, as opposed to internet and data services, will be "somewhat improved" if Telkom and Neotel take advantage of the dip in how much cellphone operators are paying to connect calls on each other's networks, and instead pick up traffic on fixed-to-mobile routings previously dominated by the least-cost routing market.