South Africa’s coming convergence may hold lessons for rest of the continent

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There has been a recent set of developments in South Africa that bring convergence between the worlds of telecommunications, media and broadcast much closer. Three things in particular – media liberalisation, new technologies to deliver media and yet another project that promises cheap bandwidth – all make it likely that South Africa will become the first fully converged market on the continent. Russell Southwood has spent the last two weeks talking to the players and trying to understand what lessons these developments might hold for the rest of the continent.

When trying to illustrate the difference between a content deliverer and being a content player, I have in presentations referred jokingly to the possibility of Telkom TV. Nervous titters usually follow. The lesson is never joke about these kinds of things as they sometimes come true. Telkom is one of eighteen bidders (see Convergence News below) for a chance to compete with the current pay-TV monopoly of Naspers-owned DSTV.

It is said to be investing a US1bn and foresees attracting as many as 2 million subscribers. It has teamed up with a well-known producer, Videovision Entertainment’s Anant Singh who was responsible for producing the South African film Serafina. Singh is already out buying much-needed international content. It is also teamed up with MSG Africa Media and Women Development Bank Investment Holdings to apply for a commercial satellite and cable subscription broadcast licence.

A variety of sources inside South Africa’s least favourite phone company indicate that there is a degree of ambivalence about betting a large part of the farm on a media venture. Interestingly, it is even being described publicly as a defensive strategy to prevent others seizing any of their market share.

Other players lining up to take on DSTV include: Sentech and SABC; e.tv-owned E-SAT; WorldSpace; Max TV (a UK-based shopping channel); Black Earth Communications (from Botswana); Walking on Water (believed to be a Christian evangelist station); powerline broadband technology company, Goal Technology Solutions (in which Miko Rwayitare recently acquired a 65% share); Quantic TV Network, Multichannel Television, Ondigital Media. Kheta Media, Q Digital Cable Vision, MiDigital and African Spirit Trading 330. Regulator ICASA has consciously not limited the number of likely licences to be awarded and it is likely that the field will grow less numerous as the costs of actually providing a service kick in.

The main obstacle to market development has been the high subscription charged by monopoly provider DSTV: US$63.65 a month (and higher outside of South Africa). Also wherever competitors have sprung up elsewhere in Africa, its lock-down of key international content has thus far defeated all comers. A legal challenge in the Nigerian courts was also unsuccessful. But lower prices could mean a market as large as 3.5-4 million, up from the million plus currently held by DSTV.

As one conference participant told me:”Multichoice is actually Unichoice. It’s curbing choice to the consumer and it’s too prescriptive.” When I spoke to Multichoice Africa’s Communications Manager at the Africa Media and Broadcasting Conference Marilyn Watson, she told us:”We welcome competition. The more people in the industry, the bigger it is.”

The parallel development has been the testing of mobile TV using DVB-H prior to the launch of commercial services. In the Intelsat Connections sales event, Multichoice executive Gerdes Van Eeden said that its current test involved 15 transmitters covering large areas of the Gauteng metro area, Johannesburg and Pretoria and an extended area including Soweto, Cape Town and Durban. He said he believed that the move to IP was unstoppable and that “IP will become the ubiquitous bearer.” Indeed the South African Government has plans for television to go completely digital by 2015.

The DVB-H service has been in pilot trials since November 2005 with mobile provider MTN. Its announcement that it was launching the first commercial service was rather spoiled by local journalists asking whether it had a broadcast licence. It emerged that it did not but that it had every intention of getting one and that this was only a trial with no money being taken.

A DVB-H-enabled phone was being passed around at the Africa Media and Broadcasting conference and I have to report that the picture is pin-sharp and the sound very clear. We had been joking about how difficult it would be to follow something like golf: the small screen equivalent of a “spot-the-ball” competition. But there goes that lesson again. Never joke. For even on a small screen you could see the small white ball all too clearly.

In her conference presentation, CEO of DSTV’s M-Mobile subsidiary, Linda Vermaas said that 5-6 serious players were likely to emerge once the service went commercial. Handsets needed to be 3G and DVB-H enabled: MTN was promoting the Samsung P910 for use with this service. Transmission by DVB-H gives between 12-23 channels depending on the graphic complexity of what’s being transmitted. The trial involves several thousand subscribers.

She said that while there was room for “made for mobile” content, the majority of the test material was either existing TV content or reversioned TV content. She seemed sceptical that advertising would make much of a financial contribution.

For those looking at this opportunity, there are broadly two ways to go: build a DVB-H transmitter network in partnership with a mobile providers or as a content provider offer your content to an existing mobile company. The latter is complex and may not be highly financially rewarding. A speaker at GSM Africa pointed out that the mobile content value chain had at least seven parties in it and was very hard to get it to work properly and not always financially rewarding. Simon Guild, CEO, MTV Networks Europe snorted when I repeated this and said there were often many more players in the value chain.

So what does it cost to build a DVB-H transmission network? M Mobile’s Vermaas was cagey, making all the usual caveats about size of transmitter but did say that it had cost “hundreds of thousands of rands per transmitter” depending on the signal strength.

Since most of mobile TV use elsewhere was while on public transport, South Africa represents a particular challenge. Anyone familiar with the volume of traffic on South Africa’s roads knows that the majority means of transport for the potential mobile TV subscriber is a car. Therefore will he or she risk life and limb to watch in the car (perhaps while stuck on the freeway to Pretoria) or simply not use the service as much? The Government may well be building the Gautrain in anticipation of the World Cup in 2010 but will it really make much of a dent on the car habit?

(Apparently 3Italia launched during the World Cup and attracted 111,000 subscribers to its DVB-H service. Current international services are costing US$8-10 for 10-12 channels.)

Vermaas said that mobile TV rights were considered to be broadcast rights but that the whole area of rights was “murky”. And she was followed by a speaker from the floor who illustrated the point by saying she had been sued by rights holders because she had re-used material in another context.

The representatives of two key rights holders – film and music – illustrated the difficulties of unlocking the rights issues. Big media is generally speaking a greedy, nervous nelly when it comes to new media, a fraught combination that will hold up market development. Speaking for film, Nu-Metro Home Entertainment CEO Fay Amaral took the view that there was much to learn from the way pirates distributed film (they are probably half of the market in South Africa) and that the consumer wanted film when he or she wanted it, where they wanted it and at a price they wanted.

She spoke in favour of simultaneous global release but admitted her influence in what she described as a “raging debate” was limited. It was particularly difficult to get film prices as cheap as might be needed to sell them online. Speaking for music, Tracy Fraser, Marketing Director of Warner Music Gallo Africa when asked about rights was not specific but said that Warner was known for charging high prices. On online, she seemed to be content to follow on behind. The perils of this strategy are highlighted by a hilarious review of Pick ‘n Pay’s music site by Ivo Vegter in Brainstorm’s October issue. The bottom line? Low functionality and almost no catalogue in depth.

A significant number of speakers at the Africa Media and Broadcasting Conference, prefaced their enthusiasm for converged services by saying “when much cheaper bandwidth is available.” They may yet have some relief on that front. Something like EASSy will be built in the next two years and bandwidth will fall below the $1000 per mbps per month and in the longer run fall to $500 per mbps per month. At these prices, a services and applications market will spring up and start to grow.

Intriguingly, the newly launched Government owned Infraco (see Internet News below) is saying that it will lay a fibre cable financed as a public-private partnership. South African Government officials have met with Tata, owners of Neotel.

The proposed submarine cable would land at the Mtunzini landing site, the same place as for the East African Submarine Cable System, and then transverse southwards around Cape Point and onto the Azores islands to meet up with other international systems. It would skip the Telkom-controlled SAT-3 cable, landing at Melkbosstrand, near Cape Town.

South Africa is one of the shortlisted competitors for a radio telescope project and this would require a considerable amount of international bandwidth, on a scale that is currently not being envisaged by existing fibre operators.

So what are the lessons for the rest of the continent? Just as with telecoms and Internet liberalisation, media liberalisation will bring investment, much needed competition and lower pay-TV prices. I spoke to one of the South African bidders who was very clear that it would compete in the rest of Africa but said:”First we have to walk before we run.”

Liberalising media is dangerous medicine for countries like those in North Africa (or indeed Kenya on occasions) where an independent media with many different voices is not appreciated by the insecure but powerful in Government. Nevertheless the prize is considerable for media liberalisation would bring much needed content production and design skills, vital if Africa is to compete in the global economy.

The newer mobile TV technologies are expensive and may seem irrelevant to smaller, less wealthy markets. It’s hard to imagine someone sitting on a matatu with a $200 phone watching mobile TV. But personal observation tells me that middle class Africans like facility-rich phones as much as the next person and often buy them even when the network does not support them. Also secondhand 3G phones will be coming to the continent once existing users upgrade in about….the next five and half minutes.

The post-paid percentage of subscribers (usually 1-2%) gives some idea of numbers and broadcast image services may well fare much better than text. Making the numbers work will be a case of finding the right price. Interestingly, DSTV sold 400,000 set-top boxes in Nigeria but only has 100,000 paying subscribers. It’s the three Ps all over again. Price, price and price.

But the point at which international bandwidth tips below the $1,000 mark is really when services and applications markets will get moving. I once watched a group of ISP people in Senegal with access to free high capacity bandwidth. What were they doing? Downloading future episodes of American TV series they were already watching on pay-TV. See you in the new African converged future and bring some content with you.