Earlier this year, we kicked off a series of blog posts to discuss how suited various markets were to launching 5G. As part of the series, we want to look at South Africa this month with its recent 5G launch.
South Africa is among the most diverse nations in the world, with people of many cultures and religions. The telecom landscape, on the other hand, is characterised by a duopoly where Vodacom and MTN command about 70 per cent of the market share by connections, with Cell C and Telkom maintaining approximately 14 per cent each. At the end of Q2, market penetration of mobile connections stood at more than 165 per cent, smartphone penetration at 60 per cent of total connections and 4G population coverage at 95 per cent. And yet, eight years after initial launches, 4G only accounts for 30 per cent of total mobile connections.
Got you thinking into what is holding the 4G uptake in a country which boasts of 165 per cent of population having access to mobile services? It got us thinking too. So, let’s try to understand the reasons.
Factors impacting 4G penetration
In general, low 4G penetration in any country can be driven by various factors: consumer affordability, high taxes, non-availability of devices, higher tariffs, low digital literacy et cetera. What’s at play in South Africa?
- High data connectivity costs: As of Q2, data connections in South Africa accounted for only 50 per cent of the total. At a cost per gigabyte of $6.81 as of Q4 2019, Research ICT Africa’s Retail African Mobile Pricing (RAMP) Index ranked South Africa 33 out of 46 (one being the lowest in data tariff) African countries. Relatively high data tariffs, in turn result in consumers purchasing either short term or limited data bundles, resulting in low 4G uptake.
- Lower digital literacy rates: A big chunk of the South African population is digitally illiterate, having limited or no understanding of basic aspects of digital such as connectivity, devices and skills. Some industry sources estimate the number at 80 per cent. Lower digital literacy rates further discourages the uptake of LTE services.
- Inadequate spectrum: Lack of adequate spectrum in the market is argued to be the contributor to high data tariffs. In the absence of adequate spectrum, operators have to invest more in existing bands to densify and increase the coverage. The additional investment is then translated into higher data tariffs. Example: operators in South Africa are still eyeing 700MHz as the key band for 4G.
Now, as the market is still ramping up 4G uptake, we see 5G getting rolled out in the country with some operators even ahead of schedule. So, what’s behind the 5G launches?
The COVID-19 (coronavirus) pandemic (accompanied by lockdowns and remote working) resulted in surging in data traffic globally. For its part, South African operators like Vodacom experienced 40 per cent growth in data traffic, while MTN experienced 56 per cent growth from February to April.
To ease congestion and create capacity for new data traffic requirements, the South African telecoms regulator ICASA announced a temporary allocation of spectrum in various bands (700MHz, 800MHz, 2300MHz, 2.6GHz, and 3.5GHz) until November. Vodacom leveraged the opportunity to launch its 5G services on the 3.5GHz spectrum in several cities. MTN followed the move and launched on the last day of the quarter adopting a dynamic spectrum sharing model in various frequencies (700MHz, 2100MHz, 3.5GHz and 28GHz).
Launching a new generation of technology in temporary spectrum allocations might seem risky or, at the very least a bold move. But the operators have it covered. A roaming and managed services agreement between Vodacom and Liquid Telecom gives Vodacom the access to a wholesale 5G network Liquid Telecom is building using its stock of 3.5GHz spectrum. Liquid Telecom offers wholesale network services in the country on the various spectrum bands assigned to it. This explains why Vodacom jumped on the opportunity to launch 5G services on temporary 3.5GHz spectrum.
For MTN, the dynamic spectrum sharing model used to launch 5G allows it to continue with services even after the expiry of temporary spectrum rights in some of the bands. Not to forget, the deal between Vodacom and Liquid Telecom is nonexclusive, opening doors for other players (MTN) to strike similar agreements and access the 3.5GHz spectrum held by Liquid Telecom.
Operators in the country are also optimistic of the 5G auction being held by the end of this year, which will also allow them a smooth transition to auctioned spectrum in these bands with minimum disruption for customers.
Is now the right time for 5G launches?
From the 4G experience in market and the underlying challenges on data costs and digital literacy which still needs to be addressed, we expect consumer 5G uptake to be slow and estimate the technology to account for only 8 per cent of the total mobile connections by 2025 (see chart, below, click to enlarge).
Based on this, one might argue operators have jumped the gun by launching 5G services in a market not yet prepared to fully reap the benefits. But, it’s the angle of looking at things that matters. There are benefits we can already see from the launches:
- Alternate and last mile connectivity: In recent years, South Africa has invested in its fibre footprint and now has fibre available in more areas than ever before. Fibre paired with 5G, however can be used to offer affordable internet access to users through FWA solutions. This brings us to another important argument: connections might not always be the best evaluation criteria to define the success of a technology, particularly in the 5G era where larger economic benefits are expected with digital transformation in enterprises.
- Enterprise 5G: Speaking of digital transformation, the full potential of 5G is expected to be realised with the help of use cases in the enterprise sector. In South Africa, tourism can act as a catalyst in 5G uptake. The use of technologies like AR/VR can bring new opportunities in tourism. Mining is another sector which stands to gain from 5G in the country.
- Early mover advantage: Barring a few exceptional markets, 5G will co-exist with other generations of technologies until 2025. The full stream of benefits will start to come with the deployment of standalone networks. Timely launches, though give operators the opportunity to explore and experiment with use cases, allows early partnerships to form and provides learning experiences to help in fully tapping the potential of 5G.
South Africa stands to benefit from the timely launch of 5G services.
Considering the 4G experience and challenges with data costs, 5G might not appear to be the right choice at this time for South Africa. Yet, the success and potential of 5G should not be measured by connections alone, particularly given the wider economic gains 5G will bring by enabling digital transformation. Moreover, with South Africa’s Competition Commission imposing a mandatory reduction of data tariffs, steps are already taken in the right direction to promote uptake of 4G or 5G.
The launch of 5G services is timely in South Africa and, with the right ecosystem partnerships, operators stand to gain by unlocking the numerous opportunities in the enterprise sector. All they need to do is act quick and learn on the way.
Radhika Gupta – head of Data Acquisition; Gaurav Thareja – research analyst, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.