SUCCESS STORY OF CELLULAR BUSINESS

Success story of cellular industry

Cellular network MTN has achieved an enviable growth performance while delivering on its empowerment mandate. Now the company is raising its international profile, writes GREG GORDON.

WITH a market capitalisation of R60-billion-one of the top five on the JSE - MTN is proof that South Africa's cellular industry has come of age. Despite the sophistication of the industry, however, certain regulatory issues are going to have to be clarified if the market is to continue to flourish.

In South Africa, two networks were switched on in 1994. Demand for their services quickly outstripped even the most optimistic projections, and further impetus to demand was added when the pre-paid system was introduced at the end of 1996.

There are now 4.5-million cellular phone users in South Africa. However, while the industry incumbents in the form of the two networks have carved an enviable set of business performances, concern is growing about the future of the industry.

MTN chief executive Bob Chaphe says the regulatory environment has to stabilise in order for things to move forward. Chief concerns centre on the terms and conditions that will be applied to a third cellular network operator.

A licence was scheduled to be granted by the South African Telecommunications Regulatory Authority (Satra) on Christmas eve last year but investigations into the activities of councillors at the organisation have once more delayed the already protracted proceedings.

"The awarding of a third licence is not a concern per se, for us, but the terms and conditions under which it is granted are," says Chaphe. "At MTN we pay 5% of our net operating income as a licence fee - that's more than R100-million a year. In the draft terms for a third network, a figure of just 1% has been mooted. In order to compete on an equal footing, there has to be some sort of parity in licence fees by either increasing the third network operator's percentage, or decreasing ours," he says.

Chaphe says the allocation of bandwidth to networks is also a concern. South Africa has two frequencies allocated to cellular communications. The two existing networks operate on the GSM 900 frequency which is becoming busy as traffic grows.

The GSM 1800 frequency is unused and the third operator is likely to be allocated much of that bandwidth. The two networks say they would be at a severe disadvantage unless they are allocated GSM 1800 capacity as well.

Recent moves by Satra, however, indicate that the two existing networks may have their licences amended to receive an allocation of the GSM 1800 frequency.

Says Chaphe: "We have spent billions on building our network and we have to beef up our capacity. We need GSM 1800 bandwidth to do this," he says. "On the positive side, a third network operator would grow South Africa's cellular market.

There is a perception that prices will fall dramatically once a third operator enters the market but the reality is that there are no huge margins that can be slashed," says Chaphe. He says there is no sign of a market slowdown.

More than 100 000 people per month make new connections to the MTN network and there were over 200000 in December alone. "South Africa's businesses are one of the more penetrated segments of the cellular market but the pre-paid market continues to boom. We're also seeing growth in the family market. "In future, the biggest expansion is going to be in data services. A cellphone is basically a credit card with an antenna and future models will be able to perform all manner of electronic transactions - from banking to shopping. Today, our network carries voice traffic - in future, data will be the dominant traffic."

Chaphe says MTN is one of the country's most successful black-empowered companies. "Via our primary ownership through Johnnic, approximately 80% of the publicly-owned MTN is black-owned. We have also upped the number of black employees from 25% four years ago to nearly 50% now. "We will continue to meet the telecommunications needs of South Africans across the board. We are also well positioned to meet the huge demand for telecommunications here and in the rest of Africa.
"Our operations in Uganda, Rwanda and Swaziland are beating all expectations and we are extremely hopeful and confident that our efforts to secure licences in Cameroon and Nigeria will be successful.
"Not only are we focusing on growing our core wireless voice business in South Africa and Africa, we also intend to capitalise on our e-commerce initiatives both in South Africa and internationally," says Chaphe.