Knock on impact of falling mobile termination rates slows down telecoms growth

Johannesburg, 21 September 2010. BMI-TechKnowledge estimates the total telecommunications services market (excluding interconnection fees, and wholesale services and equipment spend) to be worth approximately R103 billion in 2009, with about R45 billion being attributed to business spend and the remainder to the consumer sector.

Tertia Smit, senior analyst of the recently released BMI-TechKnowledge publication on the Corporate and SME Telecoms Market, says “Growth in the telecommunications sector has generally slowed down in the past year and this will continue until the end of the year due to the slow recovery of the economy. The next few years will continue to be difficult due to ongoing regulatory uncertainty, and increased competitiveness, as well as the impact of falling MTRs (mobile termination rates) on the LCR (least cost routing) market. The resultant five year growth forecast is therefore estimated to be only 5%, with most of the growth coming from internet and data services, both estimated to have good growth rates of around 10%.

BMI-T forecasts that despite an expected 4% fall in fixed-line connections, mainly on the residential side where fixed-mobile substitution continues unabated, fixed-line voice revenues will record relatively flat growth over the next two years. Neotel is partly responsible for this, as it continues to grow its share of the PSTN voice market.

Growth in the fixed voice market could be somewhat improved, BMI-T believes, if Telkom and Neotel introduce offerings that take advantage of the falling MTRs by picking up traffic along fixed-to-mobile routings that was previously routed by means of ‘traditional LCR’ (using cell routers).
With IP being increasingly at the heart of communications, as indicated by the local moves towards launching new IP-based services, BMI-T forecasts that the end-to-end VoIP market will see phenomenal growth, albeit from a low base. This will see it record 93% CAGR revenue growth, off a low initial base, reaching R895 million by 2014.

One thing remaining unchanged is that voice telecommunications is fundamental to just about every aspect of economic activity, and remains important grease to the wheels of business. That said, enterprises are very sensitive to the quality of the service, and any substitutes that service providers introduce should meet high quality standards.
 
Smit says, “Although there is good growth in the mobile data market, the internet market in general, and particularly the revenues derived from business customers, will continue to be negatively impacted in the next couple of years by the general level of competitive behaviour. This includes a heightened level of competition between the mobile operators within the corporate sector, where more vigorous discounting may apply in future.”