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The South African telecommunications industry endures a pivotal transition as it navigates a saturated market and infrastructural challenges. Despite these headwinds, the sector is adapting its strategies, with major firms like MTN and Vodacom repositioning their portfolios and reaching into fintech to secure growth in capricious times.
In an environment where voice services no longer guarantee lucrative returns, Mike Gresty of Anchor Capital highlights the data-driven shift that now pushes network capacities to their limits. This causes a dilemma as the telecoms industry contends with the increasing network demands of data services at a time when customers are accustomed to declining prices, thus squeezing telcom margins tighter.
The noticed decline in telecom share prices in recent years, including a 29% drop in 2023, outrunning the All-Share Index’s 3% fall, is a loud siren for market actors. The trend persisting into 2024, as observed in the 16% plummet by February's end, signals a red alarm for companies to review their operational tactics urgently.
Companies like MTN and Vodacom, behemoths in the South African market with far-reaching assets across Africa, have opted for a strategic turn. Vodacom’s venture into purchasing a majority stake in Vodafone Egypt signifies its ambition for expansion beyond the native borders into more favourable markets. However, such forays are not without peril; they expose the companies to exchange rate risks and other regulatory complexities of operating in foreign territories.
The telecom giants are also facing pressure from load-shedding, theft, and vandalism in South Africa, with Vodacom alone expending billions to mitigate power outages impact and theft-related losses.
Nana Madikane of PwC Africa points to fintech as a modern revenue driver, particularly where the mobile financial services model is thriving elsewhere in Africa. Nonetheless, the sector must tread carefully with the entrenched banking sectors and rigid regulatory frameworks.
For smaller local listed telcos such as Telkom and Cell C, the challenges differ. Lacking the infrastructure muscle to match MTN and Vodacom, they are advised to carve out niches and present unique value propositions to compete. Notably, Telkom eyes a cash influx from its Swiftnet sale, albeit sustainably viable cash flows remain a concern.
Mobile virtual network operators (MVNOs) spice up the competition, offering cellular services under their branding without owning mobile spectrum licenses – a growth avenue for new entrants riding on existing infrastructure, predominantly that of Cell C.
As regards industry consolidation, analysts like Gresty suggest that larger players prefer to keep smaller competitors afloat via network-sharing tactics to circumvent more stringent regulatory interventions that could arise if a smaller telco were to fail.
Amid these contextual shifts, telecoms may have to remain nimble – focusing on core businesses while eyeing fintech, albeit cautiously, as a disruptive force heralding the sector's evolution. As operators wrestle with domestic challenges and strategize for future relevance, they can't ignore emerging global trends like the potential impact of satellite-based services like STARLINK.