Vodacom launches 5G in South Africa as broadband market looks vulnerable

With some lockdown protocols still in place and low broadband penetration, launching 5G with a fixed wireless access (FWA) spin is telecoms opportunism at its finest.

Having recently assigned temporary spectrum by regulator ICASA, Vodacom is making use of 50 MHz in the 3.5 GHz band to launch 5G services in Johannesburg and Cape Town. Mobile subscriptions will of course be on the radar of the company, but with the Huawei 5G CPE PRO FWA router also available to purchase, there is an opportunity to disrupt the traditional broadband market.

“Vodacom’s 5G launch in South Africa comes at an important time as it will help us improve our network efficiency during the COVID-19 national state of disaster,” said Shameel Joosub, Vodacom Group CEO.

“During this difficult and unprecedented period, we are proud to offer world class network technology to South Africa, and all of its associated benefits, as we provide an essential service to keep the country connected. This is largely due to the allocation of temporary spectrum by ICASA which has already mitigated the network congestion we have experienced since the start of the lockdown period.”

Over the course of the coronavirus pandemic, mobile traffic on the Vodacom network has increased by 40%, while it has surged 250% on fixed networks. This presents a risk due to network strain and congestion, but an opportunity to launch an alternative to traditional broadband products while demand is at its highest.

South African broadband market (2019-end)
Internet service provider Subscriptions
Liquid Telecom 169,927
MTN South Africa 279,531
MWeb 119,400
Others 462,918
Rain 68,750
Telkom South Africa 2,165,000
Vodacom 235,337
Vumatel 15,042

Source: Omdia World Information Series

“We have talked to CSPs in emerging and also mature markets,” said Dario Talmesio, Practice Leader for mobile at Omdia. “FWA sales have doubled even in highly penetrated fixed broadband markets.”

With traditional broadband penetration down at 28.38% during the first quarter of 2020, Talmesio pointed out a significant opportunity for the right FWA proposition in South Africa. Its fast to deploy, affordable devices are emerging, and the demand is currently present under current circumstances.

With FWA, you don’t have to dig up roads, lay cables, seek planning permission from local authorities or cause major disruption to communities with construction. It is fast, simple and cheaper. And with the low broadband penetration, Talmesio suggests there is a very interesting opportunity.

The question of longevity and sustainability of FWA products in more mature markets have of course come under question, but in rural environments and nations where the economics do not drive ROI for traditional broadband deployment, FWA is a viable alternative.

Vodacom might be the first to launch services on the temporary spectrum licences, but there is certainly more potential considering what ICASA handed out to telcos in April. Some will of course be allocated to improve resilience of existing services, but the stage has been set for a FWA disruption in South Africa.

Allocation of temporary spectrum licences in South Africa
Service provider Spectrum band Block
Telkom 700/800 MHz 40 MHz
2300 MHz 40 MHz
2600 MHz 20 MHz
3500 MHz 12 MHz
MTN 700/800 MHz 40 MHz
2300 MHz 50 MHz
3500 MHz 50 MHz
Vodacom 700/800 MHz 40 MHz
2300 MHz 20 MHz
2600 MHz 50 MHz
3500 MHz 50 MHz
Liquid Telecoms 3500 MHz 4 MHz
Rain 2600 MHz 30 MHz

KDDI and Softbank join the network sharing craze as Rakuten risk rises

Japanese telcos KDDI and Softbank have inked a network sharing partnership to ease the commercial pressures of connectivity in the rural regions.

Network sharing agreements are becoming increasingly common, perhaps one of the more prominent trends of 2020, owing to the financial pressures being placed on the telcos. With 5G and full-fibre projects on the books for many telcos, deploying connectivity infrastructure in the more sparsely populated regions, were ROI is significantly lower, is a tricky spreadsheet to balance. Telcos are increasingly looking to network sharing partnerships, to ease the financial burdens of building the foundations of the digital economy.

The new company, which will be known as 5G Japan Co, will be managed by co-CEOs Noriaki Terao (seconded from KDDI) and Eiji Otaki (seconded from SoftBank). With each telco owning 50% of the company, the network will reach out into the rural regions to provide suitable densification of 5G base stations for the 28 GHz and 3.7 GHz airwaves.

While network sharing agreements to create a more attractive ROI are not uncommon, perhaps there is more demand in Japan than many other nations. These are telcos who may have to deal with a very significant disruption in the shape of Rakuten.

As the poster boy for the open movement, Rakuten is building a network as many telcos would love to; a greenfield project, completely disassociated from the concept of legacy technologies and systems. This sort of network deployment is a dream come true for any telco and has the potential to offer significant benefits.

Firstly, it has been claimed the network can be run with only 350 employees, a fraction of the workforce running competitors’ networks. Secondly, it could be significantly cheaper to construct, thanks to Rakuten’s embrace of the OpenRAN movement. And thirdly, due to the acceptance of openness, upgrades should be faster and cheaper. This is the sort of network which everyone would build if they could start from scratch tomorrow.

There is still plenty which could go wrong with Rakuten’s business. The network could fail, or it might not be as successful as hoped in teasing subscriptions away from rivals, but the threat is very real for the Japanese telco industry. With investments substantially reduced for network construction, maintenance and upgrades, the demands on ROI are lessened. Rakuten is suddenly afforded a lot more flexibility when it comes to pricing.

At the beginning of March, Rakuten unveiled its ‘UN-LIMIT’ 5G data tariff costing 2,980 Yen per month, roughly half of what rivals have been offering. What is worth noting is that when customers are out of range of a Rakuten owned base station, a 2 GB download limit will be introduced as well as data throttling. This will be a disadvantage for the telco as it is rolling out its network, though the risk of pricing disruption is very clear.

Reliance Jio in India has already demonstrated how a market can be turned upside-down if a disruptor is allowed to gather too much momentum. This is a lesson which the likes of KDDI, Softbank and NTT Docomo should be learning as Rakuten comes online; new initiatives will have to be introduced across operations to realise efficiencies.

Without these initiatives, network sharing partnerships being one, the traditional Japanese telcos will not be able to sustainably compete with the Rakuten tariffs.

Rakuten delays network launch to work out the bugs

Japan’s fourth mobile operator has said it will delay its launch, originally set for October 1, in favour of a limited trial for 5,000 users.

The announcement will put a dampener on the spirits of those who are closely watching developments in Japan. With the barriers set so high on entering the mobile connectivity game for new-comers, cash-rich technology companies will be looking for tips and tricks to develop their own game-plans, though this was not supposed to be part of the story.

“In order to ensure the stability and quality of its service for customers and continue to improve the network based on customer feedback and requests, the company will initially open applications to 5,000 subscribers free of charge through the Free Supporter Program,” the firm said in a statement.

The official launch of the service will now be at some point before 31 March 2020, with the Free Support Program set to conclude at that point. Those subscribers who are assisting with the network trial will continue to get free services through to 31 March however.

The trial will focus on Tokyo, Osaka, Nagoya City and Kobe City, with KDDI and Okinawa Cellular to provide roaming services outside of these regions. Those on the trial will receive unlimited calls and data services through the period, in exchange for providing regular feedback to the telco.

The launch of Rakuten has caught the attention of many inside and outside of Japan for several reasons. In the country, consumers have had to deal with three providers to date and the introduction of a fourth player will provide additional competition, as well as a potential disruption to create a new status-quo when it comes to pricing. Just look at the impact Reliance Jio had on India to see the potential a new player can inspire.

Outside of Japan, there will of course be vendors rubbing their hands together in anticipation of a genuine greenfield project, though those who have an interest in muscling in on the connectivity game.

Starting with the vendors, this is a potential gold mine. If Rakuten is going to be competitive, it will have to get its network up-and-running very quickly. Aggressive network deployment and expansion to reduce the reliance on roaming requires some serious investment. The more success Rakuten can generate in the early days, the more quickly it will be able to mobilise investment to fuel further expansion.

And now for the disruptors. There will be several companies which will be keeping an eye on developments here, hoping to understand what works and what doesn’t when deploying a new network.

Dish is one company which falls into this category. Should the T-Mobile US and Sprint merger survive the legal challenges it is facing, Dish will become the fourth MNO in the US through acquiring the Boost prepaid brand from Sprint. It will then have to try and build its own network as quickly as possible.

There are of course other companies who have already declared their interest in the mobile connectivity game, 1&1 Drillisch in Germany for example, however internet companies have also been rumoured to be getting involved.

Amazon is the company which immediately comes to mind, a rumour about Amazon mobile is never too far away, however this is applicable to any internet firm which has a lot of money. Owning and managing a network is one way to make money, another opportunity to collect valuable data on consumers and a chance to own the relationship with the consumer end-to-end.

If Rakuten can prove an internet company can deploy an end-to-end fully virtualized, cloud-native network cost-effectively and in a timely manner, as well as attract the right people to manage the network to meet customer expectations, why wouldn’t others believe they can do the same.

Amazon has buckets of cash, as does Google, Facebook, Alibaba, Baidu or Microsoft. If Rakuten can do it, why couldn’t they? Or how about investment companies and venture capitalists who are always looking for a way to make money?

Jio claims another scalp as RCom is down and out

Reliance Communications has arguably gotten the sharpest end of the Jio stick over the last couple of years, but it seems the misery is finally over as the firm files for bankruptcy.

According to The Times of India, Chairman Anil Ambani has approached the National Company Law Tribunal to file for bankruptcy after a torrid couple of months which capped off a horrendous a couple of years. Although the team thought there might be some salvageable assets in a deal with Reliance Jio, this might prove to be the final chapter of the telco story for Anil.

Over the last couple of months, RCom has been attempting to navigate the red-tape maze to sell spectrum assets to Reliance Jio, though this transaction has been blocked due to no-one tackling responsibilities for debts owed to the Department of Telecommunications. The DoT was not willing to greenlight the deal until it had reassurances, though with RCom not able to pay and Jio not willing to, the deal entered a stalemate.

Of course, the plot thickens when you consider this cash was supposed to help RCom pay off various other debts, including one to Ericsson, which had been attempting to get Ambani arrested and imprisoned over the monies owed. It has all seemingly fizzled out into somewhat of a depressing end for RCom.

15 years ago, however, this would have been far from imaginable. The firm used to be one of the more promising telcos in a relatively lifeless market. India has long been one of the ‘BRIC’ nations, with potential fortunes enough to convince many to make a bet on the market. However, incumbent players were happy with the status quo and India fell behind the rest of the world in the digital rankings. That was until Anil’s brother Mukesh turned up with his new business Reliance Jio.

Reliance Jio changed the rules of the game and offered a disruptive data-driven service which appealed to the Indian consumer. Soon enough millions of Indians were ditching traditional telcos in pursuit of the glories hidden in digital society. RCom did not adapt and is now suffering the consequences of standing still for a decade.

RCom now joins a growing list of casualties in India. With the Vodafone/Idea merged business planning its assault, you have to hope this ‘new’ player will be able to offer some resistance to the Reliance Jio momentum. Although this is an admirable success story, there are a worryingly small number of telcos for such a vast market.

VCs are spending more on less, how will that impact innovation?

CB Insight has released its latest quarterly report on venture capitalist funding claiming new records are being spent in terms of total cash, but trends are leaning towards the bigger players.

Over the course of the last 12 months, US venture capitalists spent a total of $99.5 billion funding businesses, though the number of deals stood at 5,536, the lowest since 2013. Later-stage mega-deals pushed annual funding to its highest level since 2000, though you have to wonder whether there will be any material impact on innovation, a worrying though when you consider the emerging potential of 5G for disruption.

Although the majority of the segments are relatively stable, as you can see from the graph below seed-funding has been gradually eroding for some time.

CBI Graph 2For those with the cash to spend, these trends make a lot of sense. Why would you take a risk on a start-up which might fail in the next couple of months when you could invest in a company which has scaled, secured customers and revenues and has a stable foundation? There are so many medium sized technology companies out there looking for financial fuel to go to the next level makes perfect sense.

However, the impact on the future might be damaging for the US on the whole if it wants to maintain its position at the top of the technology rankings table.

Here’s our point; not all innovation comes from start-ups or garages hidden away in suburbia, but a notable number of the significant disruptions do. If funding is being more prominently directed towards the established players, is a trick being missed?

Let’s dissect that point for a second. The larger companies certainly do search for innovation, but the search is for a purpose. Nokia, for instance, wouldn’t allow their researchers to run wild without any tethers whatsoever as there are limited R&D funds available and commercial considerations have to be factored in. The search for innovation is almost certainly tied to a current commercial objective or with specific ambitions to exploit an emerging segment.

This is not a bad way to do business of course. R&D has to be conducted with a purpose; these organizations have a responsibility to investors and shareholders to spend money reasonably, with the objective of making more money in the future. It certainly is sensible, but it is a restricted approach to innovation. Start-ups don’t necessarily have these burdens of responsibility, they can explore the unknown.

5G has been billed as a revolution. It will change the ways businesses operate and open a host of new connectivity possibilities to everyone in society. But like 4G, the best ideas are ones we haven’t thought of yet. They are probably businesses which do not exist. How many people would have thought of an idea such as Uber before 4G was a reality. This idea only came to be because the right conditions were in place and a creative inventor thought of it. Throughout the 4G era many of the better ideas emerged from start-ups which either scaled or were bought by one of the major players.

The world of 5G is not upon us quite yet, therefore it is a bit of a pre-emptive point right now. Innovation needs to be encouraged at every level if the US is to hold off the Chinese challenge to its technology leadership position. The trends are currently leaning away from seed-funding, which is certainly sign.

Iliad aims to bring French disruption to Italian mobile market

French telco group Iliad has become Italy’s fourth mobile operator and is following the same playbook as it did in France.

Iliad-owned Free Mobile became France’s fourth MNO in 2012 and significantly disrupted the market with an aggressive pricing strategy, leading to much pouting, shrugging and moaning from the three incumbents. The result today is a 17% subscriber share, so Iliad quite reasonably seems to think it’s worth repeating that strategy in Italy.

The brand isn’t Free, or even Libero in Italy, however. The company is simply going for Iliad there, perhaps gambling that the birthplace of the Roman empire will appreciate the classical reference. There seems to have been little fanfare, with the very brief press release pointing hacks towards the Italian language website. Thanks for that Xavier.

The headline deal does seem a very aggressively-priced one. The first million subscribers will get a SIM-only deal that gives 30GB data, unlimited voice minutes and unlimited texts for just €6 per month. That’s so cheap it’s hard to see how Iliad can possibly make any money from it and it will be interesting to see how the company proceeds once it hits that threshold.

The CEO of Iliad Italia, Benedetto Levi, has created a Twitter account to celebrate and apparently intends to use it primarily to pick fights with his competitors a la Legere in the US. Judging by the political turmoil currently taking place in Italy it seems ripe for disruption right now, so we wouldn’t bet against Iliad Italia hitting the million mark pretty quickly.