TeleGeography

GlobalComms Database

South Africa
Summary Data
Total wireless subscribers (Sep 2012): Population penetration: Average penetration in region: Average penetration in GDP per cap decile: Total broadband subscribers (Sep 2012): Household penetration: Average penetration in region: Average penetration in GDP per cap decile: Total PSTN lines (2012): Household penetration: Average penetration in region: Average penetration in GDP per cap decile: 66,558,490 131.6% 70.8% 132.8% 1,250,000 9.2% 7.0% 35.6% 3,250,000 23.9% 22.7% 82.9%

Country Overview
Key Data
Area (sq km): Population 2011 (million): Households 2011 (million): Capital: Language: Exchange rate annual average (2012): GDP 2011 (USD billion): GDP per capita 2011 (USD thousand): 1,219,910 50.6 13.6 Pretoria (Cape Town, Bloemfontein) English, Afrikaans, Zulu, others USD 1 = ZAR 8.22 408.1 8.1

Notes: Pretoria is the executive and therefore official capital; Cape Town is the legislative capital and Bloemfontein is the judicial capital Sources: BBC, CIA World Factbook, IMF, World Bank

Map

Political Profile
South Africa's democratic all-race elections of April 1994 were won by the African National Congress (ANC) party, ending a period of white minority rule dating back to the signing of the Union of South Africa in 1902. However, years of apartheid and conflict have inflicted deep wounds on the country, and problems such as lawlessness, social disruption and poor

education will take many years to heal. HIV and AIDS are also major issues, and the country is believed to have the second-highest number of HIV/AIDS patients in the world. It is estimated that one in seven of the population is HIV positive, while there are thought to be 1.2 million children who have lost one or both parents to the disease. Free anti-retroviral drugs are available under a state-funded scheme. South Africa is a republic with a bicameral parliament and an indirectly elected president as its head of state. The constitution of 1997 established a parliamentary political system with three tiers of government: national, provincial and local. Each of the nine provinces has its own government, separate executive, judiciary and legislature. In 1999 the ANC won a second term in office, taking close to a two-thirds majority in the 400-seat National Assembly, and Thabo Mbeki succeeded Nelson Mandela as president adopting a free-market approach as reflected in the government's 'Growth, Employment and Redistribution (GEAR)' strategy. In the elections of April 2004 Mr Mbeki was returned for a second five-year term following another victory for the ANC. However, Mbeki announced his resignation on 21 September 2008 amid claims which he denied of political interference in a corruption case against the ANC leader, Jacob Zuma, who took charge of the ANC on 18 December 2007 after defeating incumbent Thabo Mbeki at the ANC conference in Polokwane. On 25 September 2008, the deputy leader of the ANC, Kgalema Motlanthe, was sworn in as the new president after winning three-quarters of the votes cast by MPs in a secret parliamentary ballot. The ANC won a 65.9% majority in the April 2009 general election and Jacob Zuma was installed as president, just weeks after state prosecutors finally threw out the long-running corruption charges against him on the grounds that there had been political interference; Motlanthe was installed as deputy president. On 18 December 2012 Zuma was re-elected as ANC leader, defeating Motlanthe by a large majority. The main challenge to the rule of the ANC comes in the shape of the Democratic Alliance (DA) party, which received 16.7% of the vote in the 2009 election. Other political parties represented in parliament are the Congress of the People, a breakaway group from the ANC which won 7.4% of the vote in 2009, and the Inkatha Freedom Party, which mainly represents Zulu voters, and secured a 4.6% share of the 2009 poll. General elections are held at least once every five years. The most recent municipal election in May 2011 saw the ANC poll 62.9% of the vote, down from 64.1% five years before, while the DA won 24.1% (up from 16.2%). The next general election is scheduled for 2014.

Economic Development
South Africa has the largest economy in Africa and boasts an abundance of natural resources, well-developed financial, legal, commercial and communications sectors, and a modern infrastructure which, though at capacity, supports the efficient distribution of goods and services throughout the country. At the end of 2007 South Africa began to experience an electricity crisis as state power supplier Eskom encountered problems with aged plants, necessitating 'load-shedding' cuts to residents and businesses in the major cities. Nevertheless, growth was robust from 2004 to 2008 as South Africa reaped the benefits of macroeconomic stability and a global commodities boom. Growth began to slow down in the second half of 2008 due to the global financial crisis' impact on commodity prices and demand, and the South African economy went into recession in May 2009 following a sharp slowdown in the mining and manufacturing sectors. In contrast, the construction industry benefited from a huge programme of government investment ahead of the 2010 football World Cup. Meanwhile, land redistribution is an ongoing issue, with most farmland still white-owned. Having so far acquired land on a willing buyer, willing seller basis, officials have indicated that large-scale expropriations are on the cards in the near-future. The government aims to transfer 30% of farmland to black South Africans by 2014.

The government's economic growth programmes have yet to reduce its high unemployment rate, which reportedly stood at around 25.0% at the end of 2012. However, that figure only tells part of the story, and unofficial estimates put the real unemployment rate as high as 40%. Youth unemployment remains a major problem, standing at an estimated 50%. The lack of jobs was cited as a key factor behind the wave of violent attacks against migrant workers from other African countries in 2008 and also protests by township residents over poor living conditions during the summer of 2009. Chronic unemployment is an ongoing cause for concern, and the painful reforms of the last decade including cuts in subsidies and tariffs and an economic shift from mining to services has exacerbated the problem in many communities. The country's restrictive labour laws have not helped matters, while the Black Economic Empowerment (BEE) programme, though popular, has been accused of benefiting only a few prominent industry cronies, rather than raising the living standards of the poor. Inflation has fluctuated in recent years, reaching 11.5% in 2008, up from 4.5% in 2006, but fell back to 7.1% in 2009, and by the end of 2011 the rate had dropped to 5%, with the IMF estimating a slight increase to 5.6% by the end of 2012, but predicting a decrease to 5.2% in 2013. Real GDP growth slipped to 3.7% in 2008, down from 5.1% in 2007 and 5.3% in 2006. GDP fell again in 2009, with the economy shrinking by 1.8%, but there was a return to growth in 2010, with an increase of 2.9%. The IMF suggested that the economy grew by around 3.1% in 2011 and 2.6% in 2012, with 3.0% growth projected for 2013. The country's economic policy follows the ANC's medium-term aims of increasing economic growth via conservative fiscal means. The government's Accelerated and Shared Growth Initiative for South Africa (ASGISA) aims to raise the average growth rate from an approximate 4.5% in 2004-2009 to at least 6% in 2010-2014. Priorities include building infrastructure, nurturing industry, improving skills, accelerating BEE and reducing crime. South Africa, along with Brazil, Russia, India and China, is a member of the BRICS association of emerging economic powerhouses. In 2010 South Africa began efforts to join the grouping, which was then known as BRIC, and officially became a member nation on 24 December 2010; BRIC was duly renamed BRICS to reflect the expanded membership. In April 2011 South African President Jacob Zuma attended the 2011 BRICS summit in Sanya, China, as a full member.

Regulations
Regulatory Overview
Regulation of South Africas telecoms industry is divided between the Department of Communications (DoC) and the Independent Communications Authority of South Africa (ICASA), the latter of which replaced the South African Telecommunications Regulatory Authority (SATRA) and the Independent Broadcasting Authority (IBA) in July 2000 under the ICASA Act (No. 13). ICASA also derives its mandate from four other statutes: the Independent Broadcasting Act of 1993, the Broadcasting Act of 1999, the Telecommunications Authority Act No. 103 of 1996 and the Telecommunications Amendment Act of 2001. A new regulatory framework, the Electronic Communications Act 2005 (ECA previously known as the Convergence Bill), was drafted in February 2004 with the aim of drawing together all sectors of the communications and broadcasting industries and establishing a level playing field to encourage competition, but the authorities were slow to pass it. The draft bill was released for consultation by a parliamentary committee in March 2005, but was not approved until April the following year. The new Act finally came into force on 18 July 2006. Alongside the new ECA, the government also introduced the ICASA Amendment Act 2006, designed to redefine the body's remit in the new regulatory era and extend its policing powers. In November 2011 the DoC withdrew a series of proposed amendments to the 2005 ECA following complaints that the new legislation would take power from the independent ICASA and hand it to the DoC, specifically in the area of spectrum management and licensing. Service providers voiced fears that state-backed operators such as Telkom could be favoured over private enterprises when it came to awarding spectrum if ICASA was forced to adhere to directives handed down by the Minister of Communications and the DoC. The amendments were withdrawn for further consultation and a schedule for the reintroduction of the proposals had not been announced at the time of writing (January 2013). The official mandate of the DoC is as follows: 'To create a vibrant ICT sector that ensures all South Africans have access to affordable and accessible ICT services in order to advance socio-economic development goals, and support the Africa Agenda and contribute to building a better world'. Consequently the core functions of the DoC are: * To develop ICT policies and legislation that create conditions for the accelerated, sustained and shared growth of the South African economy; * To ensure the development of robust, reliable and affordable ICT infrastructure that supports and enables the provision of a multiplicity of applications and services to meet the needs of the country and its people; * To strengthen ICASA to enable it to regulate the sector in the public interest and ensure growth and stability in the sector; * To enhance the capacity of, and oversee, State Owned Enterprises (SOEs) in the communications portfolio; * To fulfil South Africas continental and international responsibilities in the ICT field. In May 2005 the state published the Black Economic Empowerment (BEE) Charter for the ICT sector. The Charter set targets to evaluate operators' BEE contributions, in terms of equity ownership, management and control, employment, skills development, enterprise

development and corporate social investment. It required all domestic ICT companies to sell 30% of their equity to black investors by 2010.

Regulation Links
Wireless Key Legislation Broadband Key Legislation Wireline Key Legislation

Wireless Regulatory Overview

Regulatory Bodies
Independent Communications Authority South Africa (ICASA)
Private Bag X10002 Pinmill Farm 164 Katherine Street Sandton 2146 South Africa Tel. +27 11 3218200 Fax +27 11 4441919 http://www.icasa.org.za

Department of Communications
Ministry Office Pretoria South Africa Tel. +27 12 4278177 Fax +27 12 3626915 http://www.doc.gov.za

Wireless Key Legislation

South Africa is currently home to four mobile network operators (MNOs): Vodacom South Africa and MTN South Africa (both licensed in 1993 and operational by mid-1994), Cell C (licensed in February 2001 and operational by November that year) and Telkom Mobile (8ta, which launched in October 2010). The 2005 Electronic Communications Act (ECA) considerably altered the regulation of the mobile sector, permitting the entry of nationwide mobile virtual network operators (MVNOs) for the first time and paying particular attention to the achievement of cost-based mobile termination rates (MTRs). The countrys two major cellcos, Vodacom and MTN, both argued that the act deterred newcomers from rolling out their own infrastructure, therefore undermining the governments universal access objectives. The two operators called upon the Independent Communications Authority of South Africa (ICASA) to encourage development

in the sector via increased competition rather than price regulation. ICASA countered by stating that competition between the three main operators had failed to bring mobile tariffs down to an acceptable level so it was necessary to intervene. Despite its intentions, however, and the publication of a draft proposal in early 2007, final regulatory measures failed to materialise. The controversy over interconnection rates reignited in late-2009 when it emerged that the Competition Commission (ComCom) had been called on to investigate three claims of possible collusion over prices in the industry. The claims specifically related to accusations that Vodacom colluded with rival MTN to hike interconnection fees months before Cell C began operating in an attempt to prevent the then-new player from establishing itself as a credible rival to the duopoly. Cell C launched as the countrys third operator in 2001 and heavily relied on a 15-year roaming contract with Vodacom to achieve national coverage. Both MTN and Vodacom publicly denied the allegations. The investigation became the catalyst which prompted the South African government to step in to ensure that an equitable MTR structure was implemented. In October 2009 the state ordered a cut in MTRs to be implemented by the end of November, saying it had been forced to act because ICASA would not do so. The committee proposed that rates should be cut to ZAR0.60 (USD0.08) per minute during peak times and then by a further ZAR0.15 annually until 2012. At the time operators charged each other on average ZAR1.25 per minute during peak times. Carriers immediately emerged to oppose the cut, describing it as drastic and below cost and began for the first time to seriously discuss an operator-led reform of rates. On 13 November 2009 communications minister Siphiwe Nyanda revealed in a statement to parliament that an agreement had been reached with mobile operators Cell C, Vodacom and MTN to cut MTRs, lowering communication costs nationwide. The carriers agreed to reduce MTRs to ZAR0.89 at peak times and ZAR0.77 during off-peak times. Vodacom and Cell C agreed to implement the new price structure in February 2010, while MTN consented to follow suit on 1 March. However, in April 2010 ICASA rejected the cellcos proposal to cut MTRs to ZAR0.85 in October 2011 and ZAR0.80 in October 2012, and instead proposed a steeper three-year glide path, to ZAR0.40. A series of public hearings were held in June 2010, and four months later the regulator published interconnection rates for the countrys two largest mobile operators by subscribers, Vodacom and MTN, as well as for calls to Telkom South Africas fixed line network. In March 2011 MTRs were trimmed to ZAR0.73 during peak times and ZAR0.65 during off-peak times, while in March 2012 the rates dropped to ZAR0.56 and ZAR0.52 respectively. Further, by March 2013, wholesale mobile termination rates will drop to ZAR0.40, regardless of the time the call is made. The new interconnection rates left the door open for South Africa's two smallest mobile operators, Cell C and 8ta, to apply to charge higher rates than their more established competitors. Cell C had pushed for higher call termination rates since its inception in 2001, arguing that its weak market position necessitated asymmetrical interconnection rates. Cell C reportedly sought a rate of ZAR0.89, whilst 8ta, Telkom South Africas brand new mobile unit, requested an interconnection rate of ZAR0.93. ICASA referred the issue to its Complaints and Compliance Commission (CCC), and in February 2011 it was announced that the interconnect fee for the two smaller players would be set at ZAR0.89. The 1996 Telecommunications Authority Act stated that GSM-900 licence holders MTN and Vodacom had the right to apply for spectrum in the 1800MHz frequency band and Vodacom purchased a permanent 1800MHz GSM licence on 29 October 2004. The Act also stipulated that mobile number portability (MNP) should be introduced by the end of 2005, but after much uproar, in October 2005 ICASA put the deadline back to July 2006, eventually enforcing the introduction of the service in November 2006. Meanwhile, after operators roundly rejected the suggestion that a fixed ZAR200 fee be levied on users looking to switch networks, the regulator dropped the plan to charge users for leaving their existing operator,

although a charge can be levied by the new provider that ports their number. In June 2004 ICASA awarded Vodacom and MTN temporary 3G licences, which, following limited trials, both operators opted to upgrade to permanent concessions at a cost of ZAR6 million per annum. In July 2009 the regulator published draft regulations regarding spectrum allocation which outlined procedures and criteria under which vacant spectrum in the 2.6GHz and 3.5GHz frequency bands would be distributed. The plan saw a move away from the previous process of handing out 20MHz to each licensee and instead the regulator announced that four operators would be allocated a national 30MHz concession in the 2.6GHz band, while 3.5GHz licences would be divided into specific geographic catchment areas, with each operator receiving a maximum of 28MHz of spectrum per region. The spectrum licences were to be technology-neutral, whilst in-band migration, which would allow operators to use existing licensed spectrum to provide new services, would be employed where needed. Two months later, in September 2009 ICASA revealed that future tenders would be judged by seven criteria, including: company structure, participation in the countrys Black Economic Empowerment (BEE) programme, proposed consumer benefits and the companys track record in the industry. However, a number of restrictions as to who can apply to obtain frequency were also announced: a company cannot be an affiliate or hold more than 5% in another applicant in the same band; a company cannot have already been granted a licence in the designated band; and an applicant cannot have less than 30% direct BEE ownership. These restrictions disqualified domestic cellco Vodacom from the outset, both through its lack of the requisite BEE ownership status and the fact that it owned 24.9% of iBurst a company with its own 2.6GHz spectrum, fuelling speculation that it might look to sell its stake in the ISP. In September 2010 Vodacom sold its 24.9% stake in iBurst to majority shareholder Wireless Business Solutions (WBS) thus falling in line with ICASA's ruling. In June 2010 ICASA extended the deadline for companies to submit applications for spectrum in the 2.6GHz and 3.5GHz bands until 30 July, from a previous deadline of 28 May. Under new guidelines, bidding for the spectrum would start at ZAR750,000. The 2.6GHz licences carried an obligation to achieve population coverage of 50% within two years of being granted spectrum. However, just one month later, in July 2010, ICASA withdrew its invitation to apply for spectrum licences in the 2.6GHz and 3.5GHz bands, explaining that it had been inundated by requests for clarity on the finer details of the licensing process since the publication of its final High Demand Spectrum Licence Regulations. ICASA disclosed that it was seeking an overseas auctioneer to assist it with the process, after struggling to find an appropriately qualified candidate locally. The watchdog also noted that while WiMAX had been the clear favourite technology for the given bands in the past, market sentiment towards Long Term Evolution (LTE) had increased dramatically. There had been no new auction date set by January 2013, but ICASA has announced a scheme to reallocate 50MHz of 2.6GHz spectrum belonging to state-backed broadcasting network owner Sentech; Sentech will retain 30MHz of frequencies at 2.6GHz (it has received 1800MHz spectrum in return for part of its allocation at 2.6GHz) and all spare bandwidth will be offered along with 800MHz digital dividend spectrum (technically 790MHz-862MHZ, see below) at an auction to be held in 2013 at the earliest. The new allocations are likely to be used for LTE-based networks. According to ICASAs 2012 annual report future licencing procedures will also take into account the re-arrangement of the GSM900 band. The aforementioned 800MHz spectrum will be freed up following South Africas switchover from analogue to digital television. On 30 October 2008 South Africas digital broadcasting signal was switched on, marking the start of the countrys digital migration. Originally scheduled for completion in November 2011 in line with a Cabinet decision taken in 2007, the deadline has since been pushed back to 1 December 2013, and subsequently June 2015. Delays have generally been blamed on former communications department director-general Mamodupi Mohlala who entertained the possibility of South Africa switching away from its commitments to the European standard for digital broadcasts to a hybrid Japanese-Brazilian

alternative. After a year of debate on the subject, during which Mohlala left the department, South Africa settled on the second generation of the European standard. In light of the lack of progress in licensing LTE-suitable spectrum, late-2012 saw the incumbent operators take matters into their own hands by unveiling 4G networks which used re-farmed 1800MHz spectrum. Vodacom and MTN launched commercial services in October 2012 and December 2012 respectively, while November saw 8ta unveil a free LTE trial in the Gauteng province, with Cell C offering similar access in Cape Town and Durban the following month (see Wireless Market Commentary for full details). The Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA), aimed at cracking down on mobile phone-related criminal activity, was implemented on 1 July 2009. After that date all new subscribers must register their details upon activation, while existing users were given 18 months to register or face disconnection. Any unregistered SIM cards were initially scheduled to be cut off by the end of 2010, but in November that year it was reported that South Africas mobile operators were expected to be granted a six-month reprieve by the government in their quest to register the SIM cards of their respective subscriber bases. Two weeks prior to the cessation of 2010s parliamentary session, an appeal was lodged to postpone the deadline for mandatory SIM card registration from the end of 2010 until June 2011. The appeal was successful and the new deadline was set at 30 June 2011. Following the expiration of the RICA deadline, the DoC reported that Cell C had registered 99.99% of post-paid customers and 97.00% of pre-paid subscribers, whilst MTN had signed up 99.50% of its contract customers and 97.00% of its pre-paid subscribers and Vodacom had registered 98.98% of contract customers and 95.12% of pre-paid subscribers. 8ta, which launched in October 2010, had initiated a mandatory RICA sign-up procedure from launch, meaning that 100% of its subscriber base is registered.

Wireless Regulatory Timeline

1993 Vodacom and MTN licensed to offer GSM mobile services; Independent Broadcasting Act passed March 1994 Vodacom introduces a pilot GSM network ahead of a full launch in June; MTN launches almost simultaneously 1996 State adopts the Telecommunications Authority Act No. 103 July 2000 Government passes the Independent Communications Authority of South Africa Act No. 13 October 2000 MTN launches HSCSD service February 2001 Cell C awarded the third GSM licence in the 1800MHz band and secures right to roam on Vodacom's 900MHz network June 2001 Cell C selects Siemens to supply its core GSM network November 2001 Cell C launches commercial service 2002 Vodacom and MTN launch GPRS services February 2004 Government announces details of the draft Convergence Bill May 2004 ICASA approves first seven companies for USAL licences June 2004 MTN and Vodacom issued with temporary 3G licences; Cell C launches a GPRS platform

October 2004 MTN launches limited EDGE services; regulator calls for public comments on draft Convergence Bill November 2004 First rural USAL operators licensed December 2004 Vodacom launches 3G services and shuts down analogue C-450 network March 2005 Draft Convergence Bill released for consultation by parliamentary committee June 2005 MTN launches 3G services December 2005 Cell C launches EDGE, ties up 50/50 MVNO venture with Virgin Mobile June 2006 Virgin Mobile launches MVNO operations July 2006 Implementation of Electronic Communications Act 2005 and ICASA Amendment Act 2006 10 November 2006 Implementation of mobile number portability January 2007 ICASA launches an investigation into wholesale call termination pricing in the mobile market June 2007 Telkom launches WiMAX services February 2008 Telkom applies for spectrum in the 1800MHz band from ICASA February 2008 Vodacom reveals plans to launch a converged cellular/Wi-Fi product May 2008 Government hints that a fourth national cellular licence could be offered in 2009 December 2008 Tender for two DVB-H mobile TV licences opened March 2009 ICASA withdraws DVB-H tender July 2009 ICASA releases draft wireless broadband spectrum allocation regulations 1 July 2009 Regulation of Interception of Communications and Provision of Communication-Related Information Act (RICA) implemented September 2009 Regulators confirm plans to auction wireless broadband spectrum in 2.6GHz band October 2009 State orders cut in mobile termination rates (MTRs) November 2009 Operators reach agreement on MTRs December 2009 Cell C reveals plan to launch HSPA+ network in 2010 February 2010 Vodacom and Cell C make MTR cuts March 2010 MTN implements MTR cuts June 2010 ICASA extends the deadline for bids for spectrum in 2.6GHz and 3.5GHz band to 30 July; Vodacom begins LTE trials in Midrand July 2010 ICASA withdraws offer for 2.6GHz (suitable for LTE) and 3.5GHz spectrum bids, citing technological issues September 2010 Vodacom completes sale of stake in WiMAX provider Wireless Broadband Solutions (WBS), leaving it free to bid in LTE spectrum auction

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October 2010 Fixed line incumbent Telkom launches mobile services under 8ta brand November 2010 Operators call on the government to extend the SIM card registration deadline and a six-month extension is granted March 2011 MTRs drop further for MTN and Vodacom 30 June 2011 Deadline for all active SIM cards to be registered under the RICA legislation July 2011 MTN launches LTE trials over 100 base stations in Gauteng province and Johannesburg October 2011 WBS announces plans for LTE deployment in the 1800MHz and 2.6GHz bands December 2011 ICASA announces plans to free up some 2.6GHz spectrum and offer this along with 800MHz frequencies at auction in 2012 (not achieved) February 2012 Vodacom deploys 5,000th 3G base station, 3,000th DC-HSPA+ site March 2012 ICASA bows to operator pressure and postpones 800MHz, 2.6GHz spectrum auction March 2012 Wireline SNO Neotel confirms LTE trial in Midrand October 2012 8ta announces free LTE trial in Gauteng between Nov-12 and Mar-13 October 2012 Vodacom launches first commercial LTE service in Johannesburg November 2012 Neotel announces successful 70Mbps LTE trial in Midrand 1 December 2012 MTN LTE network launches commercially in Pretoria, Durban, Johannesburg December 2012 Cell C launches LTE trial in Cape Town, Durban June 2015 Digital dividend spectrum in 800MHz band expected to be freed up.

Broadband Regulatory Overview

Regulatory Bodies
Independent Communications Authority South Africa (ICASA)
Private Bag X10002 Pinmill Farm 164 Katherine Street Sandton 2146 South Africa Tel. +27 11 3218200 Fax +27 11 4441919 http://www.icasa.org.za

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Department of Communications
Ministry Office Pretoria South Africa Tel. +27 12 4278177 Fax +27 12 3626915 http://www.doc.gov.za Current Status of Local Loop Unbundling: Pre-commercial

Broadband Key Legislation

In October 2005 the governments Colloquium Working Group made a number of recommendations regarding the high speed internet market to inform the development of a national broadband plan, including: that the local loop be unbundled; that the use of bit caps be prohibited; and that the Universal Service Programme be reviewed and new targets set. The group suggested that the government should aim for: all households to have access to a fixed or mobile network by 2010; all public institutions to have broadband connections within three years; and broadband penetration to reach 5% by 2010. Although household penetration actually passed the 5% goal in 2009, local loop unbundling (LLU) had still not been implemented by January 2013 (see Local Loop Unbundling section), and the lack of a cost-effective wholesale sector has held back the market. More recently, the five-year strategic plan as approved by the Parliamentary Portfolio Committee on Communications in April 2011 addresses, amongst other issues, how ICASA plans to support the DoC in achieving universal broadband access by 2020. Suffice to say, the key challenge within the broadband sector is loosening fixed line incumbent Telkoms stranglehold over national infrastructure. Despite the firms fixed line monopoly being broken in 2002 when regulators mandated public utilities Eskom, Transtel and Sentech to leverage their infrastructure to support the countrys telecoms sector, Telkom retained tight control over the local loop and the majority of transport links. In December 2005 telecoms regulator the Independent Communications Authority of South Africa (ICASA) granted a 25-year PSTN operating licence to second national operator (SNO) Neotel. At launch, however, the operator did not own any network infrastructure and was forced to operate via a wholesale agreement with Telkom for its first year of operation. In March 2008 Neotel finally acquired its own network infrastructure when it purchased Transtel in a ZAR256 million deal, although it remained reliant on Telkom for last mile connection. Market reform is underway, however, and in August 2008 local telco Altech won a longrunning legal battle enabling it to deploy its own communications networks. The High Court decision cleared the way for Altech and other alternative carriers to receive individual electronics communications network services (I-ECNS) concessions and thus begin offering services over their own infrastructure rather than relying on wholesale agreements with the handful of firms previously permitted to deploy networks. The landmark case led to ICASA granting 544 I-ECNS licences in January 2009 to a number of firms, including multi-tenant properties, gated communities and business parks, allowing the companies to roll out their own local networks. While it took court intervention to challenge Telkoms dominance in the local access sector, the government took a much more proactive stance towards updating the countrys backbone infrastructure. On 8 January 2008 the DoC published the Broadband Infraco Act, which revealed plans to combine assets of both Eskom and Transtel to build out new

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fibre infrastructure which would eventually supersede Telkoms copper networks as the states backbone network. Under the act a new state-owned enterprise was formed, named Broadband Infraco, with a mandate for boosting the countrys broadband connectivity and bandwidth availability. Broadband Infraco unveiled its new ZAR1 billion (USD144.1 million) network in mid-November 2010, and a year later it was managing 13,612km of fibreoptic cable routes connecting Gauteng to the major metropolitan centres of Bloemfontein, Kimberley, Cape Town, Port Elizabeth, East London, Durban, Nelspruit and Polokwane. The company had been plagued by licensing issues during the three years in the run-up to its launch; the Broadband Infraco Act stipulates that ICASA was obliged to issue Broadband Infraco both an I-ECNS licence and an Electronic Communication Services (ECS) licence. However, commercial ISPs objected to it receiving an ECS concession, as they claimed it would give the state-owned company an unfair advantage. In December 2012 Broadband Infraco was appointed as interim chair to drive the implementation of Strategic Infrastructure Project No 15 (SIP 15). This SIPs mandate is expanding access to communication technology. Infraco chief executive Puleng Kwele noted: SIP 15 aims to provide 100% broadband coverage to all households by 2020 by establishing core points of presence (PoPs) in district municipalities. It seeks to extend fibreoptic networks across provinces linking districts, establish PoPs and fibre connectivity at local level, and penetrate the network into rural areas. The proliferation of I-ECNS licences and the deployment of alternative transport networks Neotel and mobile operator MTN have also deployed a joint fibre backbone network has meant that operators have been able to bypass Telkoms infrastructure for the first time despite the lack of legislation to unbundle the local loop. Although LLU is still required to fully liberate the market, I-ECNS concessions have extended the reach of alternative operators, such as iBurst, which rolled out an ADSL2+ service in November 2009 using local I-ECNS infrastructure in tandem with its own fibre and microwave links. Prior to the introduction of I-ECNS licences operators had to rely on broadband fixed wireless access (BFWA) and WiMAX standards to reach consumers directly and provide competition to the incumbent. iBurst was the first to launch BFWA services in April 2005, while the country's first WiMAX wireless broadband services were launched by Telkom in June 2007; iBurst and Neotel also deployed their own WiMAX networks, although the standard has not taken off in the mass market.

Local Loop Unbundling

In May 2007 the Department of Communications (DoC) released a report setting a deadline of 1 November 2011 for the completion of local loop unbundling (LLU), by which time it expected 80% of Telkom's networks to have been opened up to rivals. In March 2010, when questioned on the progress of LLU, the director general of the Independent Communications Authority of South Africa (ICASA), Mamodupi Mohlala, claimed that the regulator would issue policy directives with timelines to ensure that Telkom met the November 2011 deadline. However, that provisional deadline passed without any obvious progress, prompting ICASA to unveil a new deadline, 1 November 2012, for the introduction of bitstream access, a precursor to unbundling, but this date also passed without incident. In November 2012 industry insiders noted that intense discussions were taking place focused on how Telkom can deal with its so-called access-line deficit, where the fixed-line operator does not recoup the cost of maintaining the average line in service through basic telephone line rental. These discussions, it was understood, were blamed for the delay in introducing bitstream access. Telkoms argument centres on the fact that it effectively subsidises its copper network because basic line-rental fees do not cover the cost of maintaining the network. For its part, ICASA believes that ensuring fixed line access prices are fairly addressed is a necessary

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precondition to any successful form of LLU. At the time of writing (January 2013) industry insiders revealed that behind-the-scenes talks were ongoing between the relevant parties, but no concrete progress had been reported. A government paper on LLU, released in 2007, and including contributions from ICASA and the DoC said of bitstream access: No pricing regulation currently exists for bitstream access. In order to guarantee extensive access at reasonable prices to subscribers, the regulatory framework needs to deal with the suitability of prices charged by the incumbent to ISPs for providing them with wholesale xDSL products. Moreover, regulation needs to address the issue of margins of service providers to subscribers to guarantee affordability. At this level regulation should be aimed at creating a ceiling on prices to subscribers and allow marketplace to autonomously resolve suitable margins which should be below that ceiling Bitstream access is not expected to promote a great deal of facility based competition and as regulation can only set minimum standards, the incumbent should not be compelled to invest in new technologies. Consequently, in a situation when it is possible, care must be exercised in setting wholesale prices to make certain that the section of the market stays attractive to new entrants and is sufficiently profitable to encourage future investments by the incumbent.

Wireline Regulatory Overview

Regulatory Bodies
Independent Communications Authority South Africa (ICASA)
Private Bag X10002 Pinmill Farm 164 Katherine Street Sandton 2146 South Africa Tel. +27 11 3218200 Fax +27 11 4441919 http://www.icasa.org.za

Department of Communications
Ministry Office Pretoria South Africa Tel. +27 12 4278177 Fax +27 12 3626915 http://www.doc.gov.za

Dates of Liberalisation
Local Telephony: May 2002 Domestic Long-distance Telephony: May 2002 International Telephony: May 2002

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Wireline Key Legislation

The Independent Communications Authority of South Africa (ICASA) takes an active role in the resolution of inter-operator disputes, the formulation of policy, and licensing procedure; with the fundamental aim of promoting competition and technological progression throughout the countrys telecoms sector. The governments Department of Communications (DoC) has five core functions: directing and overseeing the development of policy and legislation; encouraging the expansion of network infrastructure; supporting ICASA, enabling it to regulate the sector in the public interest; overseeing the operation of stateowned enterprises, such as wireline incumbent Telkom South Africa; and to fulfil South Africas continental and international responsibilities in the ICT field. ICASA also has the responsibility of ensuring that operators achieve the government's access targets, and collects Universal Service Fund (USF) fees on behalf of the Universal Service and Access Agency (USAASA). The Telecommunications Amendment Act of 2001 made important changes to the USF by bringing the USAASA directly under the control of the Minister of Communications and expanding the list of programmes eligible for USF assistance. The fund now covers the provision of internet services in public schools, the establishment of telecentres and public information terminals, and the deployment of infrastructure in areas of low teledensity through the issue of under-serviced area licences (USALs). The fixed line market was officially opened up to competition on 7 May 2002 when regulators mandated public utilities Eskom, Transtel and Sentech to leverage their infrastructure to support the countrys telecoms sector. However, Telkom retained tight control over the local loop and the majority of transport links, while its rivals were not permitted to provide a full range of wireline services. Subsequently, the DoC and ICASA introduced a raft of measures to further liberalise the telecoms sector, which came into effect on 1 February 2005. Under the changes: * value added network service (VANS) providers can offer public voice services, including voice-over-internet protocol (VoIP); * any private operator may lease network capacity and resell Telkom's services; * any company can apply for a public payphone licence; * wireless operators are allowed to rent capacity on the fixed line network of any operator. In September 2004 the then-Minister of Communications, Ivy Matsepe-Casaburri, announced that Telkom would finally face private sector competition with the planned award of a 25-year PSTN licence to a second national operator (SNO). However, the award stalled for some time, with ICASA unable to issue the concession until the structure of the new company had been finalised (see Wireline Market Commentary). Eventually licensed in December 2005, the SNO launched services under the name Neotel in August 2006. However, the government derailed Neotels bid to launch across its own infrastructure by refusing to sell it network assets belonging to Eskom; as a result, the SNO was forced to use Telkoms PSTN as backhaul, while also having to rely on the incumbent to provide it with last mile access. Telkoms unrivalled dominance in the wholesale sector has been regularly cited as a major factor behind the countrys relatively low teledensity and poor take-up of broadband services, and in 2007 ICASA launched an investigation into the market, planning to use its findings to develop a new competition framework. In January 2008 the regulator published draft definitions of retail and wholesale markets intended to ensure that each sector was open to adequate competition and to identify operators with significant market power (SMP).

15

Since ICASA opened its investigation, a number of operators, Neotel included, have brought competition to Telkoms transport network by deploying their own fibre-optic backhaul infrastructure. However, the incumbent retains a stranglehold over the last mile, and the publication of local loop unbundling (LLU) regulations has been a major priority for regulators. In 2006 ICASA established the LLU Committee to investigate and recommend appropriate models and processes for opening up access to the last mile. In May 2007 the DoC released a report setting a deadline of 1 November 2011 for the completion of LLU, by which time it expected 80% of Telkom's networks to have been opened up to rivals. Despite promises that policy directives with time-frames would be implemented during 2010, at the time of writing (January 2013) LLU regulations were still on the drawing board, giving some operators a cause for concern. (See Local Loop Unbundling section for more details). In August 2008 a ruling was made against the regulators which could prove vital to achieving the governments aims; local telco Altech won a long-running legal battle enabling it to deploy its own communications networks. The High Court decision cleared the way for the operator and other alternative carriers to receive individual electronics communications network services (I-ECNS) concessions and thus begin offering connections across their own infrastructure and allowing service providers a way to bypass Telkoms last mile infrastructure (Altech had argued since 2004 that VANS licensees should have the right to build out their own communications systems). Subsequently, in January 2009 ICASA granted a total of 544 separate I-ECNS licences to a number of firms, including multi-tenant properties, gated communities and business parks, allowing the companies to roll out their own local networks. 288 of the licences were issued immediately, while the remaining 256 were granted but not issued pending the submission of relevant documentation. In March 2010 it was revealed that the second and final stage of introducing fixed number portability to South Africa had been delayed by around five weeks. The first phase also known as geographic number portability (GNP) commenced in May 2009; the second, more important phase, which allows individual numbers to be ported, was postponed until 26 April 2010 to accommodate final tests of IT systems. The Number Portability Company, which already handled number porting for the mobile operators, manages individual GNP on behalf of the operators. As a result, Vodacom, MTN and Cell C all agreed to dilute their shareholding in the company to allow Telkom and Neotel to become shareholders, too. In October 2010, following an extended debate surrounding interconnection in the wireless market, ICASA also addressed fixed line call termination rates, making the following decisions: fixed line rates which are dependent on whether the calls are local or nationwide would drop to ZAR0.20 (USD0.02) during peak times and ZAR0.12 during non-peak for local calls in March 2011, whilst nationwide termination rates would drop to ZAR0.28 during peak times, and ZAR0.19 during off-peak times. In March 2012 the termination of local calls dropped to ZAR0.15 and ZAR0.12 respectively, while national calls dropped to ZAR0.25 and ZAR0.19. At the end of the glide path period (March 2013), termination rates for local calls will drop to ZAR0.12 regardless of the time, with national rates dropping accordingly, to ZAR0.19.

VoIP Legislation
A provider of voice telephony services utilising numbers from the national numbering plan is requires an individual electronic communications services (ECS) licence, regardless of whether the services are ultimately provided to end-users using wireline, wireless or voiceover-internet protocol (VoIP) technology. In September 2004 the Minister of Communications ruled that from 1 February 2005 value added network service (VANS) providers would be permitted to carry VoIP services. A

16

whole host of firms have since launched IP telephony services, with take-up strong among the financial services sector, the retail sector, the government and private companies. Telkom South Africa has launched a VoIP-based International Contact Centre Services division, with a view to turning South Africa into a regional telecom hub for the African continent and leveraging perceived Business Process Outsourcing (BPO) opportunities.

Wireline Regulatory Timeline

1993 Independent Broadcasting Act comes into force 1996 State adopts the Telecommunications Authority Act No. 103 May 1997 State sells off a 30% stake in Telkom South Africa July 2000 ICASA succeeds SATRA as regulator 2001 Telecommunications Amendment Bill expands the scope of the USF, introducing USALs 2002 Government begins process to license a second network operator (SNO) 7 May 2002 Market opened up to competition; Transtel, Eskom and Sentech subsequently given domestic and international operating licences March 2003 Telkom completes IPO; government's stake reduced below 40% January 2004 Sentech launches its MyWireless broadband service February 2004 Government announces details of the draft Convergence Bill May 2004 ICASA approves first seven companies for USAL licences in areas with sub-5% teledensity June 2004 Nexus Connexion disputes the award of a combined 26% stake in the SNO to two foreign bidders, threatening to further delay competition in the fixed line market September 2004 National PSTN licence awarded to the SNO by the Communications Minister, but cannot be issued by the regulator until shareholder structure and business plan have been ratified November 2004 First rural USAL operators licensed; BEE consortium, Elephant, buys a 15.1% share of Telkom 1 February 2005 Legislation further liberalises the fixed line market, allowing full service competition February 2005 VSNL's SNO stake approved, and Nexus withdraws its objections, paving the way for the launch of the SNO; several VoIP providers launch operations March 2005 Draft Convergence Bill released for consultation by parliamentary committee; WBS officially launches wireless broadband network May 2005 Publication of the draft Black Economic Empowerment (BEE) Charter for the ICT sector 1 August 2005 New price cap on Telkom's services comes into effect December 2005 SNO licensed

17

July 2006 Electronic Communications Act 2005 and ICASA Amendment Act 2006 enacted August 2006 13 more USAL concessions awarded 31 August 2006 SNO launches first corporate services under the name Neotel March 2007 Neotel is awarded spectrum in the 800MHz band for FWA networks May 2007 Department of Communications (DoC) releases a report setting a deadline of 1 November 2011 for the completion of LLU July 2007 Competition Commission rules MTN discriminated against Cell-C in the payphone market by charging it higher interconnect fees than it charged to Vodacom August 2007 Neotel agrees to join the Seacom undersea cable project January 2008 Broadband Infraco Act passed February 2008 Vodacom announces plans to invest ZAR2.5 billion to expand its fixed line operations March 2008 South Africa's Competition Tribunal unconditionally approves the merger between Neotel and Transtel Telecoms May 2008 Neotel soft launches residential services August 2008 Neotel begins full-scale marketing of its residential portfolio January 2009 544 I-ECNS licences issued allowing operators to run their own networks March 2009 MTN, Vodacom and Neotel commence deployment of fibre backbone July 2009 SEACOM launches July 2009 ICASA releases draft wireless broadband spectrum allocation regulations September 2009 ICASA publishes draft broadband policy September 2009 Regulators confirm plans to auction wireless broadband spectrum in 2.6GHz band October 2009 Broadband Infraco issued I-ECNS licence November 2009 iBurst launches 20Mbps ADSL2+ service November 2010 Broadband Infraco launches network 1 November 2011 Initial deadline for the completion of LLU (not met) March 2012 Telkom reveals that it intends to leverage VDSL2 technology October 2012 Telkom stages VDSL trials in five areas across three provinces, achieving downlink speeds of 40Mbps October 2012 eFive Telecoms awards TE SubCom supply contract for South Atlantic Express (SAEx) submarine cable linking South Africa and Brazil November 2012 Negotiations regarding bitstream access (precursor to LLU) reportedly ongoing between Telkom and ICASA.

18

Wireless
Market Commentary
In stark contrast to the sluggish take up in its fixed line telephony and broadband markets, South Africas mobile sector can be viewed as a success story, with sustained growth meaning that wireless penetration surpassed 131.6% at the end of September 2012. The country's first cellular networks analogue C-450 systems were deployed during the 1980s, but prohibitive prices, poor coverage and technological failings meant that the systems never reached a mass market. The launch of GSM-based networks by Vodacom and the current second-placed operator, MTN, in 1994 saw take-up begin to rise and the arrival of a third player, Cell C, in November 2001 added further impetus. Indeed, annual growth remained at over 25% until 2006 when the rate slowed as the sector approached saturation point. In the twelve months ended 30 September 2012 the cellular market grew by around 9.41 million subscribers to reach a total user base of 66.56 million suggesting that the surging growth within the sector shows no sign of abating in the near future. Despite the saturated market conditions, October 2010 saw the much anticipated launch of fixed line incumbent Telkom South Africa's own wireless network, branded '8ta', and it has got off to a solid, but unspectacular, start, signing 1.495 million subscribers in just under two years of service, equivalent to a 2.2% market share at end-September 2012. At that date Vodacom remained the dominant mobile operator by subscribers, with a 46.2% market share, followed by MTN (36.8%) and Cell C (14.7%). While still a minnow in national terms, it seems likely that 8ta will gear its strategy towards rolling out a data network based on 4G Long Term Evolution (LTE) technology, with the fast-growing mobile broadband market arguably representing the next key battleground in the tussle for wireless supremacy (see below). With LTE-suitable spectrum scarce at present, concern at the Independent Communications Authority of South Africa's (ICASAs) slow progress in auctioning the frequencies has been a serious bone of contention in recent years, and unfortunately shows no sign of resolution anytime soon. All four incumbent operators have made no secret of their desire to get their hands on available frequencies in the LTE-suitable 2.6GHz band, but the watchdogs grand plans fell apart in July 2010 when it withdrew its offer for telcos to submit applications for the vacant spectrum. ICASA later admitted that it was seeking an overseas auctioneer to assist it with the process, after struggling to find an appropriately qualified auctioneer locally, and by the time of writing (January 2013) no new auction date had been set. Understandably, the slow progress has forced the mobile operators to take matters into their own hands using existing spectrum resources, and Vodacom stole a march on its rivals when it initiated a LTE trial in Midrand in June 2010, while July 2011 saw MTN unveil 100 LTE base stations in the Gauteng province as part of an extensive pilot project. It was not until October 2012 however that Vodacom launched the countrys first commercial LTE network, beating long-term domestic rival MTN to the punch. At launch, the 1800MHz band 4G service was accessible to customers via approximately 70 base stations in Johannesburg, but Vodacom wasted little time in extending its LTE footprint and in less than a month confirmed that it had tripled the number of LTE-enabled base stations on its network to over 200; by mid-December 2012 the network rollout had reached Cape Town, several weeks ahead of schedule. MTN has been no slouch in the LTE department either, announcing that its own 4G network went live on 1 December 2012 in Johannesburg, Durban and Pretoria, with a total of 1,600 1800MHz LTE base stations deployed across the three cities by end-2012. Cell Cs progress has been far more cautious in comparison, with the carrier switching on its 4G network in Cape Town, Durban, and a number of unspecified coastal

19

holiday resorts in December 2012, utilising re-farmed 900MHz spectrum. The LTE rollout was expanded to Johannesburg and Pretoria in early 2013, with the company identifying heavy users of its network and inviting them to join the trial with a Huawei LTE dongle and 100GB of data offered to all participating subscribers. 8ta has employed a similar tactic, introducing a free 1800MHz LTE trial in the Gauteng province (including the cities of Johannesburg and Pretoria) between 1 November 2012 and 31 March 2013. Participants are permitted to use a 50GB data bundle and an LTE-enabled device. As of January 2013 the network had been extended to Cape Town and Durban, and is expected to encompass other large cities in due course. In July 2006 the Department of Communications (DoC) ratified the Electronic Communications Act (ECA), which included a raft of measures designed to make the domestic mobile market more hospitable to new entrants. The act paved the way for the launch of the country's first mobile virtual network operators (MVNOs) which were not permitted under previous legislation. UK-owned Virgin Mobile was one of the first to take advantage of the new regulatory framework, signing a 50:50 joint venture agreement with Cell C in December 2005, before the legislation was even enacted, creating a Virgin-branded MVNO using Cell C's GSM network. Virgin Mobile South Africa launched in mid-June 2006 planning to target the high-end market. In February 2011 Cell C sold its 50% stake in the JV for an undisclosed sum; the deal saw the Virgin Group raise its stake in the business to 55%, with Bahamas-based Calico Investments acquiring the remaining 45%. Elsewhere, late-2009 saw Econet Wireless South Africa launch as an MVNO also over Cell C's network offering expatriate customers discounted call rates to Zimbabwe and now Lesotho. More recently, February 2011 saw the launch of the countrys third MVNO when Red Bull Mobile began offering services, once again over the Cell C network. Energy drinks manufacturer Red Bull already had live MVNO operations in a number of European countries, and has endeavoured to tie its mobile brand to its high profile sponsorship deals in sports such as motor racing. Despite the saturated market conditions, South Africa remains an appealing prospect for international telecoms players, and January 2013 saw France Telecom-Oranges newly formed Orange Horizons unit which aims to seek out new business opportunities in countries where the group is not already present as a mass-market telecommunications provider launch the Orange consumer brand in South Africa, ahead of a projected MVNO launch further down the line. Interestingly, managing director Sebastian Crozier revealed that Orange is not averse to acquiring a local network operator if the opportunity presents itself, saying: We have tried that several times in South Africa already. Cash-strapped fourth operator 8ta is likely to be highlighted as the French firms obvious target, after being linked to Indias Bharti Airtel in December 2012. A source close to the Indian telecoms giant which acquired 15 companies comprising Zain Africa in June 2010 admitted that a new play was being made after the failure of Bhartis 2009 bid for MTN. With question marks over its long-term viability pushed to the fore during the preceding months, 8ta was strongly linked to a merger with the better-established Cell C, although no concrete developments had been confirmed by end-January 2013.

Networks
Provider Name Generation Platform Evolution Frequency Launch Cell C Cell C Cell C 2G 2.5G 2.5G GSM GSM GSM None GPRS EDGE 1800 900/1800 900/1800 Status Network Details Jan-13: 92% Jan-13: 92% Jan-13: 92%

Nov 2001 Live Jun 2004 Live Dec 2005 Live

20

Provider Name Generation Platform Evolution Frequency Launch Cell C 3G W-CDMA HSPA+ 900

Status

Network Details Jan-13: Unknown; deployment in line with national 2G footprint Jan-13: Unknown

Sep 2010 Live

Cell C Cell C

3G 3.5G

W-CDMA None W-CDMA DCHSPA+

900 900

Sep 2010 Live

May 2011 In Jan-13: Deployment Unknown; deployment contracted to ZTE in May-11 Dec 2012 In Jan-13: Trial Deployment ongoing in Cape Town, Durban, Pretoria and Sandton (Joburg) Jun 1994 Live Jan-13: 99%

Cell C

4G

LTE

None

900

MTN South Africa MTN South Africa MTN South Africa MTN South Africa MTN South Africa MTN South Africa MTN South Africa MTN South Africa MTN South Africa

2G

GSM

None

900

2.5G

GSM

GPRS

900

May 2002 Live

Jan-13: 99%

2.5G

GSM

EDGE

900

May 2004 Live

Jan-13: 85% (est.) Jan-13: 70% (est.) Jan-13: More than 150 BTS in operation Jan-13: 60% (est.) Jan-13: 60% (est.) Jan-13: 60% (est.)

3G

W-CDMA None

2100

Jun 2005 Live

3G

W-CDMA None

900

Aug 2010 Live

3.5G

W-CDMA HSDPA

2100

Jan 2008 Live

3.5G

W-CDMA HSUPA

2100

Sep 2008 Live

3.5G

W-CDMA HSPA+

2100

Q1 2010

Live

3.5G

W-CDMA DCHSPA+

2100

Jan 2011 In Jan-13: Deployment Unknown; trialled in Sandton in Jan-11

21

Provider Name Generation Platform Evolution Frequency Launch MTN South Africa 4G LTE None 1800

Status

Network Details Jan-13: Johannesburg, Durban, Pretoria; up to 500 BTS by end-12 Jan-13: Midrand (testing commenced Mar-12) Sep-12: 2,067 base stations + roaming agreement with MTN = 96% of population Sep-12: 2,067 base stations + roaming agreement with MTN (see profile)

Dec 2012 Live

Neotel (South Africa)

4G

LTE

None

1800

Q1 2013

Planned

Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta])

2G

CDMA

1800

Oct 2010 Live

3G

W-CDMA

2100

Oct 2010 Live

4G

LTE

None

1800

2013

In Jan-13: Free Deployment LTE trial for Joburg, Pretoria residents between Nov-12 and Mar-13 Jan-13: ~99.5% Jan-13: ~99.5% Jan-13: Unknown; 3G base stations passed 5,000 mark in Feb-12

Vodacom 2G South Africa Vodacom 2.5G South Africa Vodacom 3G South Africa

GSM

None

900

Jun 1994 Live

GSM

GPRS

900

Q4 2002

Live

W-CDMA None

2100

Dec 2004 Live

Vodacom 3G South Africa Vodacom 3.5G South Africa

W-CDMA HSPA+

2100

Feb 2010 In Jan-13: Deployment Unknown; ~5,000 BTS Mar 2006 Live Jan-13: Unknown

W-CDMA HSDPA

2100

22

Provider Name Generation Platform Evolution Frequency Launch Vodacom 3.5G South Africa Vodacom 3.5G South Africa W-CDMA HSUPA 2100

Status

Network Details Jan-13: Unknown Jan-13: Unknown; passed 3,000 base station mark in Feb-12 Jan-13: Cape Town, Johannesburg, Pretoria, and Durban (500 base stations)

May 2008 Live

W-CDMA DCHSPA+

Unknown

Apr 2011 Live

Vodacom 4G South Africa

LTE

None

1800

Oct 2012 Live

Subscribers Market Share by Provider

Sources: operators

Market Share History

Provider Name Vodacom South Africa MTN South Africa Cell C Telkom South Africa (inc. Telkom Mobile [8ta]) Jun 2011 46.2% 36.3% 16.1% 1.4% Sep 2011 45.6% 36.7% 15.7% 2.0% Dec 2011 46.2% 36.4% 15.2% 2.2% Mar 2012 46.3% 36.3% 15.0% 2.4% Jun 2012 47.2% 35.9% 14.6% 2.3% Sep 2012 46.2% 36.8% 14.7% 2.2%

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Market Share History

Sources: operators

Quarterly Subscribers by Operator

Provider Name Cell C MTN South Africa Subscribers Total Total Sep 2011 9,000,000 Dec 2011 9,200,000 Mar 2012 9,400,000 Jun 2012 9,600,000 Dec Sep 2012 2012 9,782,407

20,968,000 22,033,000 22,735,000 23,533,000 24,498,000 1,140,289 1,350,000 1,483,000 1,490,000 1,495,083

Telkom Total South Africa (inc. Telkom Mobile [8ta]) Vodacom Total South Africa Cell C MTN South Africa 3G 3G

26,043,904 28,008,162 28,941,000 30,970,000 30,783,000 200,000 5,700,000 115,000 275,000 6,800,000 150,000 350,000 7,900,000 185,000 425,000 550,000

9,000,000 10,100,000 220,000 255,000

Telkom 3G South Africa (inc. Telkom Mobile [8ta]) Vodacom 3G South Africa

4,133,000

4,788,000

4,700,000

4,900,000

5,100,000

24

Notes: 3G figures are for number of devices sold rather than number of active users

Annual Country Subscriber Growth

Year Total Growth (%) 13.7 18.2 14.3 0.6 8.2 17.9 Pop. Pen. (%) 73.7 85.4 96.5 96.0 102.8 3G 390,000 1,204,000 2,070,000 3,320,000 6,240,000 3G Growth (%) 366.5 208.7 71.9 60.4 88.0 92.5 4G (LTE) 0 0 0 0 0 0 4G (LTE) Growth (%)

2006 34,930,575 2007 41,280,375 2008 47,185,600 2009 47,485,086 2010 51,374,000 2011 60,591,162

119.8 12,013,000

Quarterly Country Subscriber Growth

Period Jun 2010 Sep 2010 Dec 2010 Mar 2011 Jun 2011 Sep 2011 Dec 2011 Mar 2012 Jun 2012 Sep 2012 Total 46,626,000 48,405,190 51,374,000 52,291,600 54,584,210 57,152,193 60,591,162 62,559,000 65,593,000 66,558,490 Growth (%) -2.0 3.8 6.1 1.8 4.4 3G 4,600,000 5,405,000 6,240,000 7,005,000 8,469,000 3G Growth (%) 26.4 17.5 15.4 12.3 20.9 19.8 18.4 9.3 10.7 10.0 4G (LTE) 0 0 0 0 0 0 0 0 0 0 4G (LTE) Growth (%)

4.7 10,148,000 6.0 12,013,000 3.2 13,135,000 4.8 14,545,000 1.5 16,005,000

25

Subscriber Growth

Sources: operators

Main Players
Vodacom South Africa
47 Wierda Road East Wierda Valley Sandton Johannesburg 2146 South Africa Tel. +27 11 6535000 Fax +27 11 7840805 http://www.vodacom.co.za Pan-African cellular communications company Vodacom Group was awarded a licence to offer GSM-900 services in South Africa in 1993. The then-joint venture between national PTO Telkom South Africa and UK-based Vodafone made its official launch the following year alongside rival MTN and the pair enjoyed a seven-year duopoly until a third operator, Cell C, launched services in 2001. Vodacom has since grown into the markets dominant player and by the end of September 2012 had a market share of 46.2%, with a customer base of 30.78 million, of which 81.3% were using pre-paid plans. The company gained 4.74 million net subscribers in the year ended 30 September 2012, almost as many net additions as its three rivals combined. In recent years, with the wireless market reaching saturation point, Vodacom has sought to promote take-up and encourage higher usage, with an increased emphasis on wireless data services. The company rolled out its first data service in 2002 in the form of a GPRS network; launching MMS services the following October. In June 2004 it was awarded a temporary UMTS licence and launched its 3G network in December 2004 in parts of Johannesburg, Pretoria, Cape Town, Durban and major holiday resorts. In the wake of its 3G launch, Vodacom revealed plans to pilot 3.5G high speed downlink packet access (HSDPA) technology, beginning in April 2005, to increase maximum data transmission speeds from 384kbps to 2Mbps. It went on to launch the technology commercially in March 2006. The entire 3G system had been upgraded with HSDPA technology by March 2007 and in January 2008 Vodacom announced that peak download speeds had been increased to 3.6Mbps across the entire system. The company further upgraded its networks in May 2008, rolling out HSUPA technology and raising maximum upload speeds to 1.4Mbps. HSDPA peak speeds were upgraded to 7.2Mbps in February 2010 and 14.4Mbps by August that year. In August

26

2010 Vodacom teamed up with On Demand Group to launch mobile TV subscription ondemand services to its 3G user base, claiming that the what-you-want, when-you-want-it package was the first of its kind in Africa. In February 2010, Vodacom announced that it had switched on its first 21Mbps HSPA+ site in Midrand, with 43Mbps Dual Carrier (DC)HSPA+ technology belatedly given a commercial push in April 2011, by which time the operator had more than 1,000 base stations upgraded with the high speed technology. More recently, Vodacom commissioned its 5,000th 3G base station on 20 February 2012, with the cellco also noting that it had reached the milestone of 3,000 DC-HSPA+ enabled sites by that date. Vodacoms former subsidiary iBurst, which launched its first WiMAX services in June 2008, signalled the companys first involvement with 4G mobile broadband, and although the 802.16e network supported full mobility, Vodacom made no secret of its desire to embrace 4G Long Term Evolution (LTE) at a later date. As such, in September 2010 the company sold its final 24.9% stake in iBurst to co-shareholder Wireless Business Solutions (WBS) to ensure that it would be eligible to bid in watchdog ICASAs long-delayed spectrum auction. Indeed, June 2010 saw Vodacom preside over the launch of a trial LTE network in Midrand, reputedly the first such trial in Africa. Concerned with ICASAs lack of progress in auctioning 2600MHz LTE spectrum, October 2012 saw Vodacom take matters into its own hands when it launched the countrys first commercial LTE network, using existing 1800MHz spectrum, beating long-term domestic rival MTN to the punch. At launch, the service was accessible to customers via approximately 70 base stations in Johannesburg, with other cities scheduled to follow in the near future. Vodacom wasted little time in extending its LTE footprint and in less than a month confirmed that it had tripled the number of LTE-enabled base stations on its network to over 200, while simultaneously commencing testing in Cape Town. The cellcos progress continued at pace, and by mid-December the network rollout had reached Cape Town, several weeks ahead of schedule. Confirming the development, chief technology officer Andries Delport commented: On average weve lit up another seven LTE sites every single day for the past two months and hit our target of 500 LTE base stations a month early. Back in October 2012, confirming the original LTE launch, Shameel Joosub, CEO of parent company Vodafone Group, noted that it intended to use its experience of launching LTE in Germany and Portugal to benefit its South African unit. Following Vodacoms 2011 rebranding in line with Vodafones corporate identity, the parent said that it intended to rotate executives among its foreign units and allow Vodacom to leverage its global supply chain, as well as introducing new services pioneered by the UK giant elsewhere in the world. Vodacom South Africa is a 93.75%-owned subsidiary of Vodacom Group, which is itself owned by UK-based mobile giant Vodafone Group (65%) and the South African government (13.9%), with the remaining shares distributed on the Johannesburg Stock Exchange (JSE). The outstanding 6.25% of Vodacom South Africa is held by a number of Black Economic Empowerment (BEE) shareholders. In October 2008, as part of the governments black empowerment programme, YeboYethu, a company set up solely for Vodacom employees and suppliers to acquire shares in the cellco, acquired 3.44% of the companys equity for a total fee of ZAR946 million. The YeboYethu offer was almost three times over-subscribed, attracting 102,531 valid applications, with 86% of cash received from the black public and 14% from black-run companies and organisations. The total BEE transaction was said to be worth approximately ZAR7.5 billion, which was the financial ceiling for BEE transactions at that time. In April 2011 it was reported that telecoms regulator, the Independent Communications Authority of South Africa (ICASA), intended to introduce a stipulation that companies applying for spectrum in the future must have at least 30% of their equity in the hands of Historically Disadvantaged Individuals (HDI); the definition of HDI differs from traditional

27

BEE rules since it includes women of all races and people with disabilities. If approved, the move would see major telecoms players such as Vodacom and MTN sidelined in ICASAs long-delayed auction for frequencies in the 2.6GHz and 3.5GHz spectrum bands unless they can up their HDI stakes to 30% or above. Whilst HDI stipulations have widely been applied to ownership in the past, it was believed that this was the first time that the clause had been linked to radio spectrum. The following month, in May 2011, Vodacom Group was reported to be considering lodging a bid to buy back the South African governments 13.9% stake in the company; redistributing this to HDI investors would go some way to helping Vodacom to fulfil the required criteria.

MTN South Africa

3 Alice Lane Sandown Ext 38 Johannesburg 2146 South Africa Tel. +27 11 912 3000 http://www.mtn.co.za Licensed in 1993, MTN was, along with Vodacom, one of two original GSM mobile network operators in South Africa when it launched commercially in June the following year. The two companies held a duopoly over the market until the entry of a third operator, Cell C, in 2001. MTN remains the second largest operator in the market in terms of subscribers with a market share of 36.8% at 30 September 2012, equivalent to 24.498 million users, and up from 20.968 million (36.7%) year-on-year. At the same date MTN reported that 82.3% of its customers were using pre-paid plans. MTN launched its first data offerings in May 2002 following the deployment of GPRS technology across its network. Two years later the firm rolled out a 2.5G EDGE network to further bolster its data services, incrementally expanding the network as it increased its networks GSM capacity. In June 2004 MTN received a temporary concession to pilot a 3G mobile network, but initially appeared in no great rush to roll out commercial services. Indeed, following market leader Vodacom's 3G launch in December 2004, the company said it did not expect demand for UMTS in South Africa to meet future expectations and expressed the belief that voice services would continue to be the key market driver, arguing that other operators were forcing new technology onto the public rather than meeting any real demand for high speed data applications. Despite these statements, MTN eventually decided to push ahead with a ZAR500 million (USD56.3 million) W-CDMA rollout, in partnership with Swedish vendor Ericsson, and launched a commercial 3G network on 26 June 2005 in central districts of Johannesburg, Midrand, Pretoria, Cape Town, Durban, Port Elizabeth and Bloemfontein. It claims that it allowed Vodacom a six-month head start to ensure handset availability and equipment reliability. MTN hoped to sign up 100,000 3G users in the first twelve months, and managed to surpass its target, attracting 133,000 by mid-2006; this had risen to 513,000 twelve months later, and the total was estimated to have reached 10.1 million by the end of September 2012. The cellco launched a 3.5G HSDPA network in January 2008 in major metro areas. By February it announced it was upgrading download speeds on its HSDPA network to 3.6Mbps, from 1.8Mbps previously; peak speeds of 7.2Mbps are also available in certain areas. HSUPA evolution was launched in September 2008, offering uplink speeds of up to 1.4Mbps countrywide using a phased approach, with key metropolitan areas getting the faster speeds first. Meanwhile, MTNs HSPA+ network went live in early-2010, while the cellco trialled Dual Carrier (DC)-HSPA+ technology in January 2011 in Sandton using re-farmed 2100MHz frequencies and equipment supplied by Ericsson. The scale of the DC-HSPA+ network coverage was unknown as at end-January 2013.

28

In August 2010 MTN announced plans to build a rural 3G network in the 900MHz band. The network was designed to better serve consumers in outlying areas; MTN expects significant growth in demand for broadband services outside of South Africas main cities over the next few years. By utilising the 900MHz bandwidth, MTN hopes to provide wider coverage with fewer base stations, reducing costs. Previously, both MTN and Vodacom had used the 2100MHz band for 3G services, resulting in a smaller footprint around cell towers. MTN is re-farming a portion of its 900MHz spectrum previously used exclusively for its 2G network for rural 3G purposes; in urban areas 900MHz will continue to be used purely for 2G. The operator said in November 2011 that it expected to have 150 UMTS-900 base transceiver stations (BTSs) in service by end-2011, rising to around 1,000 twelve months later. In May 2011 MTN announced that it had commenced work on a pilot Long Term Evolution (LTE) network in Gauteng, aiming to have around 100 base stations operational by the end of 2011. However, managing director Karel Pienaar warned that it was likely to be several years before consumers could expect to experience the fruits of MTNs labours for themselves, with LTE-compatible handsets and dongles not yet ready for mass-market deployment. Further, at that date, MTN was still waiting for regulator ICASA to stage its long-delayed spectrum auction for frequencies in the 2.6GHz band; in the interim period MTN said that it was building out its LTE network using spectrum in the 1800MHz band, which is predominantly used for voice services. In September 2012 MTN revealed that it was set to commercially launch LTE in Johannesburg, Durban and Pretoria by the end of the year. MTN chief technology officer Kanagaratnam Lambotharan said that the operator would have between 400 and 500 base stations equipped with LTE functionality by the end of 2012, up from around 250 in September. Cape Town was exempted from the rollout due to spectrum refarming issues. The LTE mobile broadband service went live on 1 December 2012 in Johannesburg, Durban and Pretoria. Ericsson provided LTE infrastructure and services for MTNs 4G rollout, including its RBS 6000 family of base stations, Evolved Packet Core, Home Subscriber Server (HSS) for user data management, Operating Support Systems (OSS), project management and network optimisation; the rollout marked the first commercial LTE network built by Ericsson in Africa. At the time of writing (January 2013) 4G coverage reached the following areas: Menlyn, Centurion, Pretoria East, Hatfield and Midrand (all Pretoria); Sandton, Rosebank, Fourways, Roodepoort, Fairlands, and OR Tambo International Airport (all Johannesburg); Westville, Pinetown, Kloof, Hillcrest, Tongaat, Queensburgh, Amanzimtoti King Shaka International Airport and Umhlanga (all Durban). At that date MTN had deployed a total of 1,600 LTE base stations across the three cities. For the six month period ended 30 June 2012 MTN reported total revenue of ZAR19.86 billion, up from ZAR18.14 billion one year earlier and ZAR17.135 billion in 1H10. Data (as a percentage of revenue) accounted for 26.1% of MTNs earnings during 1H12, an increase compared to 21.4% in full-year 2011 and 19.0% in 2010. MTN South Africa is 100% owned by MTN Holdings, the holding company for all of MTN Group's investments.

Cell C
150 Rivonia Road Morningside Johannesburg 2196 South Africa Tel. +27 11 324 4000 Fax +27 11 324 4001 http://www.cellc.co.za

29

Cell C became South Africa's third mobile operator when it launched services in November 2001, after securing a licence in February that year. The company awarded Siemens a USD221 million turnkey contract to provide dual-band GSM-900/1800 network infrastructure in June 2001, including delivery and installation of core switching, base stations, GPRS, pre-paid platforms, VAS equipment, support and maintenance. However, Cell C began operations via a 15-year roaming contract with market leader Vodacom and relied heavily on its rival's network while its own infrastructure was in deployment. At launch, Cell C stated that its initial goal was to claim a 25% market share in terms of subscribers by the end of 2008, a target which it missed, with just 12.7% at that date. The company explained that the rate of growth in the domestic mobile sector had meant that initial projections were for a much smaller market. Nevertheless, subsequent growth has been solid, and as at end-September 2012 Cell C had around 9.782 million subscribers, going on to pass the ten million subscriber mark in October 2012. That said, the introduction of further competition in the shape of Telkom South Africas 8ta operation in late 2010 has arguably had a negative effect on Cell Cs market share, however, with the latters slice of the market falling from 16.5% in September 2010 to 15.7% a year later and 14.7% by September 2012. In June 2004 Cell C introduced a commercial GPRS data platform, and three months later signed an agreement with Nokia for the provision of a multimedia messaging service (MMS) solution. At the time of launching GPRS the company stated that it did not intend to pursue UMTS plans 'for the foreseeable future' as it believed that demand for the data service was not high enough to warrant deployment. In December 2004, however, it appeared to have a change of heart and announced a plan to launch advanced mobile network services before the end of 2005. Cell C applied to regulator ICASA for a temporary third-generation licence and put out a tender for technology suppliers to implement an UMTS network rollout. It also began a programme of 3G testing in Johannesburg, Cape Town and Durban, but a UMTS launch failed to materialise. In the meantime, Cell C began to upgrade its networks with EDGE technology. By the end of 2009 Cell C had successfully deployed GPRS and EDGE across its entire network. In December 2009 Cell C finally revealed plans to deploy a 3G network, announcing that it would spend around ZAR5 billion to roll out an HSPA+ network capable of download speeds of up to 21Mbps. In August 2010 the operator announced that tests for its new HSPA+ network were underway in six major cities, and that the results were very promising. The 3.5G network is based on a Release 7 platform, and offers theoretical data transmission speeds of 21.6Mbps (downstream). More than 1,300 base transceiver stations (BTS) had been converted to HSPA+ using the 900MHz frequency band prior to the rollout, and thenCEO Lars Reichelt promised that Cell C would launch its new network on a city-by-city basis, rectifying any potential problem areas as it progressed. The cellco will eventually upgrade 5,200 BTS to the new platform. In September 2010 Cell C confirmed the commercial launch of its 900MHz HSPA+ network in Port Elizabeth and Bloemfontein, with Cape Town, Durban, Pietermaritzburg, East London and Nelspruit following in October. In March 2011 Cell C revealed that it intended to offer download speeds of 42Mbps from April 2011, via the introduction of Dual Carrier (DC)-HSPA+ technology . The increased transmission speeds would initially be available in Port Elizabeth from 'early April', before being extended to the remainder of Cell C's network footprint. Described as a 'phased network upgrade', the speeds would be rolled out in tandem with Cell C's ongoing HSPA+ rollout. Lars Reichelt had previously admitted that the main aim of the 42Mbps network upgrade was to create more capacity and boost the overall performance of Cell C's network, rather than merely creating higher download speeds. In the event, Chinese vendor ZTE confirmed that the network had gone live in Port Elizabeth in May 2011, slightly behind schedule. Although chief technical officer Ron Reddick admitted that the company would consider implementing speeds of 84Mbps in the future, he said that the company's main developmental focus would be on the rollout of Long Term Evolution (LTE). To that end, Reddick disclosed that Cell C was in the process of testing 4G technologies in the 900MHz

30

and 850MHz spectrum bands; transmission speeds in excess of 100Mbps had been achieved using dongles provided by Samsung. More recently, October 2012 saw Cell C confirm that it would be trialling LTE before the end of the year, and in November the carrier confirmed that it would switch on its 4G network in Cape Town and Durban in December 2012, with connectivity also reportedly on offer in a number of unspecified coastal holiday resorts. The LTE rollout was expanded to Johannesburg and Pretoria in early 2013, with the company identifying heavy users of its network and inviting them to join the trial with a Huawei LTE dongle and 100GB of data offered to all participating subscribers. The trials were believed to be ongoing as at endJanuary 2013. In February 2011 Cell C sold its 50% stake in mobile virtual network operator (MVNO) Virgin Mobile South Africa for an undisclosed sum. Virgin Mobile South Africa began life in 2006, as an equal joint venture between Cell C and Richard Bransons Virgin Group. The deal saw co-owner Virgin Group raise its stake in the business to 55%, with Bahamas-based Calico Investments acquiring the remaining 45%. Cell C continues to function as Virgin Mobiles network partner, under an updated network services agreement. Virgin Mobile introduced HSPA+ services to its customers in February 2011 using Cell Cs network. In November 2010 US-based wireless communication site operator American Tower Corp agreed to buy 3,200 cell towers from Cell C. The company is purchasing 1,400 of Cell Cs existing towers and as many as 1,800 additional towers that were already under construction, or mooted for future development. Cell C remains the anchor tenant for each tower. The transaction, which was worth USD430 million, was carried out in stages, with the initial tranche of 960 towers transferred in March 2011. In 2009 Cell C, along with Internet Solutions and Convergence Partners, set up FibreCo Telecommunications, a vehicle to deploy an open-access long-haul terrestrial fibre optic broadband network in South Africa. The companies revealed in November 2010 that construction of the network would follow a three-phase approach and ultimately would cover a total distance in excess of 12,000km. The initial phase is focusing on rolling out a 4,500km redundant core ring linking Gauteng, Cape Town and Durban to international cable landing stations by end-2012 (completion unconfirmed as of January 2013). This phase will cost between ZAR1.5 billion and ZAR2 billion, with the total investment eventually rising to ZAR5 billion. As of January 2013 FibreCo had completed over 800km of trenching and anticipated offering services on selected routes from early-2013. Cell Cs national wireless network will provide the platform for the co-location of optical transmission equipment at its base stations, as well as wireless access solutions for FibreCos customers. Cell C is wholly owned by holding company 3C Telecommunications, which is itself 60%owned by Oger Telecom South Africa, 25% by the CellSAf consortium (a Black Economic Empowerment [BEE] entity), and 15% by Lanun Securities. Saudi Arabia-based group Oger Telecom is the sole shareholder in Oger Telecom South Africa and Lanun Securities, giving it an overall 75% indirect stake in Cell C. Oger Telecom is 35%-owned by Saudi Telecom Company (STC).

Telkom South Africa (inc. Telkom Mobile [8ta])

Private Bag X780 Pretoria 1 South Africa Tel. +27 12 3115720 Fax +27 12 3115721 http://www.residential.telkom.co.za http://www.8ta.com

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In February 2008 fixed line incumbent Telkom applied for spectrum in the 1800MHz band from market regulator the Independent Communications Authority of South Africa (ICASA). Telkom was looking to become the fourth mobile operator, following the sale of its 50% stake in South Africa's largest cellular operator by subscribers, Vodacom (it agreed a 15% sale to Vodafone Group in October 2008, with the remainder distributed to Telkoms own shareholders). While it was a partner in Vodacom, Telkom was prevented from making a foray into mobile services under a shareholders agreement. The deal was concluded in May 2009, leaving Telkom free to formulate its own wireless plans, but it was not until 14 October 2010 that Telkom actually unveiled its new mobile network, becoming the countrys fourth cellular operator in the process. Contrary to earlier rumours, the new business was not branded Telkom Mobile, but 8ta (Heita), which is local slang for hello. At the time of its commercial launch, the newcomer had reportedly constructed 800 base transceiver stations (BTS) across the country and planned to construct a further 3,200 BTS in due course. Its end-to-end all-IP 2G and 3G network is future-proofed for 4G Long Term Evolution (LTE) upgrades. Under a national roaming agreement, 8ta is roaming on MTNs 2G and 3G networks outside of its predominantly urban coverage areas. The move came as a surprise to many industry insiders who had assumed that Telkom would strike a deal with former partner Vodacom. 8ta says that this arrangement has extended its reach to 96% of the South African population. Nevertheless, Telkom intends to spend ZAR6 billion (USD858.2 million) on its own infrastructure rollout over the next five years. Telkom hopes that by embracing mobile telephony it will be able to offset the declining profits of its fixed line operations. At the time of writing (January 2013) 8tas own network was still limited to general coverage of the six major metropolitan areas. The cellco claims that its 2G and 3G networks utilise frequencies in both the 1800MHz and 2100MHz spectrum bands. Going forward, 8ta has one eye on the leap to 4G LTE, and in October 2012 it became the latest South African mobile operator to reveal firm plans, introducing a free 1800MHz LTE trial in the Gauteng province (including the cities of Johannesburg and Pretoria) between 1 November 2012 and 31 March 2013. Participants will be permitted to use a 50GB data bundle and an LTE-enabled device. As of January 2013 the network had been extended from Johannesburg and Pretoria to Cape Town and Durban, and is expected to cover other large cities in due course. At end-September 2012 almost two years after its full launch 8ta reported an active subscriber base of 1.495 million, up from 993,764 one year earlier, although the total number of SIM cards activated passed the three million mark earlier in 2012. Blended ARPU for the six months ended 30 September 2012 was ZAR68.6, with pre-paid ARPU ZAR23.1 and postpaid ARPU ZAR169.3. Pre-paid churn was reported at 52%. During the six months ended 30 September Telkom reported revenues of ZAR898 million, a 198% improvement on the ZAR301 million generated during the corresponding period one year earlier. Telkom South Africa is wholly owned by state-owned Telkom South Africa Ltd (also known as the Telkom South Africa Group).

Neotel (South Africa)

44 Old Pretoria Main Road Midrand Johannesburg 2191 South Africa Tel. +27 11 585 0000 Fax +27 80 033 3636 http://www.neotel.co.za

32

In March 2012 Angus Hay, chief technology officer for second national operator (SNO) Neotel, confirmed that his company was testing a number of technology platforms including Long Term Evolution (LTE), with the aim of improving its broadband portfolio. Neotels trial network was initiated at its Midrand campus and covered the surrounding area. In November 2012 Neotel indicated that its LTE trials were still ongoing, although CEO Sunil Joshi warned journalists that the trial was very much still a work in progress. That said, the telco noted that it had achieved peak download speeds of 70Mbps during the testing phase. Neotel, which hopes to initiate a commercial LTE service before the end of the fiscal year, said that it was in the process of assessing partners to collaborate with on a fullscale the deployment. Local media sources suggested that Neotel was using a portion of its legacy 1800MHz spectrum for the trial, with industry insiders also noting that its 800MHz frequencies could conceivably be utilised for LTE, as they had elsewhere in the world. At the time of writing (January 2013) no further developments had been reported. On 14 June 2011 India-based carrier Tata Communications announced that it had increased its effective shareholding in Neotel from 49% to 61.5%, after acquiring a 12.5% stake from Two Telecoms Consortium (2TC). Tata did not disclose a purchase price for the shares, but confirmed that following the stake increase, Neotel would function as a subsidiary of Tata Communications. The announcement followed minority shareholder Telecom Namibias May 2011 admission that it hoped to offload its own 12.5% stake in Neotel as soon as possible. Telecom Namibia holds its shares via CommuniTel Telecommunications, a former joint venture with the MKHonto We Sizwe Military Veterans Association (MKMVA). However, by May 2012 Telecom Namibia had changed its tune, indicating that it no longer planned to divest its Neotel stake, despite not having received any return on its NAD429 million (USD50.05 million) investment to date. The other key shareholder in Neotel is black empowerment group Nexus Connexion, which itself consists of 134 different investors. In June 2012 Tata revealed that it planned to acquire an additional 2.5% interest in Neotel, for around USD18 million; at that time the stake was held by Tata offshoot Tata Africa Holdings, although no progress had been confirmed by the time of writing (January 2013). The Indian company also said that it hoped to invest around USD125 million in Neotels operations, supplementing the USD395 million invested to date.

33

Broadband
Market Commentary
Much like its fixed line telephony market, South Africas broadband sector has struggled to emerge from the shadow of fixed line incumbent Telkom to realise its full potential as part of Africas largest economy. While the introduction of ADSL services by Telkom in 2002 transformed the landscape of the countrys data service market, household broadband penetration remained resolutely below the 10% mark at 30 September 2012. Developments that were expected to boost growth such as the rollout of competitive mass-market fixed line services by the second national operator (SNO) Neotel, and the planned implementation of local loop unbundling (LLU, still in development as of January 2013) failed to materialise, and alternative providers are still finding it difficult to compete with the incumbent, especially in the residential sector. Furthermore, the hefty prices being charged for internet access are preventing many South Africans from taking out a high speed internet subscription. At the end of September 2012 there were an estimated 1.25 million subscribers, up from 1.05 million a year before. Many observers have laid the blame for the poor development of the market firmly at the feet of Telkom, which has faced accusations of abusing its near-monopoly of lastmile links by overcharging for broadband connections, putting them out of reach of much of the population, and pricing competitors out of the market by keeping wholesale tariffs high. Prior to 2007, this abuse of power was typified by the ruling that all South African ADSL subscribers were required to pay Telkom an ADSL line rental charge as well as their regular phone line rental, effectively paying twice for what is, after all, a single line, while also having to pay broadband subscription fees to their internet service provider (ISP). The incumbent defended its position, claiming that it had invested heavily in ADSL technology and that it was entitled to protect its outlay. In April 2007 the incumbent finally announced plans to introduce a wholesale product under which alternative operators would be able to resell the ADSL access portion and handle the bulk of the installation and support services themselves. Telkoms practices had already hampered market growth, however, preventing resellers from competing effectively with the former monopoly in terms of price and allowing Telkom to build a strong customer base in comparison to its rivals. At the end of September 2012 Telkom had 841,831 ADSL customers (up from 795,419 year-on-year), although only approximately 315,000 were believed to be retail broadband subscribers with the remainder wholesale and internal lines. In light of the lack of LLU, Telkoms main competitors in the retail market are those ISPs reselling its broadband connections to end-users, most notably MWEB, which has gained serious ground on the incumbent in recent years, passing the 300,000 subscriber mark in 3Q12 to notch up an estimated 24.4% market share. MWEB is indirectly owned by South Africa-based multinational media company Naspers, which operates in the print media, pay-TV and broadband spheres in numerous countries, and its high-profile backers undeniable clout has given MWEB a real advantage in the broadband sector. In December 2012 general manager Jaco Muller observed that average ADSL usage has increased 20-fold per month since 2010, adding: MWEB remains focused on driving change in the industry and removing barriers to internet connectivity and services to positively impact its customers and the broader South African internet landscape. Elsewhere, up-and-coming Vox Telecom (which offers consumer services under the @lantic brand) is credited with having the third largest customer base, with approximately 148,000 subscribers at 30 September 2012, occupying 11.8% of the retail market.

34

The incumbents monopoly over fixed line services was technically broken in 2002 when regulators mandated public utilities Eskom, Transtel and Sentech to leverage their infrastructure to support the countrys telecoms sector. Telkom retained a tight control over the local loop and the majority of transport links, however, leaving ISPs with little option but pay to use the companys network. In December 2005 ICASA took a major step towards liberalising the wholesale sector when it granted a 25-year PSTN operators licence to second national operator (SNO) Neotel; at launch the operator did not own any network infrastructure and was forced to operate via a wholesale agreement with Telkom for its first year of operation. In March 2008 Neotel finally acquired its own network infrastructure when it purchased Transtel in a ZAR256 million deal, although it remained reliant on Telkom for last mile connection. In January 2009 Neotel agreed a deal with mobile giant MTN to deploy a 5,000km fibre-optic cable network which would allow both operators to bypass state-run Telkom's transport system completely, further liberating the market. Joined by the countrys largest cellular operator Vodacom (which agreed to provide backhaul for the firm's eleven metropolitan fibre rings) in March 2009, the companies pledged to spend up to ZAR2 billion on the project, which it was estimated could save the firms as much as ZAR6.3 billion in transmission costs over a ten-year period. Construction began that month and was initially anticipated to be completed before the June 2010 football World Cup, which was held in the country. However, the consortium failed to meet that deadline, lamenting regulatory issues for its slow progress. Full completion had still to be announced by the time of writing (January 2013) although sections of the network are in service. Indeed, the most recent update came in July 2012 when MTN chief technical officer Kanagaratnam Lambothara commented: Two major MTN nodes, [in] New Germany and Durban, [are] ready to go live on the MTN network. 50% of the fibre, and over 95% of the total route trenching, has been completed certainly a key milestone in our network footprint which is designed and optimised to link major population centres and economic hubs, as well as interconnect with the international submarine cable landing sites. The development of the countrys backhaul network has been an ongoing issue in the public as well as private sector, and on 8 January 2008 the DoC published the Broadband Infraco Act, which revealed plans to combine the telecoms assets of Eskom and Transtel to build out new fibre infrastructure which would eventually supersede Telkoms copper networks as the states backbone network. Under the act a new state-owned enterprise was formed, named Broadband Infraco, with a mandate for boosting the countrys broadband connectivity and bandwidth availability. By the time of its November 2010 launch Broadband Infraco had installed 11,765km of fibre-optic cable connecting Johannesburg, Pretoria, Cape Town and Durban and other large metropolitan centres including Bloemfontein, Kimberley, Port Elizabeth, East London, Nelspruit and Polokwane. The network also extends connectivity to the borders of South Africas neighbouring countries, namely: Namibia, Botswana, Zimbabwe, Mozambique, Lesotho and Swaziland. The fibre-optic cables are scalable up to hundreds of gigabits of data per second, depending on future growth. After coming under pressure from local ISPs, ICASA decided to only issue Broadband Infraco with an I-ECNS licence and not an Electronic Communication Services (ECS) licence. Broadband Infraco subsequently confirmed that it will operate exclusively within a wholesale business model, targeting both fixed and mobile operators, as well as internet service providers (see Broadband Infraco profile for more details). Along with investment in the countrys national transport network, telcos have also spent heavily on a number of international submarine cables designed to boost bandwidth availability and connectivity, with the final aim of reducing broadband prices nationwide. To its credit, Telkom has led the way in investing in the build-out of a ring of submarine cables around the African coastline, strengthening both its domestic backbone infrastructure and its links to the rest of the continent, Europe, Asia and the Middle East. In 2002 Telkom helped initiate the Afrolinque project which resulted in a consortium of 36 African operators cooperating in the building of three submarine cables (SAT-2, SAT-3 and SAFE). Telkom later became involved in two further development projects: the East African Submarine

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System (EASSy) and the West African Cable System (WACS). EASSy, which went live on 30 July 2010, is the highest capacity system serving sub-Saharan Africa, with a 3.84Tbps, two fibre-pair configuration. It is the first cable to deliver direct connectivity between east Africa, Europe and North America. Further investment in EASSy came from SNO Neotel. The USD260 million, 10,800km EASSy project was conceived in 2003 to connect thirteen countries: Djibouti, Kenya, South Africa, Sudan, Mozambique, Madagascar, Tanzania, Uganda, Rwanda, Malawi, Botswana, Ethiopia and Somalia. WACS has been bankrolled by Telkom, Neotel, MTN, Vodacom and Broadband Infraco. Construction was completed in mid-2011 and the cable was eventually lit in May 2012. Meanwhile, EASSy lands in the Southern port of Mtunzini, which is also home to the South African landing station of SEACOM, a 1.28Tbps cable system adjoining south and east Africa with India and Europe. Neotel agreed to join the SEACOM project in August 2007, and claimed the position of anchor tenant in March 2009, owning and managing the landing station while investing over ZAR20 million in the project. SEACOM launched on 23 July 2009. More recently, December 2012 saw the 17,000km African Coast to Europe (ACE) France-South Africa submarine cable put into service in 13 countries, although South Africa was amongst seven additional countries still waiting for commercial ACE services to be launched in a second phase in 2013; the France Telecom-led consortium ACE system connects the entire west coast of Africa with an ultimate capacity of 5.12Tbps. Going forward, the 9,900km South Atlantic Express (SAEx) will link South Africa and Brazil, and also incorporate an unrepeatered spur to St Helena, a British Overseas Territory situated in the South Atlantic Ocean; the venture is owned by South Africa-based eFive Telecoms.

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Networks
Provider Name Axxess DSL Access DSL Technology Frequency Launch ADSL 3500 802.16e ADSL2+ 802.16-2004 802.16e ADSL 802.16-2004 3500 Jul 2008 5700 3500 Status Live Apr 2005 Live Jun 2008 Live Nov 2009 Live Shut Down May 2010 Shut Down Live Live Live 2002 Live Network Details Jan-13: 93% via Telkom's network Jan-13: 19 cities nationwide Jan-13: 19 cities and towns Service limited to locations covered by I-ECNS licence holders Trial service in Cape Town and Gauteng; denied permission by ICASA to launch full service Shut down in May-12. Johannesburg and Cape Town Jan-13: 93%; wholesale access via Telkom's ADSL Jan-13: parts of Johannesburg, Pretoria, Durban and Cape Town Jan-13: Johannesburg, Pretoria, Durban and Cape Town; 'coverage dependent' Jan-13: ADSL available on 93% of Telkom's fixed network Jan-13: 57 BTSs across all major city centres (32 municipalities)

iBurst (inc. Wireless Business BFWA Solutions) iBurst (inc. Wireless Business WiMAX Solutions) iBurst (inc. Wireless Business DSL Solutions) MWEB (South Africa) MWEB (South Africa) MWEB (South Africa) Neotel (South Africa) Neotel (South Africa) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) WiMAX WiMAX DSL WiMAX

LAN/FTTx FTTB DSL WiMAX DSL DSL ADSL 802.16-2004 3500 ADSL2+ VDSL2

Jun 2007 Live 2007

In Deployment Jan-13: Unknown In Deployment Jan-13: Testing underway; contract awarded to Alca-Lu in Jun-12 for nationwide deployment In Deployment Jan-13: Non-commercial; 3,700 PoPs targeted in 2013 (Supported by 143,000km of Telkom fibre)

LAN/FTTx FTTC

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Provider Name Telkom South Africa (inc. Telkom Mobile [8ta]) Vox Telecom Vox Telecom Web Africa

Access

Technology Frequency Launch 2013

Status Planned Live

Network Details Jan-13: 'Where commercially viable' Jan-13: 93% via Telkom's network Jan-13: ~80% of South African territory via YahClick Ka-band satellite Jan-13: 93% via Telkom's network

LAN/FTTx FTTB/FTTH DSL Satellite DSL ADSL VSAT ADSL

Sep 2012 Live Live

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Retail Subscribers Market Share by Provider

Sources: operators, estimates

Market Share History

Jun 2011 Telkom South Africa (inc. Telkom Mobile [8ta]) MWEB (South Africa) Vox Telecom iBurst (inc. Wireless Business Solutions) Axxess DSL Web Africa 29.1% 22.8% 13.5% 8.6% 8.1% 4.1% Sep 2011 28.3% 22.9% 13.0% 8.8% 7.9% 4.0% Dec 2011 27.3% 23.2% 12.6% 8.9% 7.7% 4.1% Mar 2012 26.4% 23.5% 12.3% 8.9% 7.6% 4.1% Jun 2012 25.8% 24.2% 12.1% 8.8% 7.5% 4.2% Sep 2012 25.2% 24.4% 11.8% 8.6% 7.4% 4.2%

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Market Share History

Quarterly Subscribers by Operator

Sep 2011 Axxess DSL iBurst (inc. Wireless Business Solutions) MWEB (South Africa) Telkom South Africa (inc. Telkom Mobile [8ta]) Vox Telecom Web Africa 82,500 92,523 Dec 2011 85,000 Mar 2012 87,500 Jun 2012 90,000 Sep 2012 92,500 Dec 2012

97,500 102,500 105,000 107,500

240,000 255,000 270,000 290,000 305,000 296,636 300,000 304,034 310,000 315,000 136,000 139,000 142,000 145,000 148,000 42,500 45,000 47,500 50,000 52,500

Annual Country Subscriber Growth

Year 2006 2007 Total 225,000 400,000 Growth (%) 80.0 77.8 H'hold Pen. (%) DSL Cable 0 0 Fibre/ LAN WiMAX 0 10,000 Other 55,000 90,000

1.8 170,000 3.1 300,000

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Year 2008 2009 2010

Total 550,000 750,000 915,000

Growth (%) 37.5 36.4 22.0 20.2

H'hold Pen. (%)

DSL Cable 0 0 0 0

Fibre/ LAN WiMAX

Other

4.2 400,000 5.7 600,000 6.8 760,000 8.1 945,000

50,000 100,000 0 0 82,000 92,000 68,000 63,000 55,000

2011 1,100,000

0 100,000

Quarterly Country Subscriber Growth

Period Jun 2010 Sep 2010 Dec 2010 Mar 2011 Jun 2011 Sep 2011 Dec 2011 Mar 2012 Jun 2012 Sep 2012 Total 840,000 875,000 915,000 950,000 985,000 1,050,000 1,100,000 1,150,000 1,200,000 1,250,000 Growth (%) 5.0 4.2 4.6 3.8 3.7 6.6 4.8 4.5 4.3 4.2 DSL 690,000 725,000 760,000 800,000 845,000 900,000 945,000 990,000 1,050,000 1,095,000 Cable 0 0 0 0 0 0 0 0 0 0 Fibre/LAN 0 0 0 0 0 0 0 0 0 0 WiMAX 88,000 90,000 92,000 94,000 96,000 98,000 100,000 102,000 104,000 106,000 Other 62,000 60,000 63,000 56,000 44,000 52,000 55,000 58,000 46,000 49,000

Subscriber Growth

Sources: operators, estimates

41

Subscription Plans
Speed Product Provider Access Name Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Telkom South Africa (inc. Telkom Mobile [8ta]) Neotel (South Africa) DSL do Uncapped 1Mbps Cap/ Downstream Upstream Limit 1Mbps Unlimited Set-up Fee Monthly Cost USD26.63 Local Date Currency Observed ZAR219.00 Jan-2013

DSL

do Uncapped 2Mbps

2Mbps

Unlimited

USD44.87

ZAR369.00 Jan-2013

DSL

do Uncapped 4Mbps

4Mbps

Unlimited

USD85.00

ZAR699.00 Jan-2013

DSL

do Uncapped 10Mbps

10Mbps

Unlimited

USD170.11

ZAR1,399.00 Jan-2013

WiMAX

NeoBroadband 1Mbps WiMAX 1Mbps

768kbps

None stated

ZAR1500

USD157.95

ZAR1,299.00 Jan-2013

42

Speed Product Provider Access Name Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) Neotel (South Africa) WiMAX Cap/ Downstream Upstream Limit 1.6Mbps None stated None stated None stated None stated None stated None stated None stated None stated Unlimited Set-up Fee ZAR1500 Monthly Cost USD206.59 Local Date Currency Observed ZAR1,699.00 Jan-2013

NeoBroadband 2Mbps WiMAX 2Mbps NeoBroadband 5Mbps WiMAX 5Mbps NeoBroadband 8Mbps WiMAX 8Mbps NeoBroadband 1Mbps Fibre 1Mbps NeoBroadband 2Mbps Fibre 2Mbps NeoBroadband 5Mbps Fibre 5Mbps NeoBroadband 10Mbps Fibre 10Mbps NeoBroadband 15Mbps Fibre 15Mbps ADSL Uncapped Unshaped 1Mbps

WiMAX

2Mbps

ZAR1500

USD279.55

ZAR2,299.00 Jan-2013

WiMAX

3Mbps

ZAR1500

USD547.06

ZAR4,499.00 Jan-2013

LAN/ FTTx LAN/ FTTx LAN/ FTTx LAN/ FTTx LAN/ FTTx

1Mbps

ZAR1500

USD194.55

ZAR1,600.00 Jan-2013

2Mbps

ZAR1500

USD249.27

ZAR2,050.00 Jan-2013

5Mbps

ZAR1500

USD620.14

ZAR5,100.00 Jan-2013

10Mbps

ZAR1500

USD997.08

ZAR8,200.00 Jan-2013

15Mbps

ZAR1500 USD1,367.95 ZAR11,250.00 Jan-2013

iBurst DSL (inc. Wireless Business Solutions) iBurst (inc. Wireless DSL

USD78.92

ZAR649.00 Jan-2013

ADSL Uncapped

2Mbps

Unlimited

USD109.31

ZAR899.00 Jan-2013

43

Speed Product Provider Access Name Business Solutions) iBurst DSL (inc. Wireless Business Solutions) iBurst DSL (inc. Wireless Business Solutions) iBurst WiMAX (inc. Wireless Business Solutions) iBurst WiMAX (inc. Wireless Business Solutions) iBurst WiMAX (inc. Wireless Business Solutions) iBurst WiMAX (inc. Wireless Business Solutions) Unshaped 2Mbps ADSL Uncapped Unshaped 4Mbps Unlimited USD139.71 ZAR1,149.00 Jan-2013 Cap/ Downstream Upstream Limit Set-up Fee Monthly Cost Local Date Currency Observed

ADSL Uncapped Unshaped 10Mbps iBurst Playa

10Mbps

Unlimited

USD243.07

ZAR1,999.00 Jan-2013

1Mbps

10GB

ZAR99

USD18.12

ZAR149.00 Jan-2013

iBurst Pro

1Mbps

20GB

ZAR99

USD24.08

ZAR198.00 Jan-2013

iBurst Max

1Mbps

50GB

ZAR99

USD54.11

ZAR445.00 Jan-2013

iBurst Uncapped

1Mbps

Unlimited

ZAR99

USD72.84

ZAR599.00 Jan-2013

44

Speed Product Provider Access Name MWEB (South Africa) MWEB (South Africa) MWEB (South Africa) MWEB (South Africa) Axxess DSL Axxess DSL Axxess DSL Axxess DSL Axxess DSL Axxess DSL Axxess DSL Web Africa DSL Uncapped ADSL 1Mbps Uncapped ADSL 2Mbps Uncapped ADSL 4Mbps Cap/ Downstream Upstream Limit 1Mbps 256kbps Unlimited Set-up Fee Monthly Cost USD24.20 Local Date Currency Observed ZAR199.00 Jan-2013

DSL

2Mbps

512kbps

Unlimited

USD44.87

ZAR369.00 Jan-2013

DSL

4Mbps

512kbps

Unlimited

USD65.54

ZAR539.00 Jan-2013

DSL

Uncapped 10Mbps ADSL 10Mbps Uncapped ADSL 1Mbps Uncapped ADSL 2Mbps Uncapped ADSL 4Mbps Uncapped ADSL 5Mbps Uncapped ADSL 6Mbps Uncapped ADSL 8Mbps 1Mbps 2Mbps 4Mbps 5Mbps 6Mbps 8Mbps

512kbps

Unlimited

USD121.47

ZAR999.00 Jan-2013

DSL DSL DSL DSL DSL DSL DSL DSL

Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited Unlimited

USD23.83 USD35.99 USD60.31 USD72.47 USD84.63 USD96.79 USD108.95 USD22.98

ZAR196.00 Jan-2013 ZAR296.00 Jan-2013 ZAR496.00 Jan-2013 ZAR596.00 Jan-2013 ZAR696.00 Jan-2013 ZAR796.00 Jan-2013 ZAR896.00 Jan-2013 ZAR189.00 Jan-2013

Uncapped 10Mbps ADSL 10Mbps Home Uncapped 1Mbps 1Mbps

45

Speed Product Provider Access Name Web Africa Web Africa Web Africa Vox Telecom Vox Telecom Vox Telecom Vox Telecom Vox Telecom Vox Telecom Vox Telecom DSL Home Uncapped 2Mbps Home Uncapped 4Mbps Home Uncapped 10Mbps Uncapped ADSL 1Mbps Uncapped ADSL 4Mbps Cap/ Downstream Upstream Limit 2Mbps Unlimited Set-up Fee Monthly Cost USD36.36 Local Date Currency Observed ZAR299.00 Jan-2013

DSL

4Mbps

Unlimited

USD60.68

ZAR499.00 Jan-2013

DSL

10Mbps

Unlimited

USD121.47

ZAR999.00 Jan-2013

DSL DSL

1Mbps 4Mbps 1Mbps 2Mbps 5.1Mbps 7.2Mbps 256kbps 512kbps 768kbps 768kbps 768kbps

Unlimited Unlimited 12GB 18GB 30GB 35GB 40GB

ZAR49 ZAR49 ZAR171 ZAR171 ZAR171 ZAR171 ZAR171

USD24.20 USD60.68 USD66.51 USD101.78 USD162.57 USD192.97 USD223.37

ZAR199.00 Jan-2013 ZAR499.00 Jan-2013 ZAR547.00 Jan-2013 ZAR837.00 Jan-2013 ZAR1,337.00 Jan-2013 ZAR1,587.00 Jan-2013 ZAR1,837.00 Jan-2013

Satellite YahClick Home 1Mbps Satellite YahClick Home 2Mbps Satellite YahClick Home 5Mbps Satellite YahClick Home 7Mbps

Satellite YahClick 10Mbps Home 10Mbps

46

Main Players
Telkom South Africa (inc. Telkom Mobile [8ta])
Private Bag X780 Pretoria 1 South Africa Tel. +27 12 3115720 Fax +27 12 3115721 http://www.residential.telkom.co.za http://www.8ta.com Incumbent PSTN operator Telkom South Africa holds a highly influential position in the broadband market as not only the chief proponent of broadband usage but also the main hindrance to its widespread popularity. Heavy investment in broadband services has seen its retail customer base grow to around 315,000 at the end of September 2012, up from 296,636 a year earlier. However, during the same period of time Telkom has seen its market share shrink from 28.3% to 25.2%, as rival internet service providers (ISPs) have sought to capitalise on the I-ECNS licences handed out in January 2009. Despite its success the company has been regularly accused of holding back the development of the market as a whole with its tight grip on the local loop and the high tariffs it charges for both retail and wholesale services. In recent years Telkom has faced rising levels of competition as more firms deploy backhaul infrastructure while exploiting alternative routes, such as fixed wireless access (FWA), to cover the last mile. Telkom introduced a new wholesale ADSL pricing model in June 2009 in an effort to secure wholesale business before new fibre operators such as the government-funded Broadband Infraco had an opportunity to enter the wholesale market. The firm offered discounts of between 10% and 18% to resellers willing to sign up to Telkom's services for a period of up to five years. When Telkom introduced its first ADSL services in 2002 it revolutionised the countrys data market, although initially its main impact was the migration of existing dial-up customers to high speed services, rather than the attraction of new users to the market. Amid concerns that its services were not seen as providing good value for money, Telkom ramped up its efforts to push its broadband services and in 2005 launched TelkomInternet PC bundles combining a personal computer, inclusive minutes and internet access via either dial-up, ISDN or ADSL. It also combined these efforts with tariff reductions, but its broadband services were still criticised by consumers and competitors as being among the most expensive in the world. In April 2007 the company even attracted criticism from then-President Thabo Mbeki who said the company had been profiteering by charging over-inflated tariffs. In early 2007 Telkom pledged to boost its ADSL services by rolling out its first ADSL2+ offerings (enabling a theoretical maximum 24Mbps download speed), promising to at least double subscribers peak download speeds to 8Mbps. At the time the incumbent said that all new Digital Subscriber Line Access Multiplexers (DSLAMs) deployed on the Telkom network would be ADSL2+ enabled. However, by mid-2008, with no date set for the launch of the service, Telkom said that doubling the speed of its 4Mbps service was not a simple process as it must be accompanied by suitable backhaul upgrades to the network to support higher access speeds. The firm added that by 2011 it would increase its ADSL speeds to at least 10Mbps. By December 2012 Telkom was offering up to 10Mbps peak download speeds in certain areas, while the remainder of its ADSL footprint had access to 4Mbps services. The ADSL network as a whole covered 93% of Telkoms nationwide PSTN as of January 2013. Going forward, March 2012 saw Telkom reveal that it intended to leverage VDSL2 technology in a fibre-to-the-curb (FTTC) configuration. Bashier Sallie, Telkom's managing director of Wholesale and Networks, also took time to note that Telkom already had

47

significant fibre-to-the-curb (FTTC) and fibre-to-the-business (FTTB) infrastructure deployed contrary to popular belief. In addition, he noted that the company had in excess of 15,000 Fibre Distribution Points (FDPs), recently changing the companys processes and business rules to make them more readily available. He said that the company aimed to increase its FTTC rollout to encompass 3,700 points of presence (PoPs) in the country in the near-future. The companys FTTx deployment is supported by more than 143,000km of Telkom fibre via its national, regional and access networks. In June 2012 Telkom announced that French-US telecoms equipment vendor Alcatel-Lucent had been selected to supply the equipment for the broadband network upgrade, noting that gigabit passive optical network (GPON) technology will also be rolled out to support fibre-to-the-home (FTTH) infrastructure where commercially viable. October 2012 saw Telkom stage VDSL trials in five areas across three provinces, namely: Benmore Gardens, Fourways and Waterkloof (all Gauteng); Durban North (Kwa-Zulu Natal, KZN) and Durbanville (Western Cape); downlink transmission speeds of 40Mbps were achieved during the tests. Fixed infrastructure aside, Telkom has also taken an active role in the development of wireless broadband access in South Africa and in January 2005 partnered chip manufacturer Intel in trialling wireless broadband technologies as a complement to its ADSL offerings. Under the trial Telkom installed two base stations in Pretoria which operated on the 802.16a standard. In 2006, Telkom signed another agreement with Intel under which the pair began working together to develop services based on WiMAX technology. Pre-commercial trials with 400 consumers got off the ground in March 2007 and a full consumer launch took place the following June, with the operator primarily targeting areas not already reached by its ADSL infrastructure. Services are available with a maximum connection speed of 512kbps. The spread of ADSL-enabled networks has led Telkom to scale back its WiMAX operations, however, and at the time of writing (January 2013) services were only being supported for existing subscribers, with no new customers being taken on. As at 30 September 2012 Telkom claimed 3,168 WiMAX subscribers, down from 3,364 year-on-year. Much of the companys proceeds have been pumped back into the countrys infrastructure, however, as Telkom has invested heavily in building out a ring of submarine cables around the African coastline in an effort to strengthen both its domestic backbone network and its links to the rest of the continent, Europe, Asia and the Middle East. In 2002 Telkom helped initiate the Afrolinque project which resulted in a consortium of 36 African operators cooperating in the building of three submarine cables (SAT-2, SAT-3 and SAFE). Telkom went on to participate in two further development projects: the East African Submarine System (EASSy) (which launched on 30 July 2010) and the West African Cable System (WACS), which was lit in May 2012. Telkom South Africa is wholly owned by state-owned Telkom South Africa Ltd (also known as the Telkom South Africa Group).

Vox Telecom
Block 1 Rutherford Estate 1 Scott Street Waverley Johannesburg South Africa Tel. +27 87 8050000 http://www.voxtelecom.co.za http://www.lantic.net Vox Telecom Limited was incorporated in South Africa on 20 August 1998, and bills itself as 'a leading alternative, independent telecom operator'. The Group competes through its

48

primary brands Vox Telecom, Vox Datapro and @lantic, and has offices in Johannesburg, Pretoria, Durban, Cape Town and Port Elizabeth as well as one in Windhoek, Namibia. Vox's consumer broadband arm @lantic which had been trading independently since 1998 was acquired by Vox in 2005 alongside a selection of other regional internet service providers (ISPs), and has slowly but surely outgrown its modest geographical roots and asserted itself as one of the country's largest independent ISPs. @lantic continues to operate independently, but credits its parent company with providing it with the financial backing to expand its operations and increase its national footprint. @lantic provides ADSL broadband, dial-up internet, WiMAX (in association with iBurst) and satellite via YahClick, see below) connectivity. @lantic claims to have 90 franchised branches nationwide, as well as 500 second-tier resellers. Its subscriber base encompasses predominantly residential customers, but also small-medium business clients. In September 2012 Vox Telecom launched low-cost satellite internet broadband service YahClick, revealing that it expected to sign up around 40,000 subscribers during its first three years of operation. YahClick, which uses Ka-band technology, covers around 80% of the South African territory, and in December 2012 Vox said that demand for the service had already exceeded expectations. As of January 2013 a premium 10Mbps package, incorporating a 40GB cap, was priced at ZAR1837 (USD208.1) per month. As at 30 September 2012 TeleGeography estimated that @lantic accounted for around 148,000 customers, equivalent to a market share of 11.8%, making it the third largest consumer ISP in South Africa, behind Telkom and MWEB. In July 2011 Vox Telecom announced that it had received a firm offer from existing shareholder Lereko Metier Capital Growth Fund and new partner Investec Bank (IBL) to acquire 100% of the companys shares. Vox shareholders were given the opportunity to relinquish their respective investments via an offer of ZAR0.45 (USD0.06) per Vox share, or maintain their investment and receive one BidCo share for every ten Vox shares, or opt to take up a combination of both options. At that time, the scheme carried the support of 40.1% of Voxs shareholders and 53.4% of those shareholders entitled to vote. The offer followed the completion of a limited due diligence process by the consortium, and was subject to the fulfilment of a number of conditions in respect of the scheme, including: approval by the Johannesburg Stock Exchange (JSE), South Africa Reserve Bank, the Takeover Regulation Panel and the South African competition authorities. By early October 2011 Lereko Metier had succeeded in acquiring 42.45% of Vox Telecoms shares, while IBL had captured 17.61%. Previously, in its 2010 annual report, Vox claimed to be the largest listed black-owned telecommunications company in South Africa, with 42.3% of its shares held as part of the Black Economic Empowerment (BEE) scheme. BEE shareholders included: Lereko Metier Capital Growth Fund (24.77%), Mvelaphanda Group (12.4%), Regiments Capital (4.24%) and Thembeka Capital (1.61%). 0.82% of shares are with historically disadvantaged former employees.

MWEB (South Africa)

MWEB Building 100 Fairway Close Parow Cape Town South Africa Tel. +27 21 5968188 http://www.mweb.co.za

49

Founded in 1997, MWEB is one of South Africa's most prominent internet service providers (ISPs), and offers broadband to both residential and business customers, as well as managed internet gateway and data centre management services. In October 2007 MWEB completed field tests of WiMAX wireless internet technology with 1,000 users in Johannesburg and Cape Town under a trial licence. Although it approached the Independent Communications Authority of South Africa (ICASA) asking to have its trial permit upgraded to a full operating licence, MWEB was forced to end its WiMAX trial on 29 April 2008 when its application for a trial licence extension was turned down by the regulator. It was later revealed that, with all of the sites and backhaul links already in place, MWEB decided to continue to operate the wireless broadband network using unlicensed 5.7GHz spectrum and Wi-Fi equipment for last mile access. This alternative platform was belatedly switched off in May 2012. With its WiMAX plans in tatters, MWEB concentrated on improving its ADSL transmission speeds, as a way of distinguishing its products from those of its rivals. However, the ISP's long-rumoured 10Mbps uncapped ADSL product didn't actually see a commercial launch until September 2010, with MWEB blaming incumbent PSTN operator Telkom South Africa for the delay. Specifically, MWEB asserted that Telkoms hesitant upgrades of MWEBs Internet Protocol Connect (IPC) platform the portion of bandwidth that connects MWEB customers to Telkoms last-mile network had not been implemented in a timely fashion. At the time of writing MWEBs uncapped 10Mbps package remained the companys premium broadband option, and was priced at ZAR999 (USD113) per month. All uncapped broadband deals give the user access to 300MB worth of free Wi-Fi each month, at one of more than 750 hotspots. During a media tour of the operators data centre facilities in Cape Town in December 2012, general manager Jaco Muller revealed that MWEB accounted for a customer base of over 300,000, of which over 65% were signed up to uncapped ADSL tariffs; 90% of all new sign-ups go straight to uncapped ADSL packages, he noted. Further, over 70,000 subscriber accounts were SMEs and over 65,000 are said to be unique monthly online gaming users. Muller also pointed out that average ADSL usage has increased 20-fold per month since 2010, adding: MWEB remains focused on driving change in the industry and removing barriers to internet connectivity and services to positively impact its customers and the broader South African internet landscape. MWEB is a wholly-owned subsidiary of JSE-listed MultiChoice South Africa Holdings, which is itself owned by South Africa-based multinational media company Naspers, which operates in the print media, pay-TV and broadband spheres in numerous countries. MultiChoices shareholding structure also includes a 30% stake held by Broad-Based Black Economic Empowerment (B-BBEE) shareholders. In June 2008 Naspers announced that MWEB would be auctioned off, due to a conflict of interest between MWEB wireless broadband ambitions and Naspers core business as a content provider. A significant number of South African ISPs and cellcos were linked with a move for the firm, but the auction was cancelled in November 2008, with Naspers citing the global economic recession's impact on the credit markets.

iBurst (inc. Wireless Business Solutions)

15th Floor Radio Park Building Henley Road Auckland Park Johannesburg 2006 South Africa Tel. +27 11 7153400

50

Fax +27 11 7153401 http://www.iburst.co.za Wireless Business Solutions (WBS) is a national mobile data telecommunications licensee, which provides mobile data network services to corporate, government and residential customers under the name iBurst. Its broadband fixed wireless access (BFWA) network, which launched on 1 April 2005, is able to provide data rates of up to 1Mbps to each user, with a maximum base station capacity of 20Mbps. iBurst has networks in 19 major cities nationwide, including Cape Town, Durban, Johannesburg, Port Elizabeth, Pietermaritzburg and Bloemfontein. Following its launch it aimed to expand its portfolio to include a wider range of voice and data services, and in November 2007 launched a voice-over-internet protocol (VoIP) service across its networks. Under the offering, iBurst customers received a free VoIP handset, while existing subscribers could buy the phone for ZAR200 (USD30). In March 2008 it expanded further by launching ADSL and HSDPA resale services, selling 3.5G mobile packages from then-parent company Vodacom, and ADSL connections from fixed line incumbent Telkom South Africa. However, iBursts existence as a Telkom-reliant ISP changed in November 2009 when it announced that it had launched a new ADSL2+ service, which completely bypassed Telkoms networks to reach consumers directly. iBurst accommodated the new offering by connecting its own fibre and microwave links directly to copper local access networks built under new individual electronics communications network services (I-ECNS) licences which were granted to over 500 companies in January 2009, allowing multi-tenant facilities such as gated communities, shopping centres and offices parks to deploy their own local access networks for the first time. Although it holds a 3.5GHz concession allowing it to offer services using WiMAX wireless broadband technology, iBurst was initially unwilling to commit to a full-scale WiMAX rollout, saying it may deploy WiMAX purely for backhaul connectivity. The situation changed in November 2006 when cellular operator Vodacom acquired a 10% stake in iBurst. With no WiMAX spectrum of its own, the cellco was keen to pursue a WiMAX deployment through its new subsidiary and iBurst went on to launch its first commercial WiMAX services in June 2008 over a network supplied by vendors Alcatel-Lucent and Huawei, offering maximum download speeds of either 512kbps or 1Mbps, with capped monthly quotas of 5GB and 10GB. Though the 802.16e network can support full mobility, services were offered solely as a fixed line alternative. In September 2010 Vodacom sold its enlarged 24.9% stake in iBurst back to parent company WBS; regulator ICASA had previously stipulated that any company in possession of Long Term Evolution (LTE)-suitable frequencies would be barred from acquiring 2.6GHz spectrum in its eagerly-awaited spectrum auction. Vodacom admitted that relinquishing the frequencies to WBS was a strategic move designed to protect its own LTE ambitions (see Vodacom Wireless Operations). iBurst has continued to grow its WiMAX business effectively, and claimed 92,523 at end-September 2011 (latest available data), a figure which TeleGeography estimated had increased to 107,500 by 30 September 2012. In October 2010 iBurst announced plans to invest more than ZAR100 million (USD138.7 million) in a fibre-optic communications network in the Gauteng region. The investment is intended to help iBurst gain a foothold in the corporate market, whilst simultaneously growing its retail consumer subscriber base. iBurst intends to lease capacity on Dark Fibre Africas network, creating a 25Gbps fibre ring linking its data centre in Gallo Manor, north of Johannesburg, to a backup facility in Midrand. The company will also lease fibre access at speeds of 20Gbps linking Sandton, Midrand and Johannesburgs central business district with the West Rand and the East Rand. In total, it will have access to more than 180km of fibre in the province. The network investment is being funded through operational cash flow, and not through debt.

51

More recently, October 2011 saw WBS reveal plans to roll out a 4G Long Term Evolution (LTE) network by mid-2012. According to an official WBS press statement, the company said that it would begin building the LTE network later that month, with a view to deploying a total of 2,500 base stations during the first phase of the rollout. At the time of writing (January 2013) no further developments had been reported, suggesting that the company failed to meet its ambitious expectations. iBurst is a wholly-owned subsidiary of WBS Holdings Ltd, which also owns 100% of Wireless Business Solutions. In November 2008 cellular operator Vodacom upped its interest in iBurst to 24.9%, exercising an option to acquire an additional 14.9% stake at a price of ZAR119.2 million (USD11.6 million). However, in September 2010 Vodacom sold its entire stake to WBS. Vodacom said that the sale was purely strategic, allowing it to bid for spectrum in the 2.6GHz range when it is made available. In October 2011 MTN South Africa managing director Karel Pienaar dismissed rumours that the mobile giant was set to acquire WBS. Whilst MTN admitted to holding exploratory discussions with iBurst, Pienaar confirmed that an acquisition was highly unlikely. The talks were driven by MTNs desire to secure sufficient spectrum to roll out a nationwide 4G network based on Long Term Evolution (LTE) technology.

Axxess DSL
Axxess DSL Building 155 Cape Road Mill Park Port Elizabeth 6001 South Africa Tel. +27 861 300900 Fax +27 861 300901 http://www.axxess.co.za Axxess DSL, which is based in the city of Port Elizabeth, was founded in 1997 by Franco Barbalich, who remains an integral part of the privately owned company. Its core business involves selling simple and affordable ADSL internet services to the broader South African consumer and SME markets. Axxess initially carved itself a niche in the market as a result of former telecoms monopoly Telkom's 'hard capping' policy which saw monthly usage allowances shrink as ADSL speeds increased creating a gap for Axxess to provide prepaid bandwidth to consumers through a variety of accessible locations around the country, in a similar way that cellular customers can top up airtime. The move quickly earned Axxess kudos from consumers and the ISP has seen its fortunes steadily improve ever since. In July 2008 Axxess took its pre-paid broadband offerings to the next level when it launched its own Wi-Fi 'hotspot' service, allowing users to connect to over 600 Wi-Fi hotspots across the country. Many saw the initiative as a direct response to cellco Vodacom's recently launched 'Wireless G' service, with Axxess undercutting its larger rivals tariffs. Axxess applied the same strategy to its ADSL service, and its website makes it clear that its assorted broadband packages are all cheaper than the equivalent prices charged by Telkom. In August 2012 Axxess owner Afrihost revealed that it would be moving both companies ADSL services from Internet Solutions (IS) to MTN, in a move which it said will help them to bring the highest quality, best value products to our clients. Afrihost is closely linked with IS, which had supported its ADSL and hosting services. At the time of writing (January 2013) Axxess offered a range of uncapped ADSL tariffs, with the premium 10Mbps product priced at ZAR896 (USD101.5).

52

At the end of September 2012 Axxess had an estimated subscriber base of 92,5000], representing a market share of 7.4%. Axxess DSL has been wholly owned by local rival Afrihost since July 2011. Former Internet Solutions CEO Angus MacRobert, who acquired a minority equity stake in Axxess DSL in 2010, has become a small shareholder in Afrihost. The value of the transaction was not disclosed.

Web Africa
Boulevard Office Park Block E Searle Street Woodstock Cape Town 7925 South Africa Tel. +27 21 4649500 http://www.webafrica.co.za Founded in 1997, Web Africa is a privately owned internet service provider (ISP) that provides broadband access and hosting solutions for both local and international clients. The firm has strategic partnerships in place with Telkom South Africa, Internet Solutions and Teraco, and utilises parts of their respective infrastructure to re-sell its own broadband products. Web Africa provides solutions for corporate clients, small and medium enterprises, home users and resellers. Aside from its broadband products, Web Africa also offers shared hosting, dedicated servers and dial-up internet. At the end of September 2012 Web Africa had an estimated broadband subscriber base of 52,500, giving it a 4.2% share of the market. Vodacom subsidiary Smartcom has been a 30% shareholder of Web Africa since February 2009. Best known as a specialised distributor of pre-paid and contract voice and data services in the mobile sector, Smartcom was originally established in 2000 as an exclusive service provider on the Vodacom network. The deal with Web Africa was duly approved by the Competition Commission and has enabled both companies to introduce a broader range of offerings to their customers, expand their subscriber bases and enhance customer service levels. In February 2009 Web Africa sold off a 30% non-controlling stake to Smartcom, a former mobile phone service provider and Vodacom affiliate. The remaining 70% is privately owned.

Neotel (South Africa)

44 Old Pretoria Main Road Midrand Johannesburg 2191 South Africa Tel. +27 11 585 0000 Fax +27 80 033 3636 http://www.neotel.co.za Neotel (previously SNO Telecommunications) was granted a 25-year PSTN operators licence in December 2005, making it the country's much anticipated second national operator (SNO), and breaking up incumbent Telkom's longstanding monopoly. At the time of its launch, however, the operator did not own any network infrastructure and was forced to operate via a wholesale agreement with Telkom for its first year of operations. In March

53

2008 Neotel finally acquired its own network infrastructure when it purchased Transtel in a ZAR256 million deal, although it remained reliant on Telkom for last-mile connection. In January 2009 Neotel agreed a deal with mobile giant MTN to deploy a 5,000km fibreoptic cable network which would allow both operators to bypass Telkom's transport system completely, further liberating the market. The two companies joined in March by South Africas largest cellco by users, Vodacom pledged to spend up to ZAR2 billion on the project, which is estimated could save the firms as much as ZAR6.3 billion in transmission costs over a ten-year period. The project aims to provide backhaul for Neotels eleven metropolitan fibre rings. Construction began in the first week of March 2009 and was initially scheduled to be completed before the start of the football World Cup, hosted by South Africa, in June 2010. Full completion had still to be announced by the time of writing (January 2013) although sections of the network are in service. Indeed, the most recent update came in July 2012 when MTN chief technical officer Kanagaratnam Lambothara commented: Two major MTN nodes, [in] New Germany and Durban, [are] ready to go live on the MTN network. 50% of the fibre, and over 95% of the total route trenching, has been completed certainly a key milestone in our network footprint which is designed and optimised to link major population centres and economic hubs, as well as interconnect with the international submarine cable landing sites. In April 2008 Neotel soft launched its own CDMA2000 1xEV-DO fixed wireless access (FWA) service dubbed NeoConnect across parts of Pretoria and Johannesburg; full-scale marketing of the service began four months later. The company had originally planned to roll out residential services in late-2007 and had contracted Motorola in February of that year for radio frequency planning services in preparation for the launch across CDMA2000 and WiMAX networks. The following month Neotel was awarded spectrum in the 800MHz band for its FWA networks, and in July 2007 selected Cambridge Broadband Networks as its country-wide wireless backhaul supplier using its national network which operates in the 10.5GHz frequency band. Fixed WiMAX services were launched in July 2008 following the successful completion of trials using seven base stations in Gauteng and were subsequently deployed to a further 63 sites in Johannesburg, Cape Town and Durban. In September 2009 Neotel introduced a range of uncapped WiMAX services in the aforementioned cities, aimed at the corporate and high-end consumer markets. As of January 2013 the footprint had been expanded to cover Johannesburg, Pretoria, Durban and Cape Town. A premium WiMAX subscription is priced at ZAR4499 per month, and offers downlink transmission speeds of up to 8Mbps. Elsewhere, Neotel also offers fibre-to-the-building (FTTB) connectivity, with peak transmission speeds of 15Mbps available, although the high price-tag (ZAR11,250) effectively prices home users out of the market. In March 2009 Neotel became the anchor tenant for the South African leg of the SEACOM international submarine cable, via a deal struck by its Indian parent, Tata Communications. Neotel, which had previously invested more than ZAR20 million in the project, will act as the manager of the cables South African landing station in Mtunzini. Tata was the first major carrier to sign up for large-scale bandwidth on the undersea system; it struck a deal to manage the cable, its billing systems and customer relations on behalf of SEACOM. It was reported that Tata upped its investment in the project in return for more bandwidth on the fibre-optic network. The 1.28Tbps SEACOM cable, which connects south and east Africa with India and Europe, was commissioned for operation on 23 July 2009. Neotel has also extended its international connectivity by participating in the East African Submarine System (EASSy), a USD260 million, 10,800km project conceived in 2003 to connect thirteen countries: Djibouti, Kenya, South Africa, Sudan, Mozambique, Madagascar, Tanzania, Uganda, Rwanda, Malawi, Botswana, Ethiopia and Somalia. EASSy also lands in Mtunzini, linking to SEACOM and other international cable systems, connecting Neotel to Africa, Europe and Asia. In 2006, after three years of delays and negotiations, EASSy was finally given the go-ahead, with the number of countries involved having increased to 21. Alcatel-Lucent was awarded the EASSy deployment contract in March 2007 and the cable

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system went live in July 2010. In total Neotel has access to all five major undersea cables with connectivity in South Africa. In late-2012 Neotel noted that it was on track for its target of 150,000 retail and 2,700 enterprise customers by March 2013, after its retail customer base grew 30% to 130,000 in the six months ended 30 September 2012, with business customers increasing 18% to 2,400. On 14 June 2011 India-based carrier Tata Communications announced that it had increased its effective shareholding in Neotel from 49% to 61.5%, after acquiring a 12.5% stake from Two Telecoms Consortium (2TC). Tata did not disclose a purchase price for the shares, but confirmed that following the stake increase, Neotel would function as a subsidiary of Tata Communications. The announcement followed minority shareholder Telecom Namibias May 2011 admission that it hoped to offload its own 12.5% stake in Neotel as soon as possible. Telecom Namibia holds its shares via CommuniTel Telecommunications, a former joint venture with the MKHonto We Sizwe Military Veterans Association (MKMVA). However, by May 2012 Telecom Namibia had changed its tune, indicating that it no longer planned to divest its Neotel stake, despite not having received any return on its NAD429 million (USD50.05 million) investment to date. The other key shareholder in Neotel is black empowerment group Nexus Connexion, which itself consists of 134 different investors. In June 2012 Tata revealed that it planned to acquire an additional 2.5% interest in Neotel, for around USD18 million; at that time the stake was held by Tata offshoot Tata Africa Holdings, although no progress had been confirmed by the time of writing (January 2013). The Indian company also said that it hoped to invest around USD125 million in Neotels operations, supplementing the USD395 million invested to date.

Internet Solutions (South Africa)

The Campus Le Mans Building 57 Sloane Street Bryanston Gauteng South Africa Tel. +27 11 5761000 http://www.is.co.za Internet Solutions (IS), which began life in 1993, is Telkom South Africa's principal rival in the wholesale broadband stakes. It claims to provide services to more than 80% of the companies listed on the Johannesburg Stock Exchange, and offers internet access with various service level descriptions for corporations and SMEs that require a 'premium internet experience', as well as high availability and consistency. The company claims that it has a significant presence across Africa through various investments, with affiliates on both the East Coast (Kenya, Mozambique, Uganda, Mauritius and Tanzania) and the West Coast (Nigeria, Angola and Ghana). IS has five data centres across South Africa, three elsewhere in Africa and two in London. Overall the company manages over 7,000 square metres of co-location space in its data centres. IS maintains its own tier one international network, and has network nodes in North America, Europe and Asia. In addition IS has partnership agreements in place with leading technology vendors such as Cisco, Microsoft and Symantec. It claims to be a Microsoft Gold Partner, as well as the first company outside of the US to be certified as a Cisco Managed Security Service Provider (MSSP). In November 2010 IS teamed up with local mobile operator Cell C and Convergence Partners, the investment firm helmed by Dimension Data chairman Andile Ngcaba, to form a new

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entity, named FibreCo Telecommunications, in which they are equal shareholders. The new company will build and operate a 12,000km long-haul terrestrial network based on openaccess principles. Construction will unfold in three stages, with the initial phase scheduled to last two years focusing on the rollout of a 4,500km redundant core ring linking Gauteng, Cape Town and Durban to international landing stations in Mtunzini on the north coast, and at Yzerfontein and Melkbosstrand above Cape Town. This first phase, scheduled to be completed by late 2012 (unconfirmed as of January 2013), will cost between ZAR1.5 billion and ZAR2 billion, with the total investment eventually rising to ZAR5 billion. As of January 2013 FibreCo had completed over 800km of trenching and anticipated offering services on selected routes from early-2013. In July 2012 IS and the South African subsidiary of American Tower Corporation (ATC) signed a five-year contract under which it will use the latters towers to expand its delivery of current wireless solutions and also position it to offer Long Term Evolution (LTE) in South Africa. In the short term, the agreement is expected to enable IS to extend its new Wi-Band offering beyond large metropolitan areas to key markets throughout South Africa. Wi-Band, which was unveiled the previous month, is capable of transmitting data at speeds of up to 20Mbps, verified by extensive trials in Johannesburg and Cape Town. Wi-Band was enabled after IS successfully applied for unused bandwidth in the 28GHz band; the spectrum is commonly used by telecoms operators for cellular backhaul rather than for providing access directly to end-users. Introducing the platform, the company explained: The offering bypasses the current industry impasse around the liberalisation of LTEcapable wireless frequencies in the 2.6GHz and 3.5GHz spectrum to give organisations easily deployed, reliable, fast, secure wireless connectivity. Further, because Wi-Band operates in a regulated, licensed spectrum band, interference is eliminated. Internet Solutions is a wholly owned division of Dimension Data (Middle East & Africa). Japanese telecoms group Nippon Telegraph and Telephone Corporation (NTT) acquired Dimension Data in July 2010, in a takeover deal valued at around USD3.2 billion.

Broadband Infraco
Country Club Estate Building No. 9 21 Woodlands Drive Woodmead Sandton South Africa Tel. +27 11 2351760 http://www.infraco.co.za Broadband Infraco is a State-Owned Enterprise (SOE) that operates within the South African telecoms sector. It intends to improve market efficiency by increasing available capacity and lowering costs in those areas of the country where the infrastructure impedes private sector development and stunts innovation. In 2007 the Department of Communications (DoC) published the Broadband Infraco Act, which revealed plans to combine assets of both Eskom and Transtel to build out new fibre infrastructure which would eventually supersede Telkoms copper networks as the states backbone network. Eskom Telecommunications (Esi-Tel), which was part of state-owned power utility Eskom Enterprises, was set up in September 1999 to handle the group's telecoms operations. Prior to being absorbed by Broadband Infraco, Eskom had developed a national private utility telecoms network and upgraded the backbone to a broadband synchronous digital hierarchy (SDH) network with more than 900km of fibre-optic cable and over 26,500km of microwave radio links.

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The Broadband Infraco Act stipulated that telecoms regulator the Independent Communications Authority of South Africa (ICASA) was obliged to issue Broadband Infraco both an Individual-Electronic Communications Network Services (I-ECNS) licence and an Electronic Communication Services (ECS) licence. However, South Africas commercial ISPs objected to it receiving an ECS licence, as they claimed it would give the company an unfair advantage. In January 2010 ICASA bowed to communications minister Siphiwe Nyanda's policy directive, and only awarded the I-ECNS concession. Prior to receiving the I-ECNS licence, Broadband Infraco had installed 11,765km of fibre optic cable connecting Johannesburg, Pretoria, Cape Town, Durban and other cities. According to Broadband Infraco, its network also extends connectivity to the borders of South Africas neighbouring countries, namely: Namibia, Botswana, Zimbabwe, Mozambique, Lesotho and Swaziland. The fibre-optic cables are scalable up to hundreds of gigabits of data per second, depending on future growth. Broadband Infraco has subsequently confirmed that it will operate exclusively within a wholesale business model, targeting both fixed and mobile operators, as well as internet service providers. Licensed operators may buy multiple capacity increments of 155Mbps up to 10Gbps from Broadband Infraco. The companys lowest capacity service reportedly offers transmission speeds akin to 20 HD movies being screened simultaneously. After years of licensing issues, which plagued the company since its inception in 2007, Broadband Infraco launched its new ZAR1 billion (USD144.1 million) network during mid-November 2010, and a year later it was managing 13,612km of fibre-optic cable routes connecting Gauteng (including Johannesburg and Pretoria) to the major metropolitan centres of Bloemfontein, Kimberley, Cape Town, Port Elizabeth, East London, Durban, Nelspruit and Polokwane. In December 2012 Broadband Infraco was appointed as interim chair to drive the implementation of Strategic Infrastructure Project No 15 (SIP 15). This SIPs mandate is expanding access to communication technology. Infraco chief executive Puleng Kwele noted: SIP 15 aims to provide 100% broadband coverage to all households by 2020 by establishing core points of presence (PoPs) in district municipalities. It seeks to extend fibreoptic networks across provinces linking districts, establish PoPs and fibre connectivity at local level, and penetrate the network into rural areas. Later that month Infraco successfully completed two Proofs of Concept (POC) trials with external parties as part of its product development process of Layer 2 Carrier Ethernet services. The latter will enable the company to provide IP-based services in smaller capacities such as 20Mbs and 50Mbs. The POC trials were held in the so-called Golden Triangle (Johannesburg-Cape Town-Durban). Broadband Infraco presented its 2011/2012 Annual Report to the Parliamentary Portfolio Committee of the Department of Public Enterprises (DPE) in November 2012, listing its achievements as follows: Investing ZAR444.7 million to connect the government through the State Information Technology Agency (SITA) by creating the South Ring between Gauteng, Kwa-Zulu Natal and Western Cape; this project covered seven provinces. * Investing approximately ZAR317.2 million in infrastructure across eight provinces. * Rolling out 17 out of 18 Phase1 PoPs by the required deadline. * Investing ZAR36.7 million to enable regional integration of telecommunications services in Swaziland, Namibia, Mozambique and Zimbabwe; and * Investing ZAR440 million in the West African Cable System (WACS), in which Broadband Infraco has Tier 1 investor status. Broadband Infraco is a State-Owned Enterprise (SOE), which is owned by the Department of Public Enterprises (74%) and Industrial Development Corporation (26%).

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In September 2011 South Africas public enterprises minister Malusi Gigaba substantiated long-standing rumours that Broadband Infraco and fellow SOE Sentech could be merged, whilst admitting that nothing was imminent. Gigaba commented: We have begun discussions at ministerial, director-general and board levels, to try to find the synergies to improve cooperation between the two organisations, through entering into a venture agreement. At one stage or another, depending on the programme we establish and follow, we might arrive at a point where we say both organisations need to merge to form one organisation. However, Sentech reports to the Department of Communications (DoC), whilst Broadband Infraco is answerable to the Department of Public Enterprise (DPE), potentially complicating any attempts at formal cooperation. TeleGeography notes that both operators have been plagued with troubles in recent years ranging from allegations of internal corruption to mismanagement of government funding prompting industry insiders to speculate that any kind of tie-up between the two entities is liable to multiply any problems, rather than solve them.

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Wireline
Market Commentary
After eleven years under the monopoly of state-owned incumbent Telkom, the South African wireline market was technically liberated in May 2002 when three state-owned agencies, Sentech, Transtel and Eskom, were awarded licences to provide fixed line telephony services. However, the companies were limited in the range of services they were allowed to offer and it was not until August 2006 that the market first saw private sector competition introduced with the launch of independent second national operator (SNO), Neotel. Market regulators the Department of Communications (DoC) and Independent Authority of South Africa (ICASA) have since awarded licences to more than 540 companies to allow private firms to deploy their own network infrastructure, but Telkom still dominates the sector, with a stranglehold over the local loop. Neotel has struggled to make an impact on the incumbents position, admitting in August 2010 that it had failed the consumer market, and rather than prioritise improving its residential uptake would instead seek to embrace the more lucrative enterprise market. With fixed-to-mobile substitution chipping away at traditional services, South Africas household fixed line penetration has gradually declined in recent years, slumping to 23.9% (around 3.25 million customers) at the end of 2011, down from a peak of 4.3 million lines in 1999. Efforts to install a SNO and bring private competition to Telkom began in earnest in early 2002. At the time it was expected that a licence would be issued in 2003 or early 2004 at the latest. However, the original tender documents were not well received by either domestic or international operators, and in February 2003, after it had failed to attract a single realistic bid, the DoC switched tack by forming a committee to appoint a partner though direct negotiation. In the meantime, the DoC handed concessions to three state-owned agencies: Sentech the national television signal distributor; Transtel the telecoms arm of Transnet, the state-owned transport and infrastructure corporation; and Eskom the states power utility. All three companies were granted licences to use their existing networks to boost national and international connectivity, as well as to provide business services and value added services (VAS). Eventually the DoC allowed a consortium to apply for the SNO licence, dividing shares as follows: 15% each for public sector telcos Transtel and Eskom Enterprises (Esi-Tel); 19% for the Black Economic Empowerment (BEE) group Nexus Connexion; and 12.5% each for international investors CommuniTel and Two Consortium. A bid from Indian telco Tata Communications (formerly VSNL) for the remaining 26% stake was approved in February 2005, bringing the venture one step closer to launch. The Indian group's local unit Tata Africa Holdings promised to inject capital of USD200 million into the venture. In the same month another major breakthrough was achieved when Nexus withdrew an application for a judicial review into the licensing process. It had applied for an injunction over concerns that thenMinister of Communications Ivy Matsepe-Casaburri had exceeded her authority in awarding shares in the SNO to Two Consortium and CommuniTel after both failed to meet minimum requirements for a controlling stake in the new operator. The threat of legal action loomed, threatening once again to derail efforts to create the SNO, but Nexus climbed down, allowing the six shareholders to focus on formulating a business plan. The consortium finally received its licence in December 2005; a 25-year concession to operate a PSTN in competition with Telkom. In preparation for the impending launch of services the firm contacted Eskom to negotiate the purchase of network infrastructure. However, despite agreeing a deal to acquire Eskoms networks, the sale was blocked by the government in August 2006. Instead the state opted to hold onto its network assets and

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offered the consortium a long-term lease arrangement. Under the terms of the resultant deal, Telkom was required to grant the SNO access to its infrastructure, on a resale basis, for the first two years of its licence. On 31 August 2006 the SNO launched as Neotel, with its first commercial offerings being international wholesale services. It went on to launch a wider portfolio of converged fixed-mobile services for business users towards the end of 2006, with its first residential service, NeoConnect Prime, introduced in May 2008. As the conclusion of the resale contract with Telkom approached, Neotel again began to consider the acquisition of its own network infrastructure. The company opted to negotiate a purchase of another of its state-owned partners networks and in early 2008 agreed to merge operations with Transtel in a deal worth ZAR230 million. The deal, which was effective from 1 April 2008, saw Amsbury, a wholly owned subsidiary of Neotel, taking over Transtel's business of providing voice, data and network telecoms services as a going concern. In January 2009 Neotel agreed a deal with African mobile giant MTN Group to expand its infrastructure by deploying a 5,000km fibre-optic network which would allow both firms to bypass Telkom's transport system, further opening up the market. The two companies pledged to spend up to ZAR2 billion (USD196 million) on the project, which it was estimated could save the firms as much as ZAR6.3 billion in transmission costs over a ten-year period. In March 2009 cellco Vodacom joined the shared fibre infrastructure rollout. The DoCs approach to liberalising the countrys fixed line sector came under attack in 2008 when Value Added Network Service (VANS) provider, Altech, which at that time provided services via wholesale deals with incumbent operator Telkom, took the regulator to court requesting the right to deploy its own networks. The DoC favoured a policy of managed liberalisation under which competition would be phased in gradually; but Altech claimed that such a policy was anti-competitive and demanded the right to roll out its own infrastructure. In August 2008 the High Court ruled in Altechs favour, enabling it to deploy its own communications networks. Following the ruling, ICASA revised its licensing procedures. The regulator now requires firms to undergo an application process to receive an individual Electronic Communications Network Services (I-ECNS) concession; under the previous system companies had to wait for a tender to be opened by the state. Subsequently, in January 2009 ICASA granted a total of 544 separate individual I-ECNS licences to firms including multi-tenant properties, gated communities and business parks, allowing the companies to roll out their own local networks. Although local loop unbundling (LLU) is still required to fully liberate the market (initially planned for November 2011 but now expected in mid-2013 at the earliest), I-ECNS concessions have extended the reach of alternative operators, such as iBurst, which rolled out an ADSL2+ service in November 2009 using local I-ECNS infrastructure in tandem with its own fibre and microwave links. A significant development came in October 2009 when it was revealed that state-owned infrastructure company Broadband Infraco had been awarded an I-ECNS licence. The company had been established in 2007 under a statutory mandate to increase availability and affordability of electronic communications services through the development of a national next generation network (NGN). Having over 13,600km of fibre-optic cable nationwide, the award of the I-ECNS licence allows Broadband Infraco to provide a variety of wholesale services to other licensed fixed and mobile network operators, ISPs and other VANS. Broadband Infraco officially launched in November 2010, aiming to expand and increase the affordability of telecoms services across the country by selling high capacity long distance transmission services to network service providers in South Africa. In the same month another backhaul infrastructure project was launched, when mobile operator Cell C, Dimension Data division Internet Solutions (IS) and Convergence Partners the investment firm helmed by Dimension Data chairman Andile Ngcaba announced their intention to build a ZAR5 billion, 12,000km national fibre-optic network. The three companies formed a new entity, named FibreCo Telecommunications, to build and operate an open-access longhaul terrestrial network, with an initial phase scheduled to last two years focusing on the rollout of a 4,500km redundant core fibre ring linking Gauteng, Cape Town and Durban to international submarine cables.

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Networks
Provider Name Neotel (South Africa) Neotel (South Africa) Telkom South Africa (inc. Telkom Mobile [8ta]) Local Access Type Wireline WiLL Wireline Licence(s) Local, Long-distance, International Local, Long-distance, International Local, Long-distance, International

Annual Statistics by Operator

Provider Main Name Statistic Telkom South Africa (inc. Telkom Mobile [8ta]) Reporting Period 2007 2008 2009 2010 2011 2012

64k March equivalents

4,642,000 4,533,000 4,451,000 4,273,000 4,152,000 3,995,000

Annual Country Mainlines Growth

Year 2007 2008 2009 2010 2011 2012 Total lines (PSTN) 3,750,000 3,650,000 3,550,000 3,450,000 3,350,000 3,250,000 Growth (%) -1.3% -2.7% -2.7% -2.8% -2.9% -3.0% H'hold pen (%) 29.5% 28.1% 26.8% 25.6% 24.6% 23.9% VoIP subscribers Growth (%)

Notes: Telkom reports operating statistics for its financial year to end-March. The figures in the table above are end-December estimates based on Telkoms statistics

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Mainline Growth

Sources: Telkom

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Telkom South Africa Key Statistics

Mar 04 Post-paid PSTN Pre-paid PSTN PSTN total ISDN channels Payphones Total 64K equivalent Total traffic minutes (m) Local Long-distance Fixed-to-mobile International outgoing International VoIP Interconnection ADSL subs (incl. wholesale) Retail internet (ADSL, dial-up, WiMAX) 3,048,000 856,000 3,904,000 601,000 175,000 4,680,000 32,942 20,547 4,616 3,980 427 25 3,347 20,145 142,208 Mar 05 3,006,000 887,000 3,893,000 664,000 169,000 4,726,000 31,706 19,314 4,453 3,911 415 89 3,524 58,278 202,410 Mar 06 2,996,000 854,000 3,850,000 693,000 165,000 4,708,000 31,015 18,253 4,446 4,064 515 83 3,654 143,509 228,930 Mar 07 2,971,000 795,000 3,766,000 718,000 158,000 4,642,000 29,323 14,764 4,224 4,103 558 38 3,740 255,633 302,593 Mar 08 2,893,000 743,000 3,636,000 754,000 143,000 4,533,000 26,926 11,317 3,870 4,169 635 43 3,895 412,190 358,066 Mar 09 2,769,000 766,000 3,535,000 781,000 135,000 4,451,000 24,869 8,822 3,631 4,126 622 34 4,088 548,015 423,196 Mar 10 2,625,000 744,000 3,369,000 784,000 120,000 4,273,000 23,082 6,963 3,238 3,646 595 60 4,728 647,462 511,535 Mar 11 2,552,000 703,000 3,255,000 772,000 125,000 4,152,000 20,545 5,563 2,806 3,563 468 69 3,984 751,625 543,316 Mar 12 2,499,000 623,000 3,122,000 767,000 106,000 3,995,000 19,372 4,513 2,683 3,785 360 N/A 4,231 827,091 523,057

Sources: Telkom

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Main Players
Telkom South Africa (inc. Telkom Mobile [8ta])
Private Bag X780 Pretoria 1 South Africa Tel. +27 12 3115720 Fax +27 12 3115721 http://www.residential.telkom.co.za http://www.8ta.com National PTO Telkom South Africa was incorporated in 1991 to own and operate the national PSTN. It remained a wholly state-owned entity until May 1997 when the government sold a 30% holding to US-Malaysian joint venture Thintana Communications (Thintana has since offloaded its stake see Ownership section). The state completed an initial public offering (IPO) in March 2003 to reduce its stake to below 40%, although it retains the right to appoint five of Telkom's directors and still exerts considerable influence over strategic decisions. In May 2002 Telkom lost its monopoly on the provision of fixed line services when the market regulator Independent Communications Authority of South Africa (ICASA) launched a tender to license a second national operator (SNO), as well as granting concessions to three state-owned agencies: Sentech the national television signal distributor; Transtel the telecoms arm of Transnet, the state-owned transport and infrastructure corporation; and Eskom the states power utility. The move allowed the companies to use their existing infrastructure to boost national and international connectivity, as well as to provide competition to Telkom in the business services and value added services (VAS) sectors. However, as the SNO tender stalled repeatedly and due to the limitations on the scope of services provided by the state three agencies, Telkom managed to retain a de facto monopoly over local services for a further four years, finally broken when SNO Neotel launched services in August 2006. Even then Telkom maintained its stranglehold over the local loop, with Neotel forced to operate via Telkoms network infrastructure for its first two years of operation. ICASA did not require the incumbent to begin local loop unbundling (LLU) until 2008, setting a deadline for completion of November 2011, by which time 80% of the network should have been opened up, although that provisional deadline passed without any obvious progress. ICASA introduced a new deadline, 1 November 2012, for the introduction of bitstream access (see Local Loop Unbundling), but this date also passed without incident. At the time of writing (January 2013) industry insiders revealed that behind-the-scenes talks were ongoing between the relevant parties, but no concrete progress had been reported. Despite retaining its hold over the local loop, Telkom is finally facing competition after years of delays; Neotel has begun to deploy its own infrastructure, buying Transtel and agreeing to deploy a 5,000km fibre ring in conjunction with pan-African mobile operator MTN Group and cellular operator Vodacom. In January 2009 ICASA awarded concessions allowing firms to deploy their own local infrastructure to over 540 companies, further depleting Telkoms dominance over national infrastructure. Despite limited fixed line competition, the rising popularity of mobile services in South Africa has meant that Telkoms traditional fixed line business has fallen into decline in recent years. In the twelve months ending March 2012, the total number of fixed line accesses slipped 3.8% to 3.995 million, down from 4.152 million at the end of March 2011. The company also suffered an 5.7% fall in traffic volumes in the year to end-March 2012: during the period 19.372 billion minutes of fixed line traffic traversed Telkoms network, down from 20.55 billion minutes one year earlier and 23.08 billion in 2010. Local traffic was particularly hard hit, dropping 18.9% to 4.513 billion minutes year-on-year.

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As its local services come under increasing pressure, Telkom hopes to maintain its position at the fore of the countrys wholesale sector. The firm has invested heavily in the buildout of a ring of submarine cables around the African coastline in an effort to strengthen the companys domestic backbone infrastructure and improve its links to the rest of the continent, as well as Europe, Asia and the Middle East. In 2002 Telkom helped initiate the Afrolinque project which resulted in a consortium of 36 African operators cooperating in the building of three submarine cables (SAT-2, SAT-3 and SAFE). Telkom has also been engaged in further development projects, including the East African Submarine System (EASSy) and the West African Cable System (WACS). EASSy went live on 30 July 2010, whilst WACS experienced its first traffic in May 2012. Telkom South Africa is wholly owned by state-owned Telkom South Africa Ltd (also known as the Telkom South Africa Group).

Neotel (South Africa)

44 Old Pretoria Main Road Midrand Johannesburg 2191 South Africa Tel. +27 11 585 0000 Fax +27 80 033 3636 http://www.neotel.co.za Three years after first announcing its plans to introduce a second national operator (SNO) to the countrys underdeveloped wireline market, the Independent Communications Authority of South Africa (ICASA) finally awarded a 25-year PSTN licence in December 2005. The new telco was formally launched under the name Neotel on 31 August 2006, marking the introduction of genuine competition to the fixed telephony sector. Despite the nature of its licence, Neotels hopes of launching across its own infrastructure were dashed earlier in 2006 when the government derailed a bid for the telecoms assets of state-owned power utility Eskom. Instead the state opted to retain its network assets and offered the SNO a long-term lease arrangement with incumbent operator Telkom. Under the terms of the deal Telkom was required to grant Neotel access to its infrastructure, on a resale basis, for the first two years of its licence, leasing lines to the SNO at cost plus 4%. As a result of the wholesale deal with Telkom and a lack of infrastructure, Neotel could not offer a full portfolio of services at the time of its launch; instead the firm initially provided an international wholesale service, eventually adding its first corporate offerings later in 2006. Neotel eventually introduced its first residential services in April 2008, when it soft launched a CDMA2000 1xEV-DO fixed wireless access (FWA) service dubbed NeoConnect across parts of Pretoria and Johannesburg, although full-scale marketing of the companys residential products did not begin for a further four months. Shortly after its initial launch across Telkoms infrastructure, Neotel again looked to secure its own networks, this time targeting the telecoms assets of its shareholder Transtel, the telecoms arm of the state-owned transport and infrastructure corporation Transnet. After agreeing a price of ZAR256 million for the operator the acquisition was unconditionally approved by South Africa's Competition Tribunal in March 2008. Since then the company has relentlessly pursued the expansion and development of its network infrastructure, investing over ZAR3 billion to roll out its networks, with the expectation to spend a total of ZAR11 billion over the next decade. In January 2009 Neotel revealed that it had agreed a deal with mobile giant MTN to deploy a 5,000km fibre-optic cable network which would allow both firms to bypass state-run Telkom's transport system, further liberating the market. The two companies pledged to spend up to ZAR2 billion on the project, which it was estimated could save the firms as much as ZAR6.3 billion in transmission costs over a ten-year period. Augmented by the presence of a third partner cellco Vodacom construction began in

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the first week of March 2009. However, the original June 2010 deadline the beginning of the South African-hosted football World Cup proved elusive, with the consortium blaming regulatory hurdles for its lack of progress. Full completion had still to be announced by the time of writing (January 2013) although sections of the network are in service. Indeed, the most recent update came in July 2012 when MTN chief technical officer Kanagaratnam Lambothara commented: Two major MTN nodes, [in] New Germany and Durban, [are] ready to go live on the MTN network. 50% of the fibre, and over 95% of the total route trenching, has been completed certainly a key milestone in our network footprint which is designed and optimised to link major population centres and economic hubs, as well as interconnect with the international submarine cable landing sites. In August 2010, speaking at a press conference to mark the fourth anniversary of Neotel's launch, then-CEO Ajay Pandey admitted that Neotel had failed the consumer market, and rather than prioritise improving its residential uptake would instead seek to embrace the more lucrative enterprise market. Pandey explained that, going forward, Neotel's ideal revenue mix would be split 60% in the enterprise segment, 30% in the wholesale segment and 10% in the consumer market. He insisted that although Neotel was positioned as a second national operator upon its entry to market, the company has instead focused on becoming South Africa's first converged communications solutions provider. Nevertheless, for frustrated South Africans Neotel's failure to fulfil its obligations came as the latest in a long line of missteps, ensuring that Telkom's stranglehold on the country's telecommunications market continued. However, Neotels fortunes have subsequently improved, and when announcing the companys financial results for the six months ended 30 September 2012, Neotel reported a 10% increase in revenue, which it credited to corporate-focused converged voice/data solution NeoOne, which it claimed made a noticeable impact in the market. As much as 90% of the firms revenues were believed to have been generated by business customers. Elsewhere, EBITDA grew 276% year-on-year, while free cash flow improved by 49%. Neotel claimed that it was growing at more than double the industry growth rate. In operational terms, Neotel noted that it was on track for its target of 150,000 retail and 2,700 enterprise customers by March 2013, after its retail customer base grew 30% to 130,000 in the first half of the 2012/2013 financial year, with business customers increasing 18% to 2,400. On 14 June 2011 India-based carrier Tata Communications announced that it had increased its effective shareholding in Neotel from 49% to 61.5%, after acquiring a 12.5% stake from Two Telecoms Consortium (2TC). Tata did not disclose a purchase price for the shares, but confirmed that following the stake increase, Neotel would function as a subsidiary of Tata Communications. The announcement followed minority shareholder Telecom Namibias May 2011 admission that it hoped to offload its own 12.5% stake in Neotel as soon as possible. Telecom Namibia holds its shares via CommuniTel Telecommunications, a former joint venture with the MKHonto We Sizwe Military Veterans Association (MKMVA). However, by May 2012 Telecom Namibia had changed its tune, indicating that it no longer planned to divest its Neotel stake, despite not having received any return on its NAD429 million (USD50.05 million) investment to date. The other key shareholder in Neotel is black empowerment group Nexus Connexion, which itself consists of 134 different investors. In June 2012 Tata revealed that it planned to acquire an additional 2.5% interest in Neotel, for around USD18 million; at that time the stake was held by Tata offshoot Tata Africa Holdings, although no progress had been confirmed by the time of writing (January 2013). The Indian company also said that it hoped to invest around USD125 million in Neotels operations, supplementing the USD395 million invested to date.

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Vox Telecom
Block 1 Rutherford Estate 1 Scott Street Waverley Johannesburg South Africa Tel. +27 87 8050000 http://www.voxtelecom.co.za http://www.lantic.net Vox Telecom Limited was incorporated in South Africa on 20 August 1998, and bills itself as 'a leading alternative, independent telecom operator'. The Group competes through its primary brands Vox Telecom, Vox Orion, Vox Datapro and @lantic, and has offices in Johannesburg, Pretoria, Durban, Cape Town and Port Elizabeth as well as one in Windhoek, Namibia. Vox Telecom delivers voice telephony services to the top-end of the corporate market through its Vox Orion unit. Consumer broadband arm @lantic also offers voiceover-internet protocol (VoIP) services including DSL-based telephony packages under the Supafone banner. Mirroring its acquisitive strategy of adding smaller regional data firms to its central portfolio, Vox Telecom snapped up two of South Africas leading corporate voice providers in the form of Storm Telecom and Orion Telecom in 2007, swiftly integrating them into its new Vox Orion operation. Previously, Orion which was formed in 1996 carved itself a reputation within the corporate sector for pioneering Least Cost Routing (LCR). Nowadays Vox Orion claims to serve 60% of the top 200 listed companies on the Johannesburg Stock Exchange (JSE) and boasts significant government contracts, including four provincial governments, the South African National Defence Force (SANDF), the South African Police Force (SAPS) and 56 local town councils. At the time of writing (January 2013) Vox @lantic claimed to serve 166,000 customers, up from 123,000 one year earlier. Meanwhile, in its most recent annual report, dated August 2011, Vox Orion reported 7,540 corporate customers. In July 2011 Vox Telecom announced that it had received a firm offer from existing shareholder Lereko Metier Capital Growth Fund and new partner Investec Bank (IBL) to acquire 100% of the companys shares. Vox shareholders were given the opportunity to relinquish their respective investments via an offer of ZAR0.45 (USD0.06) per Vox share, or maintain their investment and receive one BidCo share for every ten Vox shares, or opt to take up a combination of both options. At that time, the scheme carried the support of 40.1% of Voxs shareholders and 53.4% of those shareholders entitled to vote. The offer followed the completion of a limited due diligence process by the consortium, and was subject to the fulfilment of a number of conditions in respect of the scheme, including: approval by the Johannesburg Stock Exchange (JSE), South Africa Reserve Bank, the Takeover Regulation Panel and the South African competition authorities. By early October 2011 Lereko Metier had succeeded in acquiring 42.45% of Vox Telecoms shares, while IBL had captured 17.61%. Previously, in its 2010 annual report, Vox claimed to be the largest listed black-owned telecommunications company in South Africa, with 42.3% of its shares held as part of the Black Economic Empowerment (BEE) scheme. BEE shareholders included: Lereko Metier Capital Growth Fund (24.77%), Mvelaphanda Group (12.4%), Regiments Capital (4.24%) and Thembeka Capital (1.61%). 0.82% of shares are with historically disadvantaged former employees.

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Country Directory
Regulators
Department of Communications
Ministry Office Pretoria South Africa Tel. +27 12 4278177 Fax +27 12 3626915 http://www.doc.gov.za

Independent Communications Authority South Africa (ICASA)

Private Bag X10002 Pinmill Farm 164 Katherine Street Sandton 2146 South Africa Tel. +27 11 3218200 Fax +27 11 4441919 http://www.icasa.org.za

Service Providers
Axxess DSL
Axxess DSL Building 155 Cape Road Mill Park Port Elizabeth 6001 South Africa Tel. +27 861 300900 Fax +27 861 300901 http://www.axxess.co.za

Broadband Infraco
Country Club Estate Building No. 9 21 Woodlands Drive Woodmead Sandton South Africa Tel. +27 11 2351760 http://www.infraco.co.za

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Cell C
150 Rivonia Road Morningside Johannesburg 2196 South Africa Tel. +27 11 324 4000 Fax +27 11 324 4001 http://www.cellc.co.za

iBurst (inc. Wireless Business Solutions)

15th Floor Radio Park Building Henley Road Auckland Park Johannesburg 2006 South Africa Tel. +27 11 7153400 Fax +27 11 7153401 http://www.iburst.co.za

Internet Solutions (South Africa)

The Campus Le Mans Building 57 Sloane Street Bryanston Gauteng South Africa Tel. +27 11 5761000 http://www.is.co.za

MTN Group
Innovation Centre 216, 14th Avenue Fairlands Johannesburg 2196 South Africa Tel. +27 11 912 3000 http://www.mtn.com

MTN South Africa

3 Alice Lane Sandown Ext 38 Johannesburg 2146 South Africa Tel. +27 11 912 3000 http://www.mtn.co.za

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MWEB (South Africa)

MWEB Building 100 Fairway Close Parow Cape Town South Africa Tel. +27 21 5968188 http://www.mweb.co.za

Neotel (South Africa)

44 Old Pretoria Main Road Midrand Johannesburg 2191 South Africa Tel. +27 11 585 0000 Fax +27 80 033 3636 http://www.neotel.co.za

Telkom South Africa (inc. Telkom Mobile [8ta])

Private Bag X780 Pretoria 1 South Africa Tel. +27 12 3115720 Fax +27 12 3115721 http://www.residential.telkom.co.za http://www.8ta.com

Telkom South Africa Group

Private Bag X780 Pretoria 1 South Africa Tel. +27 12 3115720 Fax +27 12 3115721 http://www.telkom.co.za

Vodacom South Africa

47 Wierda Road East Wierda Valley Sandton Johannesburg 2146 South Africa Tel. +27 11 6535000 Fax +27 11 7840805 http://www.vodacom.co.za

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Vox Telecom
Block 1 Rutherford Estate 1 Scott Street Waverley Johannesburg South Africa Tel. +27 87 8050000 http://www.voxtelecom.co.za http://www.lantic.net

Web Africa
Boulevard Office Park Block E Searle Street Woodstock Cape Town 7925 South Africa Tel. +27 21 4649500 http://www.webafrica.co.za Last Updated: 31 January 2013

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The content on the preceding pages is a section from TeleGeography's GlobalComms The work is based on sources believed to be reliable, but the publisher does not warrant the accuracy or completeness of any information for any purpose and is not responsible for any errors or omissions. This work is for the confidential use of subscribers. Neither the whole nor any part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded or otherwise, without prior written consent from PriMetrica, Inc. All rights reserved. 2013 PriMetrica, Inc. TeleGeography A Division of PriMetrica, Inc. Washington, D.C. / San Diego / Exeter U.S. tel: +1 202 741 0020 / U.K. tel: +44 1392 315567. www.telegeography.com

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