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    Home » Duncan McLeod » Neotel deal lights fuse under SA telecoms

    Neotel deal lights fuse under SA telecoms

    By Duncan McLeod5 July 2015
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    Duncan-McLeod-180-profilePerhaps the biggest surprise to come out of this week’s conditional approval by the Competition Commission of Vodacom’s R7bn acquisition of Neotel is not that the commission has attached stringent conditions to the deal, but that the mobile operator has agreed to them.

    The commission, which has taken more than a year to investigate the proposed transaction, announced on Tuesday evening that it would back the deal, but only on condition that Vodacom does not use Neotel’s valuable radio frequency spectrum to provide mobile broadband services to consumers until late 2017 at the earliest.

    In light of past remarks by Vodacom CEO Shameel Joosub about how urgent it is for the operator, South Africa’s largest by subscriber numbers, to get its hands on additional spectrum, it is somewhat surprising that it’s agreed to this. One can only imagine Vodacom has spent time considering the scenarios in detail and decided it still makes sense.

    The commission is worried that without attaching the spectrum condition, Vodacom — as market leader — will consolidate its dominant position by receiving “first-mover advantages” that rivals won’t be able to match until government finalises its long-overdue policy on spectrum.

    An intriguing question that needs answering is whether Vodacom will be allowed to use Neotel’s spectrum to provide non-mobile, or fixed-wireless, broadband immediately. The difference between and definition of mobile and fixed-wireless services is key here. Mobile is typically defined as a wireless service capable of providing “hand-off” between base stations — as a user roams from one tower to another, their call continues uninterrupted — whereas fixed-wireless implies non-mobile but wireless services that are used from a fixed location.

    Does the commission’s approval mean that Vodacom, through Neotel, is free to build a national fixed-wireless service (using 4G/LTE, for example) on top of the latter’s spectrum assets? Could it then, at the expiry of the commission’s spectrum condition, simply switch on mobile hand-off? The answer to this question, which has broad implications, should become clearer in the weeks ahead.

    What is certain is that Neotel’s spectrum is incredibly valuable, particularly its access to the 1,8GHz and 3,5GHz bands, which are great for deploying LTE broadband.

    Tim Parle of consultancy BMI-TechKnowledge is one of the country’s leading spectrum experts. He says the 1,8GHz band is the one used most by operators around the world to deploy LTE services and hence has the largest ecosystem of smart devices and base station technologies. The 3,5GHz band is useful for high-density urban applications.

    Importantly, according to Parle, the two bands could in theory be used together — through a technology called “carrier aggregation” — to allow Vodacom to compete head-on with Telkom, which has a large allocation of spectrum at 2,3GHz. This spectrum, which Telkom is using for fixed-wireless LTE broadband, is one of the operator’s strongest competitive differentiators. The Vodacom acquisition of Neotel could significantly erode that advantage.

    The need for more spectrum the principal reason Vodacom is pursuing Neotel
    The need for more spectrum is the principal reason Vodacom is pursuing Neotel

    Competition commissioner Tembinkosi Bonakele says the success of the commission’s conditions is dependent on the government and communications regulator Icasa promulgating the necessary policies and allocating spectrum “for the benefit of the whole country”. In a way, the commission is shining a spotlight on a delinquent policy maker, which must now get a move on with formulating the necessary policies so that the spectrum – particularly in the bands that will be freed up through digital television migration — can be assigned.

    But spectrum is not the only area where Vodacom’s acquisition promises to shake up the existing order in local telecoms. The operator has already committed to using Neotel’s resources to compete with Telkom head-on in fixed lines. It intends rolling out fibre infrastructure into homes and businesses, joining dozens of start-ups that are already clamouring for a stake in this expanding area.

    The Competition Commission has got Vodacom to agree, as part of the Neotel deal, to spend at least R10bn on fixed-line technologies and related services in the next five years. It may have been planning to spend that much anyway, but it’s now a formal commitment, which should ensure it actually happens. Rival MTN will have to follow suit, meaning a real tussle with Telkom over fixed lines in the coming years. This is fantastic news for consumers.

    • Duncan McLeod is TechCentral’s editor. Find him on Twitter
    • This column is also published in the Sunday Times


    BMI-TechKnowledge Duncan McLeod MTN Neotel Shameel Joosub Telkom Tembinkosi Bonakele Tim Parle Vodacom
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