Storm clouds gather over ICT sector - TechCentral

Storm clouds gather over ICT sector

Duncan-McLeod-180-profileA sense of doom and gloom seems to be settling over South Africa’s information and communications technology industry. Some of the pessimism is inherited from the deep structural problems afflicting the broader economy. But unique challenges in the sector are contributing to the growing sense of unease and despondency.

Barely a week seems to go by without bad news emerging about major players in the industry, especially in telecommunications (the traditional IT players are still doing okay, it seems).

This week it was the turn of MTN, which warned that its earnings in the six months ended 30 June 2015 could slump by as much as 15% compared to the same period last year. This was worse than the market was expecting, and its share price was knocked down by 6%.

MTN will report its interim results on Wednesday. Apart from scrutinising the numbers from Nigeria, MTN’s biggest and most profitable market, analysts will be paying close attention to South Africa, where strike action could have had an impact on subscriber numbers and financial performance.

MTN is already well advanced in reducing costs as margins shrink. This week, it announced it is abandoning its sponsorship of the MTN-Qhubeka cycling team. But it has already shed thousands of jobs as a price war in the mobile communications market intensified.

Telkom is also having a grim time. Its CEO, Sipho Maseko, has warned labour unions in recent weeks that if it doesn’t get its costs down dramatically — and soon — the company’s very survival could be at stake. The operator has been prevented by the courts from retrenching workers, but it’s still actively trying to reduce its staff numbers by offering voluntary severance and early retirement packages to its 18 000-strong workforce.

Telkom is overstaffed and the job cuts are necessary. But the firm faces existential threats beyond its own cost base. It has already lost its dominance over international and national long-distance communications. Now, it’s core business of fixed lines is increasingly being threatened by a new generation of fibre infrastructure providers, which are stealing its most lucrative customers, even in residential neighbourhoods.

Telkom should have been more aggressive in streamlining its business earlier to cope in a competitive market. It’s now being forced to downsize at speed.

That the politicians haven’t tried to interfere — so far — is commendable. Perhaps Maseko has the ear of the right people. By government giving Telkom management free rein, the company has a real shot at not becoming another failed state-owned enterprise in need of a taxpayer-funded bailout. It’s a model worth copying at South African Airways, Eskom and other SOEs.

Vodacom has done better than Telkom and MTN. It reduced staff in some areas, but not anywhere near the scale of what’s happened at MTN and what’s still planned at Telkom. Management at South Africa’s largest mobile operator started reducing costs earlier than its rivals — cutting its myriad sporting sponsorships, for example — and, through smart strategic decisions, has managed to weather the price war better than MTN, retaining its market share, too.

But even at Vodacom, the future is less certain that it was just a few years ago. Margins across the industry are under pressure as mobile penetration reaches saturation. Worse for the operators, government is failing them by not crafting the policies so desperately needed to foster future growth and investment. Indeed, this has become these companies’ biggest challenge.

The department of telecoms & postal services has failed to produce a final policy on allocating radio frequency spectrum for broadband, something it should have done years ago. And the mess that is the migration from analogue to digital terrestrial television — crucial for freeing up the airwaves for next-generation broadband — lumbers on.

In short, government’s management of the sector risks becoming catastrophic for the sector, and by extension risks undermining job creation. The failure to produce policy is now forcing consolidation as the industry makes alternative plans — Vodacom is trying to buy Neotel and MTN and Telkom are trying to share spectrum.

Like the problems facing the mining and tourism sectors, the problems in telecoms are increasingly the result of a government that seems unwilling or incapable of doing what’s necessary.

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

3 Comments

  1. Its very obvious! ANC is not anywhere ready for “primetime”. Its an amatuer outfit with subskilled politicians from the movement who have no philosophy, ethics or morals. Need to scrap and start over because this plan clearly not working! SA is slipping further into the abyss. For each year this clown act is in office the country slips 2 years into the past. So its 1980.

  2. In essence they are still children in adult bodies but picking up ASTRONOMICAL pay cheques all the same. (Including their ‘consultants’ who do any real maths and science required)
    I agree we are regressing at a frightening speed yet those self-same children in adult bodies insist on yet more Kindergarten government by way of racial insanity known as BEE & Transformation.
    Do we laugh or cry?
    I suppose what the ICT sector really needs to set them right is another Good Bye Letter from Sipho Maseko, that should be a big boost to all concerned hey?….WHHHAAAHHH