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South African telcos co-locate to ride out the perfect storm

Operators band together to create a sustainable financial model to bolster revenues, take pressure off consumers and increase network penetration.

It is probably a safe bet to say that telecommunications companies worldwide have been undergoing significant changes over the last decade with price pressure, increasing network costs and evolving consumer demand all playing roles in the industry’s transformation. If that were not enough, over-the-top services and increasing adoption of the Internet of Things have been giving operators turns as well, setting up what some might call a ‘perfect storm’ with margin pressures weighing heavily on current business models.

Indeed, if the South African market is any indication of the topsy-turvy world major telco providers find themselves trying to navigate, then they might want to stop and take note of how the country found a solution to riding out the storm by exploiting an opportunity in the operator value chain.

The trick: uncover the question that needed answering to avoid the situation further spiraling out of control. In the end, South African operators determined they wanted to provide better services supported by a financially sustainable business model. To accomplish this, they determined the solution could be found by exploring infrastructure options.

Traditionally, telco operators have owned the entire range of activities of an access network. Over the years, the model has evolved to the extent that various segments of the value chain now belong to a number of players, including the access network, which has been seeing a rise in collaboration between operators in the form of strategic partnerships leading to efficiencies through specialization.

The SA telco industry opted for market –wide passive infrastructure sharing to deliver the benefits they were seeking.

The solution – also known as mast sharing – involves sharing mast or tower structures where active equipment is located. This is achieved through an inter-operator agreement or through the use of independent tower companies, or ‘towercos’.

Perhaps the most obvious benefit of network infrastructure sharing is that it lowers the cost to service subscribers, who had been faced with gradually bearing the brunt of increasing costs in connectivity. However, an even greater argument for looking into passive infrastructure sharing models is that the economic business case for rolling out a communications infrastructure into underserviced or rural areas improves significantly, due to lower CAPEX requirements. As a matter of fact, some industry estimates have put probable savings at as much as 60% annually.

In addition, operators can now explore the deployment of newer technologies such as 4G at a lower cost and to a wider customer base, thus improving the quality of customer service.

Other favourable outcomes include a reduction in duplicate infrastructure, which has multiple negative economic and environmental impacts, including a higher carbon footprint and unsightly landscapes littered with mobile towers.

Yet, it is important to remember the challenges which were forcing operators to seek shelter in the first place: passive infrastructure sharing presents a unique opportunity for all stakeholders. Operators will get some relief from their margin squeeze by realizing improved operating efficiencies from their network with OPEX savings of up to 30%.

Meanwhile, consumers will enjoy improved service quality and increased network coverage, while operator cost savings frequently translate into more competitive pricing. The potential development of the independent towerco market also has the added benefit of job creation and upskilling.

And this is only the beginning.

De Wet Bisschoff 

Managing Director
Accenture Communications, Media and Technology

Hennie de Villiers 

Senior Manager 
Accenture Strategy