Since the deployment of the first 3G base stations, Vodacom has led the market in expanding network coverage. An analysis of the network deployment and uptake of 3G and 4G services, shows the following interesting points:
Reviewing the Technology Investment:
Vodacom has aggressively accelerated the deployment of 4G coverage, reaching 80% population coverage after only 5 years.
By comparison, the 3G network reached 80% population coverage after 8 years.
However, the analysis of 3G and 4G adoption by their customers, shows significantly different technology adoption profiles. After 5 years, 4G adoption is less than half of the 3G adoption.
What does this mean?
Vodacom has invested strongly in driving 4G coverage.
However, the 4G device adoption has not kept pace with network coverage expansion. The slower adoption has not hindered Vodacom in driving 4G network coverage.
Looking Ahead to 5G
The strategic capability of Vodacom to invest in 5G without a strong link to 5G customer adoption, will underpin and solidify its market leadership position.
Only MTN has the capability to match the above strategy. Cell C and Telkom Group will not be able to match such an investment strategy easily.
Vodacom Strives for Technology Leadership
Vodacom has striven to lead the market when it comes to new technology deployment.
They launched 3G services in December 2004 and 4G services in October 2012. By comparison, MTN SA launched 3G services 6 months later, in June 2005. However, MTN launched 4G services (November 2012) within 1 month of Vodacom announcing their 4G service launch.
3G vs 4G Population Coverage – Vodacom
The following exhibit shows the respective 3G and 4G network population coverage since deployment.
The exhibit shows that Vodacom drove 3G population coverage quite strongly from 2004 to 2012. Interestingly, the sharp rise from 24% to 74% corresponds to the introduction and growth of Dark Fibre Africa (DFA). The launch of DFA was built on the uptake of dark fibre by Vodacom.
Vodacom has aggressively expanded their 4G population coverage, In comparison with the 3G population coverage.
3G vs 4G Population Coverage Comparison – Vodacom
By tracking network deployment in years, from initial service launch, it clearly shows how aggressive 4G deployment was compared to 3G deployment. The following exhibit presents this analysis.
There are significant underlying factors that impact the deployment of 3G and 4G networks:
- Vodacom needed to build out and/or wait for the provisioning of high capacity backhaul to their 3G base stations. Vodacom also needed to adopt a Fibre-to-the-Site (FTTS) backhaul strategy.
- The advantage of this strategy is that the backhaul was scalable to accommodate the high capacity demand required by the 4G network. Thus, there is a significantly lower waiting time for the provisioning of high capacity 4G base stations.
- Vodacom re-farms 3G spectrum to offer 4G services. Thus, the underlying infrastructure is in place for the deployment of 4G services.
In support of Vodacom’s 4G network deployment, is the roaming agreement it has entered into with RAIN.
The roaming agreement enables Vodacom to achieve two key network deployment strategies:
- Capacity (densification): The rollout of 4G coverage by Rain using the Vodacom sites ensures that the Vodacom customers benefit from the network rollout.
- Coverage: Using the Rain network frees Vodacom to focus on network coverage growth.
3G vs 4G Customer Technology Adoption – Vodacom
The proxy used for technology adoption is the ratio of technology SIMs to total SIM base. The handset base excludes M2M, dongles and tablets.
By comparison to 3G, the adoption of 4G significant lags the adoption of 3G (device adoption).
This has not hindered Vodacom in driving 4G network coverage.
Quite likely, the 4G national roaming agreement with Rain has enabled Vodacom to focus on driving network coverage rather than focus on both network coverage and network capacity (densification). This behaviour illustrates the strategic value of the roaming agreement.
3G vs 4G Network Coverage Adoption – Vodacom
The following exhibit shows the relationship between network coverage (%population) and the adoption of technology (%SIMS).
Based on the exhibit, we can see that Vodacom has strongly driven 4G network coverage with little regard to the adoption of 4G devices. The ability to drive network coverage speaks to the strategic financial capability of Vodacom to invest in their 4G network, without linking this investment to 4G service uptake.
Vodacom has reported that its 3G and 4G customers show significantly different behavior. 4G customers consume more data and represents a higher ARPU customer. Vodacom reports around a 20% uplift in ARPU. Thus, while the 4G adoption has not matched the 3G adoption, the 4G customer has shown to be a more valuable customer (based on ARPU).
What Does this Mean for Vodacom’s 5G Strategy and the Market Competitors?
Based on the 4G behavior, we would expect Vodacom to adopt a similar 5G strategy – that of driving population coverage ahead of 5G service adoption. Vodacom can sustain this strategy while it has the strategic capability to generate cash from its operations to invest in network coverage.
The strategic challenge to the competitors, is that Vodacom can afford an investment strategy that does not directly link to customer adoption. MTN SA may be able to match such a strategy, but it is unlikely that Cell C and Telkom Group would be able to.
The implication of this strategy is that Vodacom can drive 5G network coverage and thus maintain / sustain their technology leadership. This will underpin their market leadership position.