This report, published in February 2021, presents an analysis of the mobile data market as background to the development of the 5G market. The state of the current 5G market is analysed. The expected 5G coverage and subscribers are forecast to 2025. Various 5G use cases are discussed.
Mobile Data Market
Currently five retail mobile operators compete in the SA mobile data market (Cell C, MTN, Rain, Telkom, Vodacom) along with a host of retail MVNOs. Rain is a data-only mobile network operator.
Other than Rain, the balance of the mobile operators sell mobile data through their direct-to-market channel and a host of indirect channels. Rain only sells through a direct-to-market channel.
Overall, the mobile data growth was strongly helped by the demand for connectivity created by the 2020 COVID-19 hard lockdown and required distancing protocols. As a result, mobile data traffic annual growth delivered a three year high. The 2020 market numbers are:
- Total mobile data traffic reached 2.6EB, showing annual growth of 73%.
- Revenue earned from the retail mobile data market reached R58 billion, showing annual growth of 9.5%.
- Overall, the mobile data traffic growth is growing at 4.8x the CAGR of retail mobile data revenue.
5G Market Status
South Africa is a leading adopter of new mobile generation technology. This is based on the dates of the 2G, 3G and 4G launches in South Africa against the dates for all networks launched in these generations across the globe. Typically, South Africa is among the early 10% of networks launched. The launch of 5G by Rain, in 2019, continues with this trend. In 2020, MTN and Vodacom launched 5G services. While the market is in an early growth phase, the 5G population coverage reached 4.4% with an estimated 90 thousand 5G subscribers.
5G Market Forecast
Following the conclusion of the upcoming spectrum auction, the market is expected to show strong growth. This will drive 5G subscribers to reach 11 million by 2025. Some of the key drivers are:
- Spectrum: In terms of timing, the key driver will be the conclusion of the upcoming high-demand spectrum auction planned for March 2021. On conclusion of the auction, we expect to see rapid 5G coverage roll out. For example, MTN, at its 5G launch, stated that it will cover 10 million people within 12 months after being awarded the spectrum.
- Low cost 5G smartphones: Another key driver will be the availability of 5G devices. Specifically, the range of low cost 5G smartphones as this will be a key driver of uptake. The number of announced 5G devices, from a global view, at December 2020 has already surpassed the equivalent number of 4G devices at three years after the introduction of 4G. This shows the strong support for 5G by device OEMs.
- Prepaid: Introducing prepaid 5G products will enable the mobile operators to tap into the largest mobile market segment.
- Network roaming: The licensing of the WOAN (Wireless Open Access Network Operator), the commercial national roaming agreements and the role of wholesale network operators will enable 5G coverage to grow rapidly.
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Understanding the current mobile data market, the market drivers and the anticipated growth in 5G is critical to any stakeholder looking to understand the 5G market opportunities in South Africa. This 50 page report covers the following topics:
- South African Mobile Data Market
- High-Demand Spectrum Auction and WOAN Licensing
- The Current 5G Market
- The 5G Market Opportunity
- 5G Use Cases
- Acronyms / Glossary / Research Methodology
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2019 SA ICT Mergers and Acquisitions (M&A) deal flow was defined by the acquisition of Vumatel at an estimated R8 billion. The top three deals by deal value were about the sale of telecoms and data centre infrastructure. Six of the eight infrastructure deals involved fibre network operators being acquired.
2019 saw the end of the strong and aggressive M&A strategy used by Blue Label Telecoms, EOH and HeroTel. In 2019, Blue Label Telecoms and EOH sold assets to raise capital to offset long term debt, whereas HeroTel simply ran out of attractive assets to buy.
In 2020, the M&A deals will be defined by companies seeking to add strategic assets to their existing portfolio. Potential deal flow includes the sale of Cell C, the likely sale of the tower portfolios of either MTN or Vodacom or both, and the ongoing select acquisition of fibre network operators and retail service providers by their larger competitors.
2019 M&A Deal Count
Over the past three years, the number of reported ICT M&A deals has dropped from 41 (2017) to 35 (2019). Deal classification system:
- Networks & Infrastructure category covers deals that involve the acquisition of companies who own network and/or infrastructure (e.g., data centres, fibre networks).
- Customers & Channels category covers the acquisition of companies that have large customer bases or channels and distribution assets.
- Capabilities & Skills category covers deals that typically involve IT Services.
This decline has resulted from the slowdown by companies which previously drove M&A activity.
- From 2016 to 2018, HeroTel was a major driver of M&A through its aggressive acquisition of regional wireless internet service providers (WISPs). In 2019, HeroTel only concluded one transaction. The large decline in network deals resulted from HeroTel’s winding down of its acquisition spree.
- After many years of driving M&A, EOH in 2018 began the process of selling subsidiaries and equity it held in companies. The selloff gained momentum in 2019.
Interestingly, six of the eight network infrastructure deals involved fibre network operators. There is no single large investor or network operator who has been buying up fibre network assets. Instead, the market has seen selective buying of fibre network assets.
The higher volume, but generally lower priced deals, involving the buying of IT companies, continued in 2019. The number of reported deals has risen from 18 in 2017 to 22 in 2019. It is rare to see IT deals that surpass R1 billion in deal value. Thus, the R1 billion price tag paid by Vodacom Group for its 51% equity in IoT.NXT stands out. It is difficult to unpack this deal’s valuation drivers but it does seem that Vodacom Group may have paid a premium for the equity. There is still some hype around IoT which may have influenced the price tag.
In terms of media deals, the purchase of media assets by Lebashe Investment Group from Tiso Blackstar Group for R800 million is another standout deal. There are very few media deals undertaken in South Africa. This is a reflection of the local media market concentration.
2019 Deals not Concluded
There were two deals that were not concluded: the sale of WebAfrica (an ISP) and Vox (a fibre network operator and a service provider).
The asking price for WebAfrica was not met and thus the sale was aborted. The reported asking price was R300 million while bidders submitted bids in the R170 to R220 million range.
A similar situation arose with Vox where it was reported that an equity sale was imminent, but no deal was concluded. Subsequently, a Vox shareholder, Investec, sold its shareholding to the existing shareholders and a new management shareholding scheme was put in place.
Towards the end of 2019, Telkom Group offered to buy Cell C, but the shareholders of Cell C rejected the Telkom approach. Had a deal been concluded, then this deal would have been the largest deal reported for the year.
2019 Top Three Deals
The top ten deals accounted for an estimated M&A transaction value of R18 billion, while the top three deals accounted for R16.6 billion. The top three deals in 2019 are:
- The largest deal is estimated to have been the CIVH acquisition of Vumatel at an estimated value of R8 billion . We included both the first and second transactions in this estimate.
- This was followed by Berkshire Partners estimated R5.6 billion purchase of 51% equity in Terraco from Permira. The estimated deal value is broadly based on limited information published about the deal.
- The most surprising valuation is the R1.028 billion paid by Vodacom Group for 51% equity in a young four-year old IoT solutions company IoT.NXT. The surprise element is based on the fact that the value of projects undertaken by IoT.NXT to date does not support this valuation. The purchase price must have been based to a degree on anticipated future revenue flow, given IoT market expectations.
The unconfirmed sale of the Standard Bank data centre to Liquid Telecoms is a significant deal. However, there is no published information that indicates that this deal has been concluded.
2020 M&A Outlook
We expect to see the following deal flow in 2020:
- TowerCo deal with MTN/Vodacom towers: Both operator groups have disposed of tower portfolios in some of their other country markets of operations. SA remains a significant market where both operators own their towers. Over the years there have been rumours about the sale of the respective tower portfolios. We expect that an international towerco with a strong local BEE partner will likely acquire the tower portfolio of either MTN or Vodacom or both in SA.
- Fibre network operator M&A: There will be continued M&A activity with the smaller fibre network operators being purchased by the larger network operators. A likely M&A target remains Octotel, given its strong position in the Western Cape.
- IT Service Providers M&A: This will continue through 2020. The focus will see innovative and strong market position players being targeted in a M&A drive.
- CIVH acquisitions: CIVH has indicated interest in expanding their infrastructure business. This may lead to CIVH buying into a data centre business and/or into a wireless network operator.
- Blue Label Telecoms and EOH: Both companies will likely continue to seek to sell assets as they strive to raise capital to improve their balance sheet.
We will not see single companies drive aggressive M&A strategies. Rather the M&A deals will be defined by companies seeking to added strategic assets or skills to their existing portfolio.
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The South African cloud market continues to experience significant growth as both large enterprises and SMEs migrate their workloads to the cloud. Key infrastructure providers such as Microsoft and Teraco continue to invest significantly in cloud and data centre infrastructure respectively, to cater to the increasing demand for cloud services. Through the use of independent software vendors (ISVs), many local organisations have started establishing their cloud journeys to ensure a smooth transition to the cloud environment.
Key Highlights of the Conference
The 2019 Cloud Conference was held in Johannesburg on 6 June 2019. The event featured several cloud providers, including Huawei, Liquid Telecom, Microsoft, Oracle and VMware. Furthermore, data centre providers such as Teraco also featured, and highlighted their ongoing expansion projects and key milestones achieved to date.
Most service providers highlighted the different cloud journeys being developed by customers to ensure successful migration to the cloud. These cloud journeys vary from service provider to service provider. The overarching themes by most service providers include planning, migrating and modernising / extending the cloud environment. The overall objective is to establish the best migration strategy that minimises costs and optimises return on investment.
Key highlights at the conference included the upsurge, evidenced by the service providers, in the demand for cloud services in the country, particularly by SMEs and start-ups. Microsoft is currently experiencing significant interest in cloud services from start-ups that mostly utilise artificial intelligence (AI) and machine learning (ML) solutions.
However, skills shortage remains a key challenge, as it is negatively affecting the development of the cloud market. Hence, partnerships between service providers and ISVs have played a key role in addressing the skills gap.
Huawei is aggressively marketing its cloud offering, which includes Huawei Cloud, Huawei Cloud Stack Online and Huawei Cloud Stack.
Teraco’s data centre services have experienced significant growth due to the increased demand for cloud services. It is currently expanding its Isando campus to about 12 000m2 by Q3 2019, at a cost of R900 million.
Cloud Migration Journeys by Service Providers
The cloud migration journey involves three broad stages, namely: planning, migration and modernisation / extension. Various service providers recommend specific migration strategies to their customers.
The overarching objectives in establishing the cloud migration journey include:
- Identifying gaps between existing legacy architecture in the organisation and next-generation cloud architecture.
- Mitigating risk by validating critical elements of the proposed architecture.
- Identifying the architecture that minimises capital expenditure on IT infrastructure.
- Establishing the best migration strategy, e.g., ‘forklift’ migration, which involves moving workloads in their existing state, or hybrid migration, which involves moving applications in batches to ensure a smooth transition.
- Implementing advanced monitoring and telemetry strategies to optimise the cloud platform.
Liquid Telecom’s migration strategy for its clients is segmented into three phases: planning, migrating and managing. These phases entail defining a company’s cloud journey before migrating and maximising value through the cloud platform.
Microsoft’s cloud migration strategy is segmented into assessment, migration and optimisation of the cloud platform. The objective of this strategy is to establish inclusiveness, involving various stakeholders within the organisation, to ensure a successful migration strategy.
IBM’s migration strategy involves enabling cloud-native, integration and modernisation of the cloud environment.
Other cloud providers, such as Amazon Web Services (AWS), have an extended cloud migration strategy that includes assessment, concept development, migration, cloud leveraging and optimisation. However, the underlying objective of identifying the best migration strategy remains the same.
Huawei’s Cloud Solutions
Currently, Huawei offers private cloud, hybrid cloud and public hyperscale cloud solutions. Its cloud services are categorised into three types, namely: Huawei Cloud, Huawei Cloud Stack Online (HCS Online) and Huawei Cloud Stack (HCS).
- Huawei Cloud is a full-stack platform that includes IaaS, PaaS, Security, Database, Big Data, and Enterprise Intelligence (EI) services.
- HCS Online is an extension of Huawei Cloud in customer data centres. This cloud type uses a similar architecture and provides the same cloud services as Huawei Cloud – IaaS, PaaS, Security and Database services. The only difference is that it is deployed in customers’ data centres and provides isolated resources to ensure security compliance.
- HCS is Huawei’s full-stack hybrid cloud solution that includes IaaS, PaaS and Desktop-as-a-Service (DaaS) offerings. In addition, it supports hybrid cloud architecture, including Huawei Cloud, AWS and Azure.
Despite these three cloud types having different features, they all share unified architecture, ecosystem and user experience. Huawei Cloud and Huawei Cloud Stack Online also share unified APIs, Cloud services and Operations & Maintenance services.
Huawei’s cloud portfolio offers an open application platform and provides powerful cloud infrastructure that supports AI services. Furthermore, its security solutions are aimed at controlling data access through data warehouse security. Data security is achieved through data and network channel encryption.
Microsoft’s Cloud Migration Considerations
Microsoft SA detailed some of the key points that organisations need to consider before migrating to the cloud, which include their existing budgets, industry legislation around data residency, service level agreements (SLAs) by various service providers and the existing skills set within their organisations.
Organisations need to extensively assess their current IT budgets to establish their affordability before they embark on their cloud journey. This will enable companies to create a cloud environment that best suits their needs and realise the highest return on investment.
The process of migrating to the cloud needs to be carefully managed to allow for a smooth transition and ensure all employees are familiar with the processes. ISVs have played a critical role in partnering with Microsoft to develop and deliver successful cloud migration strategies.
However, the upscaling of existing skills within organisations remains a key priority to ensure the modernisation and extension of the established cloud environment.
The ability to leverage existing infrastructure is a key consideration that could result in significant cost-saving during the cloud migration process. Organisations need to assess the degree of compatibility between existing hardware and software infrastructure, and the new cloud architecture.
Teraco’s Data Centre Projects
At the conference, Teraco announced the latest developments in the expansion of its Isando Campus to cater for the increased demand for cloud services. The current expansion of this campus (JB3 phase) is expected to increase total usable space by 4 000m2 to a total of 12 000m2 by Q3 2019. The total power available to the Isando campus will increase by 60MW and total 80MW.
Teraco believes public cloud infrastructure, meant to serve the sub-Saharan Africa (SSA) region, will be mostly located in SA. This is mainly due to the country being one of the largest economies on the continent and possessing adequate ICT infrastructure to support cloud development. Despite the current power generation challenges, Teraco believes SA remains best-positioned on the continent to accommodate data centres and provide the required power supplies for their optimal operation.
Other arguments for SA as the best location for public cloud infrastructure include:
- Lower latency: The location of public cloud data centres in SA (as opposed to outside SSA) will reduce the latency levels and improve data transmission within the region.
- Large addressable market: There is a growing addressable market for cloud services in SA and across the Southern African region. This will create a cloud market for locally-based cloud providers, making the country a regional hub of cloud services.
- Stable political environment: Generally, SA enjoys a stable political and economic environment, which is critical to attracting foreign investment, including public cloud infrastructure providers. Hence, sustained political stability will result in the country being a favourable destination for cloud infrastructure.
Unisa’s Hybrid Cloud Services
UNISA currently leverages Microsoft Azure cloud services that utilise Teraco data centres. These cloud services are highly scalable and significantly improve the capabilities of the institution. As a result, the hybrid cloud services have improved the learning experiences of up to 350 000 students by reducing latency and improving connectivity speeds.
Currently, the key cloud services UNISA subscribes to include SaaS, Container-as-a-Service (CaaS), PaaS, IaaS, Azure Kubernetes Service (AKS), Office 365 and Microsoft’s GitHub. UNISA also subscribes to site-to-site VPN services from Microsoft.
As a result of the cloud migration, UNISA has been able to migrate 355 GB structured data to the cloud.
The three broad stages characterising the cloud migration journey are planning, migration and modernisation / extension.
Huawei, Microsoft and Teraco have increased their efforts in providing cloud and data centre services to the market, which is evident from the increased investments committed by these companies.
Service providers believe key considerations prior to cloud migration include the assessment of existing budgets to establish affordability, addressing scarce skills necessary for cloud management and extension, and leveraging existing infrastructure with the new cloud architecture to achieve cost savings.
Furthermore, service providers believe SA is well-positioned to host cloud and data centre infrastructure due to its energy generation capacity, good ICT infrastructure and a stable political environment.
Contact Derrick Chikanga for more information on cloud services or IT services.