CAPEX Challenge

South African Telecoms Operators: The CAPEX Challenge

Current total [1] CAPEX investment growth is outpacing retail telecoms revenue growth – and there are no signs that this will change over the short term.  Unless telecoms operators change their business model, their ability to sustain such investments will become increasingly squeezed.  In the future, we expect to see a range of innovative network sharing deals done between telecoms operators, as they strive to alleviate the increasing CAPEX pressure.

[1] CAPEX includes all categories (e.g. plant, property, intangibles) reported by the telecoms operators. It excludes investment in companies.

2018 Annual CAPEX Growth

The total annual CAPEX of telecommunications operators in South Africa grew by 4.6% YoY, to reach R35.10bn for the year ending March 2018.

In 2018, three telecoms operators – MTN SA, Telkom Group and Vodacom SA – accounted for 78.6% of the total annual CAPEX. MTN SA, with 32.6% CAPEX market share, continued to be the largest investor.

Three-year CAPEX Review

Over the past three years (2016-2018), a cumulative total of R100bn has been invested in the various networks by the telecoms operators. More specifically:

  • MTN SA has invested a total 9bn in its network;
  • Vodacom SA follows with a total investment of 1bn;
  • Telkom Group has invested 8bn; and
  • Cell C and Liquid Telecom SA (formerly Neotel) have invested a combined total of 6bn.


Interestingly, over the same three-year period the new telecoms operators – Dark Fibre Africa, FibreCo, Vumatel, and the rest of fibre market operators – have invested an estimated total of R8.2bn in their respective networks.

The Challenge

Annual CAPEX growth is greater than the retail service revenue growth.

Over the past five years, retail revenue earned from telecoms services only grew at a CAGR of 2.2% (2013-2018). Over the same period, total CAPEX invested grew 3.4x faster, or with a CAGR of 7.5%.

The expected CAPEX investment in telecoms networks shows no sign of slowing down. Operators plan to continue to invest in their respective networks. For example, investment is planned for fibre deployment, 5G and the overall capacity to deal with the ever-growing data demand. This implies a continued strong annual CAPEX investment programme.

The growth in telecoms services revenue, however, is currently forecast to grow at around real GDP growth.  Thus, if telecoms operators do not grow profitability to generate larger free cashflows, then these operators will experience a growing decline in free cashflow to fund network investment.

New Approaches to Network Buildout Needed

This growing gap will require telecoms operators to seek out innovative approaches to fund CAPEX and/or seek out better network sharing deals.

Some telecoms operators have already acknowledged that the current level of CAPEX investment is not sustainable.

Lastly, the demand for CAPEX investment will likely see some of the smaller telecoms operators exit the market.


Rain Mobile Unveils SIM-only Data Plans

Rain Mobile launched commercial operations on 6 June 2018, after completing its Beta Programme (internal network trial).  They unveiled their initial data-centric offering, with the aim to compete aggressively against the existing four mobile operators.  At a launch price of R50 per GB, Rain Mobile is substantially cheaper than any competing offers from mobile operators.

Their new prepaid data offering will generate the most interest in the medium-to-high LSM segments due to:

  • High set-up costs (SIM card plus delivery),
  • Its predominant presence in urban areas,
  • Its digital platform, (the only mechanism adopted to reach clients)
  • Process payment, and
  • Device acquisition costs.

Overall, the pricing strategy espoused by Rain Mobile will most likely lead to greater downward pricing pressure, and we can expect to see further data price declines this year.

Coverage Areas

Over the past 12 months, Rain Mobile has extended its co-location to 2100 Vodacom towers in several metros across the country.

It is estimated that the operator has achieved just over 30% LTE network population coverage, as its aggressive network expansion drive continues.

It is already covering 50 major cities and townships, as listed below:


Value Proposition & Pricing Strategy

Rain Mobile does not offer contract plans and there are no out-of-bundle rates.

It only offers one package and the usage rate will differ from month-to-month, depending on the amount of data consumed. Customers pay a flat rate of R50/GB and can consume anything from 1GB to 26GB.

Users can add off-peak data for R250 a month to receive 19 hours daily of unlimited data from 11pm to 6pm the following evening.  Data used during ‘peak hours’, 6pm to 11pm, will continue to be charged at R50/GB. This time band shows that Rain Mobile targets the consumer market, as it offers unlimited data consumption during the traditional peak hours.

Rain Mobile claims that even though the unlimited packages add-on is completely uncapped, it will not hesitate to take the necessary steps to protect its customers from irresponsible, abusive or illegal activities, including disconnection of service.

As part of this operator’s initial offering, users that buy a SIM and/or device from them.  They will receive free unlimited mobile data to use and enjoy for a number of days as indicated below:

  • SIM only – 15 unlimited data days (R120 once-off)
  • Huawei 5573 (MiFi Router) – 30 unlimited days (R840 once-off)
  • Huawei E588 (MiFi Router) – 45 unlimited days (R1 540 once-off)
  • Huawei Y7 (Smartphone) – 60 unlimited days (R3 000 once-off)
  • Huawei P20 Lite (Smartphone) – 90 unlimited days (R4 600 once-off)

Impact on the Market?

Rain Mobile’s prepaid data offering is very competitive on a price/MB basis, compared to prepaid data plans offered by Cell C, MTN, and Vodacom.

However, the operator will most likely generate the most interest in the medium to high LSM segments.

Notably, users that are consuming less than 20GB of data per month, stand to gain the most from the R0.05/MB pricing announced by Rain considering that Cell C, MTN and Vodacom offer their 1GB data only plans at a price of R0.15/MB (three times more expensive).

Telkom is the only operator that can currently match this pricing.  They offer night time data usage, which significantly reduces the total price/MB.

No Competing Offer in the Market

This is due to its unique ability to offer any data user spending R250/month and more, value unlikely to be matched by competitors (19 hours of unlimited data from 11pm through to 6pm the following evening).  If larger operators fail to match this unlimited data add-on facility, this plan will be a major drawcard for Rain Mobile.

Vodacom revealed recently that in terms of average data usage, the average MB per smart device is 784MB and the average MB per smartphone is 681MB. These data consumption patterns suggest that key data users fall within Rain Mobile’s target market. Data users will most likely derive more value, and save costs, by switching to the Rain Mobile network.

Cell C and MTN both offer significantly higher priced prepaid data bundles in comparison with Rain Mobile.

Although Telkom’s churn rate may not be affected by Rain Mobile’s new data-centric plans and more desirable SIM-Only value proposition, they may experience a sluggish growth rate in the short to medium term, as Rain Mobile begins to make headway.

However, Rain Mobile’s new data-centric plans will not significantly affect the postpaid data market, due to the following:

  • It does not offer contact plans; a scenario that allows MNOs to retain their market positions in this space, and
  • The overall value embedded in the postpaid plans offered by MNOs in the form of handset subsidies, competitive in-bundle rates, free voice minutes, SMSs, data, and other VAS’s, suggest postpaid customers may have compelling reasons to be reluctant to switch to Rain Mobile.

Prepaid Data Market

When comparing other mobile operators 30-day prepaid data bundled offers to Rain Mobile’s new value proposition, it shows the following:

  • Rain Mobile’s standard prepaid price of R50/GB is very competitive compared to the price of prepaid data bundles (below 20GB) that are currently sold by mobile operators.
  • Only Telkom is able to match Rain Mobile’s aggressive prepaid pricing (on a cost/MB basis). This is due to extra night data allocated on its prepaid data bundles (1GB packages and above).


Postpaid Data Market

When comparing the 24-month SIM-only contract data plans currently in the market to Rain Mobile’s new offering, the latter is notably more expensive.

This suggests Rain Mobile is aiming to disrupt the prepaid mobile data market for now.  With an average price of R0.01/MB, MTN currently offers the most affordable contract data plans.


Market Average Prices (Rain Mobile vs. Mobile Operators)


Rain Mobile vs. Mobile Operators (Uncapped Market)

Rain Mobile is currently the only operator that is offering a handset-based uncapped data plan, while Telkom and Liquid Telecom only offer router-based uncapped packages.

At a price of R250/month, Rain Mobile’s add-on unlimited package is notably the most affordable uncapped mobile broadband offering in the market.

The table below shows the uncapped LTE plans currently offered in the market.



Overall, Rain Mobile’s R50/GB prepaid offering is very competitive (on price/MB basis) compared to prepaid data plans offering 20GB of data and below sold by Cell C, MTN and Vodacom.

Telkom is the only operator that is currently matching this pricing, as it offers night time data usage, which significantly reduces the total price/MB.

Rain Mobile’s new prepaid proposition is not expected to affect the postpaid data market considering the overall value offered by MNOs in this market.

Africa Cube

2017 FTTH Africa Council Conference Review

This year’s 2017 FTTH Africa Council Conference highlighted some interesting developments that were presented and discussed among the delegates. These are our key take-outs from the conference:

Besides looking at the fibre developments in the various markets, with current focus on the importance of rolling out quality infrastructure in the Africa, LATAM, MENA, Europe and the Americas, the key messages at conference also centred around the recent topical issues, mainly the road to 5G, and the need to build next generation mobile networks to support fibre. The telecoms sector players seem to be actively tracking developments around 5G, not only because it is expected to complement fibre solutions, but also because 5G is no longer regarded as a spectrum-based network, but rather a platform that is scalable, segmentable and designed for the Internet of things.

The influence of the regulatory authorities in shaping and growing economies around the globe also came under scrutiny. As discussions gained momentum around the subject, it became clear that the market does not favour heavily regulated environments, as previous studies indicate that there is little economic growth achieved in such markets. Regulators were also urged to be agile to ensure that policies and legislations that being introduced, move at the same speed as the technological developments themselves. Locally, the government was urged to entrench investment-friendly policy and market certainty before infrastructure investment take place on a scale needed by SA.

The developments in the IOT market also received attention at the conference, as well growing interest in Big Data analytics. This despite growing concerns that Big Data is susceptible to hacking, and can also be used for spying. Privacy as well as discrimination challenges were also highlighted as possible danger areas as far as Big Data is concerned, as everything can be tracked and analysed through Big Data.

In the fibre market, opportunities in the highly urbanised areas are increasingly becoming small, this has prompted operators to now target small towns in their endeavours to build smart cities. The operators however conceded that the high cost of extending fibre internet services beyond urban areas does not make expansion to smaller towns viable, especially combined with the lower number of potential subscribers, although expenses associated with equipment and electronics of fibre networks have come down. Notably, operators are currently considering various models that they can adopt in order to bring fibre to these towns in a sustainable way, and have also urged governments to put incentives on the table, that will encourage them to roll out fibre in the small towns and cities, as well to stimulate uptake of services.

In terms of monetising fibre, operators were urged to embrace infrastructure sharing models, as these would allow them to reduce costs. It must nonetheless be emphasised that each market is different, meaning this preferred model might not be ideal for some markets. In terms of rolling out fibre networks, the general view is that Africa continues to be challenged by shortage of funding, shortage of skills, lack of proper planning as well as policy uncertainty, although the continent is at least getting the fibre footprint right.

Overall, an intervention to deal with the issues highlighted above will require operators to undertake careful studies to understand the problem, before possible solutions are implemented. This as we are moving to a fragmented world, that will be characterised by cloud services, integrated services, simplicity, and single identity.

Moreover, the increasing adoption of fibre solutions in various markets around the world is expected to have a positive impact on our journey to the 4th Industrial Revolution and the global digital economy. This is because the industrial Internet, Internet of Things (IoT) and Big Data are also driven by optics, and so is the foundation of platform economics. However, telcos of today will continue to be challenged by the disruptive players such as OTTs and MVNOs, as well as growing competition facilitated by open access networks, more innovative solutions entering the market, and competitors that are quick to embrace newer technologies.

For further details, please contact Ofentse Mopedi.

The Role of WiFi Header Pic

The Role of WiFi and Mobile Broadband

The WiFi relationships uncovered through preliminary analysis would suggest that mobile subscriber WiFi usage is far more prevalent than may at first appear. In the higher income countries, the greater use of WiFi by mobile subscribers would indicate that their per unit cost of broadband would be lower than that of their counterparts residing in lower income countries.


In this post, we uncover relationships between mobile broadband, WiFi usage and fixed broadband adoption.

The information used in this analysis is sourced from OpenSignal (with permission), International Telecommunications Union (ITU, fixed broadband household penetration) and the World Bank (GDP per Capita, PPP). Specifically the data used in this post are taken from the following sources:

  • Global State of Mobile Networks (August 2016) Report, OpenSignal
  • 2015 ICT Statistics, ITU
  • World DataBank, dataset from World Bank

We typically use this type of analysis to draw inferences about market behaviour. They provide good departure points for robust discussion about what market factors drive consumer behaviour.

Fixed Broadband Household Penetration (2015) vs. GDP per Capita (2015)

This chart shows the country adoption of fixed broadband per household versus the GDP per Capita (PPP).

Over the years, we have seen this classical plot presented where we have explored the relationship between GDP per Capita (as a proxy for income) and the various telecommunications indicators. While we can raise various arguments for and against this type of a plot, it nevertheless does provide an indication of whether your country is inline, above or below your peer countries.

The Role of WiFi - Pic 1

Source: ITU 2015 Indicators, World Bank 2015 GDP per Capita (PPP), Africa Analysis, data plotted for the 93 countries presented in the OpenSignal report

Fixed Broadband Household Penetration vs. Average 3G/LTE Speed

The graphic shows the plot of the fixed broadband household penetration and the average 3G/LTE speeds.

The Role of WiFi - Pic 2

Source: Africa Analysis, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report), ITU 2015 Indicators

While there is some data scatter, we can make some interesting observations:

The higher the fixed broadband penetration, the higher the 3G/LTE speeds. The trend suggests that in the more broadband abundant markets, mobile operators have needed to increase the average speeds in order to compete against their fixed broadband counterparts.

In countries with lower fixed broadband penetration, the following reasons can be put forward to explain the observations:

  • Mobile operators are not under strong competitive pressure to increase the average 3G/LTE speeds. Perhaps mobile operators believe that consumers have very little broadband choice and, therefore, there is less pressure on the mobile operators to invest in their networks.
  • There is a lack of spectrum for LTE, thus mobile operators are limited to 3G.
  • In developing markets, where the mobile operators are deploying 3G, they may have the licence requirement to achieve a certain population coverage, and therefore, focus on extending reach before focusing on increasing the capacity to offer higher 3G/LTE speeds.

Fixed Broadband Household Penetration vs. Time Spent on WiFi

Intuitively, it makes sense that as the country’s fixed broadband penetration rises, so does the time spent by mobile subscribers on using WiFi.

The Role of WiFi - Pic 3

Source: Africa Analysis, ITU 2015 Indicators, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report)

Given that there is some data scatter, we can still make some interesting observations:

  • In the higher fixed broadband markets, more mobile subscribers will have access to WiFi at their homes, thus they would switch from mobile to fixed broadband when they are at home.
  • In addition, the availability of WiFi is driven by the greater availability of fixed broadband to serve as backhaul to the WiFi sites. Thus, we see the rise of more public WiFi sites.
    This observation can serve as a strong motivator for decisive mobile operator WiFi strategy.
  • At a country level, we would put forward that the greater use of WiFi will, in general, lower your cost of broadband access as WiFi is either used at rates ranging from no charge to at most price parity with fixed broadband.

This trend shows that as fixed broadband is deployed, mobile operators will experience more competition.

GDP per Capita vs. Average 3G/LTE Speed (Mbps)

The plot of GDP per Capita vs average 3G/LTE speed shows that the average speed increases as the country’s GDP per Capita increases.

The Role of WiFi - Pic 4

Source: Africa Analysis, ITU 2015 Indicators, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report ), World Bank (2015)

While there is some data scatter, we can make some interesting observations:

  • There is a wider spread of data points for the higher GDP per Capita (PPP) countries. Inspection of the data shows that there are fewer higher GDP per Capita countries where the average 3G/LTE speed was measured on the low side. Rather, these countries would be deemed to be poorly performing.
  • In the lower income countries, under GDP per Capita of USD20,000 (PPP), we can see a much less scattered and, more likely, a stronger relationship between GDP per Capita and the 3G/LTE average speed. This observation can be ascribed to various factors, but what it does show is that these countries are placed at a strategic competitive disadvantage regarding strategic capabilities to grow the country. This is based on the observation that broadband is critical to a country’s development.

In Summary

Analysis of the OpenSignal data does highlight interesting subscriber behaviour. When this data is combined with other 3rd party data (ITU and World Bank), we uncover interesting relationships.

  • In higher fixed broadband countries, mobile operators offer higher average 3G/LTE speeds. This is most likely driven by the need to compete against the higher fixed broadband speeds.
  • In the high income countries (as measured by GDP per Capita), subscribers have more broadband choice (mobile and fixed) regarding speed and availability. There is wider availability of good quality WiFi networks, both in and outside of the home. Therefore, subscribers spend more time on WiFi.

These relationships would suggest that WiFi usage is far more important than operators may want to admit to. The data does suggest that a more clearly articulated and executed WiFi strategy is called for.


OpenSignal is the leading source of insight into the coverage and performance of Mobile Operators worldwide. OpenSignal data is directly measured from consumer devices as opposed to traditional methods of simulating or approximating mobile experience. With over 15M downloads, the OpenSignal app represents the largest crowdsourced measurement of Mobile Networks. Operators across the globe use OpenSignal data for competitor benchmarking, network spend optimization, understanding true customer experience and more. OpenSignal also works with regulators and analysts globally and is backed by top tier investors including Qualcomm, Inc.


The impact of 4G on new Subscriber Acquisitions

The impact of 4G on new Subscriber Acquisitions

The deployment of 4G is having a significant positive impact on subscriber behaviour. This is according to the 2016 Acquisition and Retention Study, a report published by Nokia.

4G, the fastest growing network technology

The report covers key findings regarding the impact of 4G on subscribers, such as:

  • 4G customers are happier. Happier with their mobile data speed. More satisfied with the consistency of their mobile data and as a result, use more data.
  • Globally, 38% of new sign-ups in the last 12 months have been for 4G and the pace is accelerating.

Yet, the research shows there are still barriers to overcome:

  • Mature markets are 2x more likely to use 4G than transition markets
  • 17% of consumers globally are not aware of the network they use
  • Over 30% of consumers in both mature and transition markets stated device incompatibility as the top reason for not yet using 4G
  • Many consumers still perceive 4G to be more expensive.

In South Africa, 15% of the subscribers believe they use the 4G network, while 78% believe that they only use the 3G network. The remaining 7% don’t know what network they use (3G or 4G).

Overall, 4G has a significant beneficial impact on subscriber behaviour:

Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.