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3G vs 4G vs 5G – Analysis of Vodacom SA

Summary

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.

3Gvs4GPopulation

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.

Population Coverage Comparison

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.

Device Adoption

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).

Technology Adoption

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.

Africa Telecoms

NG Telecoms Africa Summit 2017 – Africa Analysis Feedback

Africa Analysis recently attended the GDS NG Telecoms Africa Summit 2017, held at the Raidsson Blu Hotel in Lusaka Zambia, over the period 26 to 28th of April 2017. The Summit saw the gathering of commercial, operational, marketing and technical executives from telecommunications operators and service providers across Africa. The event provided a platform to discuss the various challenges that telecoms operators face in their respective local and regional markets.

The three key challenges identified by the delegates were:

  1. The network and infrastructure related issues;
  2. The customer and how to improve service and experience quality; and
  3. The future development and trends that African operators are likely to face.

In addition, the keynote address delivered by Lucy Quist, CEO of Airtel Ghana focussed on the concept of “rethinking” telecommunications in Africa and the ability to create and deliver African solutions for the African telecommunications opportunities and challenges. The presentation highlighted the need to adopt fresh approaches to content, data services, infrastructure and devices as network operators across the region begin to look at evolving revenue streams and customer expectations.

The network and infrastructure challenge

The network and infrastructure related challenges emphasized the growing reliance on offshore data centres, cloud security, and a perceived lack of vendor support.

Other key infrastructure challenges identified included:

  • 4G LTE
  • Data centres
  • Cloud
  • Offshore data centres
  • Cloud and IoT relevance given the infrastructure challenges

The main points of concern were:

  • Why are these solutions not manufactured on the African Continent?
  • Do the equipment and solutions vendors have the African operators’ best interests at heart?
  • Operators maintain the status quo and new technologies and services such as 4G/5G will be irrelevant if it is constructed on a broken system implying that it will not be sustainable.
  • Services such as cloud and IoT will require operators to fix current problems and challenges.

Operators also highlighted the fact that operators also faced challenges as to political and regulatory stability noting that in certain instances network roll out projects were derailed by government or competitor intervention.

The customer experience challenge

The central theme of the discussion was the ability of network operators to be able to better understand their customers to deliver a better service. At the heart of this was the ability to leverage technology and services such as cloud and data analytics to get to know the customer better. However, operators will need to first develop a brand and loyalty before being able to implement cloud and big data services.

The future

Discussions concerning the future of the network operators in Africa focussed on:

  • Partnership and monetization potential of the over the top (OTT) players
  • Internet of Things (IoT) – the revenue potential and expected growth
  • Bandwidth demand and its growth
  • LTE – the upgrade path and the business case

The OTT services across Africa present operators with a threat and an opportunity. Many operators have sought to embrace the OTT players and have zero rated the data services of these players to entice additional customers and demonstrate value add for their customers. Others have attempted to offer OTT like services in the form of their own platforms. However, the real challenge for the operators has been the ability to monetize or grow their revenue from these services.

The IoT market presents another revenue growth opportunity. However, operators will need to ensure that they have the right platforms and ecosystems in place for these services to gain traction.

A key concern has been the massive growth of bandwidth consumption across the region. Operators find themselves caught between a rock and a hard place as they face pressure from consumers and regulators to reduce the cost of data services while costs of bandwidth decline, forcing them to offer more bandwidth at the same rates with a resultant growth in data consumption.
The development of 4G/LTE in Africa will depend on the ability of operators to develop a solid base and business case for their existing 3G networks.

Africa Analysis Assessment

The NG Telecoms Summit brought many challenges being faced by network operators to light. However, it appears that these challenges and opportunities are viewed as being separate from each other. Operators need to view the evolution in the communications services as part and parcel of the growth of services in Africa.

End users will become more sophisticated and demanding in services being consumed and the associated costs. This presents operators an opportunity to push more advanced services into the market and begin to re-align their roles from being the mere pipe or conduit for services to being the enabler of application and content. It is at the application and content point of the services stack that Africa can begin to create unique and tailored services to meet local demand.

In addition, the development of future platform and technologies such as 4G/LTE and 5G will depend on the operators and their ability to develop sound business cases for 3G to use as a foundation for these technologies.

 

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.