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Mooted nultibillion-rand telco investment a boost for the economy

11th June 2021

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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The R27-billion investment planned by operators and vendors to expand fourth-generation and fifth-generation networks in South Africa is a “step in the right direction” for the country’s economic growth.

Announced by Communications and Digital Technologies Minister Stella Ndabeni-Abrahams during her Budget Vote on May 18, the extra investment could provide the telecommunications sector with a much-needed boost.

However, it will also be beneficial for the long-term growth prospects of the entire South African economy.

“We agree with the Minister that this money will go a long way to expanding our communications network and help reach underserved areas and rural communities, and that this would help create jobs. The potential benefit goes much further than that, though,” said global consultancy firm Kearney principal Dan Graham.

“Although the South African market for telecommunications services, such as fixed and mobile connectivity and pay television, is fairly saturated and spend is at the level of comparable countries, there is major room for growth in digital services such as online gaming, over-the-top (OTT) video and music bstreaming,” he explains.

Recent research by Kearney into the state of the connected consumer market in South Africa identified clear opportunities for growth and expansion which could be boosted by the R27-billion in planned investment.

Digital services currently account for only 12% of consumers’ connected spending, below the 30% seen in many other countries, which provides a significant opportunity for telecommunications companies to quickly expand beyond connectivity, according to Kearney’s ‘NextGen 2020: the Connected Consumer’ study.

“In the media and entertainment section of the study, we found South Africans’ average spend on media and entertainment can increase by as much as 23%. Despite the comparable low spend, South Africa has a relatively high penetration of OTT video, online gaming and music streaming, compared with the rest of the world,” Graham continues.

The study also shows that, despite existing high penetration, OTT video services penetration in South Africa is expected to increase by 15%, which is significantly higher than the global average of 10%.

“An increase in OTT video adoption could present an opportunity for telecommunications firms. These consumers are more connected and they spend more on connectivity – an average of 45% more. Their spending on digital services can be more than 3.5 times that of people who do not subscribe to OTT video services,” the study shows.

Further, the market penetration of online gaming and music streaming, which are additional areas of opportunity, are expected to grow 12% and 11% respectively.

“All in all, telecommunications companies have a wealth of opportunities to bring more value to South Africa’s connected consumers and expand the market for digital services, providing opportunities to drive growth for telecommunications and OTT services along with significant growth in the emerging connected devices space.”

For connected devices, the market is still small and emerging, presenting another potential growth engine, with expected 26% growth in market penetration, albeit off a small base, led by home surveillance, tracking devices, health products and smart home devices.

“As in other countries, the South African market is still in its infancy. Home surveillance, smart wearables and voice assistants show the highest penetration, while sports and health products, tracking devices and smart home devices are used by fewer than one in 15 South Africans,” Kearney’s report says.

“The effects of the [Covid-19] pandemic mean that consumers are relying on in-home connectivity and online entertainment and education, now more than ever before. It has also underscored the need for fast and reliable connectivity, capable devices and compelling services. If the telecommunications sector can grow and be successful, it will have positive knock-on effects for other parts of our economy.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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