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Telkom Integrated Report 2017
The ICT industry is one of
the biggest contributing
factors to growth in South
Africa. Private business
spent 3.8 percent of
revenue on IT software
solutions during 2016,
which bodes well for
growth in the sector.*
ICT sector
The South African ICT market is
set to grow at a compound rate
of 8 percent between now and
2020 to over R100 billion, with
the biggest growth expected in
the data segment.* With 5G and
artificial intelligence on the horizon,
there is no limit to where the
digital revolution will go and the
opportunities it will yield.
Companies are driving big data
analytics, mobility and machine-
to-machine technologies, to
assist in optimising processes
and to find new and innovative
ways to transform the way they
do business. There is significant
opportunity in the market for
cloud and software-as-a-service
application assistance.
Because most businesses and
their employees use mobile
devices or tablets to enable these
new digital technologies, many
vertical integration opportunities
exist between business and
telecommunications operators.
The convergence between
telecommunications, technology,
media and consumer electronics
adds to the competitive
telecommunications market by
bringing lateral competition and
propelling players to differentiate
by way of network quality,
coverage, data and advanced
mobile services.
Staying ahead of technology
demand requires increased capital
investment in a market that is
price-sensitive and characterised
by low customer loyalty, where
customers are prone to switching
between mobile operators.
Skills requirement
It is estimated that the ICT sector
is in need of between 30 000 and
70 000 qualified professionals.
Our tertiary education sector
is unable to produce this as
fast as is necessary, because
few students have the required
maths, engineering and science
skills required for tertiary-
level education. In the 2016
Johannesburg Centre for Software
Engineering Survey, a statement
was published that the ICT skills
gap reality hinders South Africa’s
ability to perform across all
sectors. An appeal was made
for stakeholders to unite in
coordinated skills development
efforts. Should the skills gap
continue, growth in the ICT sector
is unlikely. ICT is one of the sectors
in South Africa that can improve
GDP growth.
Economic and political
environment
Following the South African
sovereign rating downgrade by
key rating agencies, the country’s
economy moved into recession in
the first quarter of 2017 with GDP
contracting by 0.7 percent. This
follows a 0.3 percent decline in the
fourth quarter of 2016. These do
not bode well for the stimulation
of consumer and business spend
on ICT products for the year
to come.
The political upheavals reflected
negatively in the strength of the
South African Rand against key
foreign currencies. The exchange
rate impacts onTelkomas we
have dollar-denominated software
licensing and capital imports costs.
The added pressure of a sovereign
downgrade may not impact rating
immediate capital requirements,
but could affect future lending and
payback ability should interest
rates increase.
Regulatory environment
The regulatory environment
in South Africa is changing.
In October 2016, the government
published a new integrated ICT
policy. This policy is underpinned
by an open-access philosophy.
It envisages a change in the
structure of the market; promotion
of services-based competition;
discouraging the duplication
of infrastructure in the short
term; and the implementation of
service-based competition in the
long term. The policy proposes the
establishment of a new economic
regulator, a content regulator
and digital development fund,
to take over the mandate of the
Independent Communications
Authority of South Africa (ICASA)
and the Universal Service and
Access Agency of South Africa.
Where spectrum is concerned,
it is anticipated that all unassigned
spectrum will be allocated to a
wholesale open-access network
(WOAN) operator. Subject to
a future market analysis and
enquiry, in the long term, the
spectrum may be transferred
to the WOAN. Most wide-
ranging changes envisaged in
the policy require legislative
amendments and a change to
existing regulations. The sector is
engaging with the government on
the meaning, content and extent
of the changes contemplated in
the policy.
* Source: South Africa IT and telecommunication reports – BMI Research 2016.