The “little guys” can make all the difference

Telecoms is just a means to an end and the industry really needs to start focusing on the means if it wants to get the end outcome correct. This is the advice from Alan Knott-Craig, an industry veteran and keynote speaker at the opening address of AfricaCom 2012, held this week in Cape Town.

Earlier this year, Knott-Craig came out of retirement after heading up Vodacom South Africa to take control of third placed operator Cell C, and use his knowledge of “working with the big guys” to make “the little guys” successful.

He is regarded as one of the pioneers of cellular in Africa, and the architect of a multi billion rand industry.

Peppered with anecdotes from his career over the last 42 years, Knott-Craig delivered a historical comparison of telecoms services then and now. From a time when less than four million fixed line customers were carrying 70 per cent of Africa’ traffic and a mobile handset cost Rand15,000; to  2012, where South Africa has 88.9 per cent mobile penetration and affordable handsets.

“And yet the cost to communicate remains high,” he said. “We’ve built an incredible industry but we’ve missed the boat. It’s too expensive, for a developing country where much of the population is poor, to communicate. And you can’t look to big operators to give you a solution to this, as that would be working against your shareholders. So you don’t go to the big guys like Vodacom, you go to the small guys like Cell C instead.”

Knott-Craig lambasted “interfering” governments for allowing incumbents to keep the price of communications high, even while acknowledging that he himself had benefited from the situation in the past.

He argued that asymmetry in the market’s interconnect rates are slanted 400 per cent in favour of the incumbent, so calls connected by Telkom would earn the carrier 4 cents, while calls connected by its rivals would earn them just 1 cent.

“This is why we’re not getting costs down,” he said. “Governments introduce third and fourth carriers to bring the prices down through competition, but they don’t bring the price down or have much impact at all. The problem is that termination rates comprise 50 per cent of the cost of any off net call.”

As a result, the significance of off net traffic is disproportionably greater for challengers than incumbents, the solution to which is to significantly further MTR cuts in order to lower the cost base and encourage more operator to operator traffic.

Knott-Craig also believes that consolidation down to three wholesale operators in the market would help “rationalise” infrastructure development and help make “the incredible technology we have available” more affordable to use.

“Infrastructure competition is dead. Competition should happen at the retail level,” he said. “Differentiation will be first by service and second by price.”