TELECOMS INSIGHTS | 10 DECEMBER 2019 Rural connectivity requires innovative solutions Absa | Corporate and Investment Banking > Insights and Events > Rural connectivity requires innovative solutions Premeshin Naidoo Regional Head Sector: Global Clients SHARE Feasible rural connectivity in South Africa is critical, but it remains an unattractive prospect for investors. Is there a solution? Innovative solutions such as active network sharing, tax incentives and new technology deployment can be the solution to achieving feasible rural connectivity in South Africa. Ordinarily, rolling out telecommunications network infrastructure is an expensive and arduous undertaking for both fixed and mobile phone companies. Investors expect an attractive return on investment, and the tendency is for operators to concentrate investment in high population density areas where there are more customers than in rural and outlying areas with sparse population density. They also see little commercial incentive to invest in rural connectivity, given generally lower revenue potential per subscriber. Unsurprisingly, this is not a situation unique to South Africa or emerging markets; even developed countries such as the UK grapple with the same problem. However, in the African context, achieving rural connectivity can potentially not only achieve government’s universal access to telecommunications objective, but also boost rural economies, most of which desperately need a catalyst for growth and development. Promoting investment in rural connectivity There are a number of ways to promoting and achieving investment in rural connectivity. For a start, policy needs to be supportive specifically to deal with the issue, and this has been previously attempted. A quick win however is to define what constitutes a ‘rural’ area, and immediately permit network operators to jointly develop and share rural networks – if this sounds similar to a Wholesale Open Access Network (WOAN) concept, this is intentional and is an obvious implementation model for the WOAN on a basis which industry will support. In addition, government can provide incentives such as tax relief for operators, or help facilitate and channel grants from development finance institutions to help operators to commit to the required investment. Government can also link the allocation of spectrum to the level of investment in rural areas. What this means is that government will expect operators to allocate a portion of profits to develop rural connectivity. This is not new and has been promulgated previously in terms of the universal access to telecommunications, but government policy needs to be more deliberate and clear on what is required to achieve rural connectivity. Is pooled funding an option? Perhaps an idea is for operators to collectively allocate funding into a pool to be used to create a vehicle which will deploy a network, and operators then get an allocation of the network capacity proportional to their contribution. A variation of the WOAN concept, but it can be successful if supported by the industry. Collaboration within the industry is becoming an imperative given the fact that capex investment will increase going forward to account for ever improving technology, and the 5G investment step-up. The return on investment for 4G networks must still be fully realised, operating margins are under pressure, and it will be even more challenging for the operators to go it alone. Collaboration will ultimately also be driven by investors’ requirement for a healthy return on capital. With active radio network sharing, the capital cost to produce a megabyte of data or a minute of a voice call reduces, which in theory means that an operator can increase their operating margins while at the same time reducing the cost to the subscriber. In conclusion, we need innovative thinking to achieve ubiquitous high-speed rural connectivity in South Africa. It is a global challenge as much as it is an issue in Africa. There is therefore a need to consider implementing new solutions to create connectivity which gives broader geographical reach. In as much as we look at traditional connectivity technology and investment strategies, there is a limitation and beyond that we need to look at other solutions. Premeshin NaidooRegional Head Sector: Global Clients https://cib.absa.africa/wp-content/uploads/2020/07/file_example_MP3_700KB.mp3 Related Articles TELECOMS INSIGHTS The quiet technology revolution in South African trading Merlin Rajah, Head of Equities Electronic Product at Absa Corporate and Investment Banking believes that South Africa is the most exciting emerging market for electronic trading right now – as he explains the vital connection between the right tech and international investment. Read more TELECOMS INSIGHTS How telecommunication companies are using technology in agriculture and healthcare in Africa Connected phones can save lives and secure food. Prasanna Nana provides her thoughts on how telecommunication companies are aiding the Agriculture and Healthcare sector in Africa. Read more TELECOMS INSIGHTS How mobile network operators are evolving and investing to service everyone Absa's Premeshin Naidoo unpacks the unique value propositions of African telcos.