Opinionista Alan Knott-Craig 23 August 2019

South Africa needs fast, affordable internet, and the bridge across the digital divide is not 5G

The problem with mobile data is the price. Most South Africans pay prepaid out-of-bundle data rates, which makes it financially unfeasible to use the internet for more than a few minutes at a time.

Today, of a total of 13.4 million households in South Africa, a maximum of 1.2 million have fixed broadband. And those 1.2 million customers are all in the leafy suburbs and CBDs of the metros.

That leaves 12.2 million households without fixed broadband; the residents forced to rely on mobile data.

Why is that? Because fibre-to-the-home (FTTH) and 5G (Rain) is focused on the major urban areas, leaving mobile data as the only internet technology outside the metros.

The problem with mobile data is that it’s too expensive. Most South Africans pay prepaid out-of-bundle data rates, which makes it financially unfeasible to use the internet for more than a few minutes at a time.

The government feels the best tool at its disposal to reduce data costs is 5G spectrum. This spectrum relates to the airwaves – owned by government – that are necessary for deploying the next generation of mobile broadband: 5G.

The official regulator, Icasa, currently has three options:

  1. Issue the spectrum to incumbents proportionate to their customer base, i.e. give the majority to Vodacom and MTN;
  2. Issue the spectrum to new players, similar to the arrangement with Rain. Allow the new players to build their own networks and drive down the price of data through competition; and
  3. Build a state-owned wireless open-access network (Woan) and lease the network to different service providers in order to maximise competition.

Option 1 is unpalatable.

Option 2 is working to a certain extent, although without tangible results for consumers living outside metros.

Option 3 is a desperate attempt to fix a bad situation with a worse solution. When it comes to telecommunications networks, the past 30 years of global history have proven that, with the exception of China, the public sector is far less competent than the private sector at deploying and maintaining infrastructure.

The good news is that it doesn’t matter what the government does, 5G spectrum is not the messiah of lower data costs. It would be nice if Icasa issued the spectrum, but it won’t make a big difference for most South Africans.

The solution is not 5G. The solution is competition.

Rather than looking to our regulator, let’s look to the banking industry for help as to how to make a basic service accessible to all South Africans.

Twenty years ago, South Africa’s financial services were similarly inaccessible to the majority of consumers. While the industry enjoyed huge revenues and profit margins, bank charges were too high for transactional accounts and the “Big Four” banks would not lend money to anyone who didn’t have a pay cheque or fixed property, making credit inaccessible to most and fuelling the rapacious behaviour of the informal loan shark sector.

Enter Capitec. Founded in March 2001, Capitec brought South Africans affordable transactional banking (no bank charges) and credit for the masses (no need for loan sharks), all under the trusted banner of a single national brand.

There was no government intervention other than to issue Capitec a bank licence. The Big Four pulled the usual tricks to keep Capitec down, but management kept grinding away and today, 17 years later, it is the second-biggest bank in South Africa by number of customers.

After listing on the stock exchange in February 2002 at R2.75/share, Capitec now trades at R1,095/share – a four-hundredfold growth in 17 years.

And it’s still growing.

The story of Capitec is the light to which we should turn when trying to address the digital divide.

Instead of relying on the heavy-handed intervention of government, the state should get out of the way so that the private sector can thrive and compete. Eventually, someone will crack the code of non-metro uncapped broadband at a reasonable price.

Voila: millions of households will have internet access. Thousands of jobs will be created and wealth will be generated for the economy and shareholders.

So, what about 5G? What should be done with the spectrum? Who cares? Give the spectrum to someone, anyone, it doesn’t matter. What matters is that the government doesn’t slow down the efforts and energies of entrepreneurs trying to get rich solving a problem that most South Africans have: fast affordable internet.

The bridge for the digital divide is not 5G. The bridge is competition. DM

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