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Telecommunications in South Africa

Essay by   •  September 21, 2016  •  Case Study  •  677 Words (3 Pages)  •  1,170 Views

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Telecommunications 
South Africa

Word count: 197 (Sector & Company text)

Reasoning for asset allocation:


· South Africa is the frontrunner of the African telecommunications sector
· There are expectations of massive growth in mobile data services

· Overall, there is a good long-term outlook with investments in innovation and prospects of a consolidation period in the industry.


Sector: Telecommunications

Telecommunications is one of the fastest growing sectors in S.A., driven by explosive growth in mobile telephony, and broadband connectivity (Southafrica.info, 2012). S.A. is leading the way for growth in non-voice, value-added, services (African Telecom News, 2016). Indeed, Cisco predicts massive growth in 4G and Wi-Fi connections over the next 5 years (Cisco, 2015a) and 11-fold growth in mobile data traffic by 2019 (Cisco, 2015b). However, mobile subscriptions at 150% of the population indicate a significant number of inactive SIM-cards. (Marketline, 2016) Nevertheless, forecasts remain positive and we consider the sector a solid investment. There is constant innovation in 3G/4G and other services (BMI Research, 2016), and the government increasingly invests to support nationwide development of Internet connectivity (OBG, 2016). Currently, only 46.9% of the population is connected (CIA, 2016). Furthermore, despite fierce competition, there are indications of a consolidation period in the industry. This would benefit long-term profitability and boost operators’ ability to improve their services (OBG, 2016).


Porter’s 5 forces: 
(Marketline, 2016)

Supplier Power

- Limited number of large companies with extremely strong positions

- Supplier power assessed as strong overall

Buyer Power

- Many buyers

- Inelastic demand

- Low level of product differentiation and customer loyalty

- Buyer power assessed moderate overall

Competitive Rivalry

- Based mainly on economies of scale and diversification

- Increase with new technology

- Rivalry assessed strong overall

Threat of Substitution

- Internet-based communication

- Although Internet is now incorporated in telecom services


- Over
all threat of substitution is assessed weak

Threat of New Entry

- Large capital requirements
- Difficult demand conditions

- Domestic regulations

- The threat of new entrants is assessed moderate overall


Company: Vodacom

With 37% market share Vodacom is the market leader (Marketline, 2016). Their sales growth is higher than the industry average (Reuters, 2016), continuously investing in innovative projects (Mchunu, 2016). Focus on data services led to an increase of 14.5% data customers (ibid.). However, Vodacom lost 13% market share since 2012, mainly due to increased competition (Bronkhorst, 2015). Despite this, we still believe there is a positive future outlook.


SWOT:
(Marketline, 2015)

Strengths:
· Strong market position
· High customer satisfaction
· Growing margins and cash flows

Weaknesses:
· Declining average revenue per user

· High churn rates

· Limited geographic presence

Opportunities:
· Strong growth in mobile money market
· Growth in mobile data demand
· Potential to expand geographic presence

Threats:
·Saturated mobile market in South Africa

· Intense competition

· Regulatory environment


References:

African Telecom News, 2016. Major African Mobile Markets: South Africa. [online] Available at: [Accessed 17 Febuary 2016].

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