Universal service through roll‐out targets and licence conditions: lessons from telecommunications in South Africa

Figures & data

Licence obligations for operators in Phase 1

	Roll‐out obligations	Community service obligations
Telkom	2,69 million lines brought into service of which: 1. 1,676 million are in underserviced areas 2. 20 246 are for priority customers 3. 3 204 are for villages	1. 120 000 payphones
MTN	1. 60 per cent population coverage in two years 2. 70 per cent population coverage in four years	1. 7 500 community service telephones in underserviced areas over five years 2. Low community service tariff
Vodacom	1. 60 per cent population coverage in two years 2. 70 per cent population coverage in four years	1. 22 000 community service telephones in underserviced areas over five years 2. Low community service tariff
Sources: Telkom, MTN and Vodacom licence agreements (see, for example, Department of Communications, 1997; Icasa, 2002a, 2002b).

Licence obligations for operators in Phase 2

	Roll‐out obligations	Community service obligations
Cell C	1. 8 per cent geographic coverage in five years; 40 per cent with roaming agreements 2. 60 per cent population coverage in five years; 80 percent through roaming agreements in one year	1. 52 000 community service telephones in underserviced Areas over seven years 2. Low community service tariff
Sentech (carrier of carriers)	None	None
Sentech (multimedia)	None	1. 500 Internet laboratories in rural schools over five years
SNO (proposed)	Coverage of all metropoles in five years	30 000 community service telephones in rural areas over ten years
	1. 80 per cent of territory in ten years	1. 2 500 Internet laboratories in rural schools over ten years
Source: Operator licences (see, for example, Icasa, 2001, 2003).

Network expansion of residential fixed line (000s), 1997–2002

	Total lines	Annual roll‐out of lines under programme	Annual net change	Cumulative lines rolled out	Cumulative addition to operating lines
1997	4 258
1998	4 645	354	387	354	387
1999	5 075	495	430	849	817
2000	5 492	621	417	1 470	1 234
2001	4 961	630	−531	2 100	703
2002	4 925	570	−36	2 670	667
Source: Telkom (n.d.).

Potential market analysis for fixed line residential services, 2003

	1995 IES expenditure patterns		1999 IES expenditure patterns
Decile	Expenditure on telecommunications as a % of income	Average spending (rand)	Expenditure on telecommunications as a % of income	Average spending (rand)^1
1	0,51%	3,71	1,18%	8,61
2	0,65%	6,79	1,59%	16,61
3	1,06%	16,12	2,10%	31,93
4	1,30%	25,61	2,71%	53,61
5	1,58%	41,78	3,42%	90,41
6	1,77%	63,67	4,10%	147,29
7	1,96%	101,15	3,94%	202,74
8	2,46%	187,99	4,07%	310,89
9	2,24%	273,74	3,98%	487,86
10	2,01%	552,83	4,22%	1162,21
Potential market analysis
Deciles that can afford		6–10		5–10^3
Potential market^2		5 950 000		7 140 000
Target/potential		88%		73%
Actual penetration of potential		50%		41%
Notes: 1. Nominal expenditure growth from 1995 based on Reserve Bank consumption expenditure growth figures. 2. This is based on the number of deciles that can afford the service times the number of households (11,9 million). 3. Decile 4 has been excluded because although expenditure can cover the monthly fee, it leaves only sufficient spending to make six minutes of calls, which means it is unlikely that households in this category will subscribe.

Fixed line‐cellular spend equalisation levels for different usage patterns, 2003

	Prepaid Telkom‐Cellular spend equalisation level	Postpaid Telkom‐Cellular spend equalisation level
Telkom usage patterns	R65 (32 min.)	R102 (51 min.)
Cellular usage patterns	R98 (49 min.)	R157 (79 min.)
Average of usage patterns	R82 (41 min.)	R130 (65 min.)

Revised potential market analysis for fixed‐line service based on the introduction of cellular prepaid service, 2003

	Low estimate*		High estimate**
	1995 IES expenditure patterns	1999 IES expenditure patterns	1995 IES expenditure patterns	1999 IES expenditure patterns
Deciles switching to cellular	5	4	5 and 6	4 and 5
Potential market for fixed‐line service with cellular substitution	4 760 000	5 950 000	3 570 000	4 760 000
Target/potential	110%	88%	147%	125%
Actual penetration of potential by fixed‐line service	62%	50%	83%	62%
Notes: *Makes use of the average prepaid fixed line‐cellular spend equalisation level. **Assumes that one more decile will prefer the cellular service due to other factors.

Percentage household ownership of a telephone by income group and location, 1998 and 2001

Monthly income	Fixed line	1998 Mobile	Total*	Fixed line	2001 Mobile	Total*
Up to R499	5,6%	0,1%	5,6%	5,6%	4,9%	9,7%
R500–R899	7,0%	0,3%	7,1%	9,4%	6,2%	14,7%
R900–R1 399	15,3%	0,5%	15,4%	15,0%	9,3%	22,4%
R1 400–R2 499	31,3%	2,0%	32,3%	23,6%	15,1%	35,5%
R2 500–R3 999	51,9%	6,4%	54,8%	41,3%	24,0%	56,3%
R4 000–R5 999	66,3%	12,6%	71,2%	52,8%	36,4%	73,3%
R6 000–R9 999	77,4%	22,9%	83,1%	62,7%	48,6%	85,7%
R10 000+	87,9%	42,2%	92,7%	75,9%	59,7%	93,9%
Location
Rural	4,4%	1,3%	4,8%	6,4%	8,8%	13,2%
Urban	49,1%	10,7%	51,4%	43,5%	28,6%	57,6%
All households	29,2%	5,8%	30,6%	28,7%	20,7%	39,9%
Note: *Some households will have both fixed‐line and mobile connection, making the total less than the sum of the fixed‐line and cellular ownership columns. Source: SAARF (1998, 2001).

Real changes in tariffs for fixed line, 1997–2003

	Monthly fees	Average tariff per minute	Average tariff per minute (cell use at 1997 level)
Postpaid 1997	R44,69	R0,18	R0,18
Prepaid 2003
• Nominal	R47,23	R0,51	R0,38
• 1997 rand	R32,13	R0,35	R0,26
• Real change	−28%	94%	49%
Postpaid 2003
• Nominal	R76,20	R0,54	R0,42
• 1997 rand	R51,83	R0,37	R0,29
• Real increase	16%	106%	66%

Estimations of the change in usage and monthly bills of residential consumers under tariff rebalancing

		Monthly expenditure on communications in 1997
	R40	R50	R60	R70	R80	R90	R100
1997 tariffs
Usage (minutes)	No usage	30	87	145	202	259	316
2003 prepaid tariffs (1997 rand)
Usage (minutes	21	26	75	125	174	223	272
New spending (R)*		41,80	60,00	78,20	96,40	114,61	132,81
% change in spending		−16%	0%	12%	21%	27%	33%
Welfare change (R)		5,32	−8,31	−21,94	−35,57	−49,20	−62,83
2003 prepaid tariffs (cell use at 1997 levels) (1997 rand)
Usage (minutes)	27	27,43	79,08	130,73	182,38	234,04	285,69
New spending (R)*		40,08	55,06	70,04	85,02	100,00	114,98
% change in spend		−20%	−8%	0%	6%	11%	15%
Welfare change (R)		7,82	−1,12	−10,05	−18,99	−27,92	−36,85
Notes: A constant price elasticity of usage of −0,2 was used. *Includes both usage expenditure and monthly fees.