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South Africa Trying to Exit Slow Lane Turns to Microsoft

August 23, 2013

South Africa Trying to Exit Slow Lane Turns to Microsoft

South Africa remains one of the world’s stragglers in Internet access, with average broadband speeds lagging behind smaller economies including Uganda and Azerbaijan, according to netindex.com. Photographer: Stephane De Sakutin/AFP vis Getty Images

South Africa’s government, having failed to bring affordable Internet to the continent’s largest economy in its almost 20 years of democracy, is giving Microsoft Inc. (MSFT:US) a shot.

The software maker began a trial in the northeastern province of Limpopo last month that taps unused slices of television spectrum to provide online access to remote townships. Potential partners include state-controlled Telkom SA SOC Ltd. (TKG) and MWEB ISP, a unit of Africa’s biggest media company Naspers Ltd. (NPN), said two people familiar with the matter, asking not to be identified because the discussions are confidential.

South Africa remains one of the world’s stragglers in Internet access, with average broadband speeds lagging behind smaller economies including Uganda and Azerbaijan, according to netindex.com. The latest test is a chance for Redmond, Washington-based Microsoft to catch up with Google Inc. (GOOG:US) in the country’s smartphone and cloud-computing markets. Google is also testing the use of so-called white spaces with a project spanning 10 schools in the Cape Town area.

“We are being led by a generation that does not fully understand the value of this IT infrastructure,” Microsoft South Africa Managing Director Mteto Nyati, 48, said in an interview this month. “The barrier for people to either get our services or buy our services is the connectivity.”

Multiple Partners

In an e-mailed statement, MWEB ISP said its chief executive officer, Derek Hershaw, has held discussions in recent weeks with Microsoft, although the company isn’t currently involved in the project. A representative for Telkom declined to comment. A Microsoft spokeswoman in Johannesburg said the software company is looking for multiple partners for the project.

Naspers retreated 1 percent to 865.50 rand as of 4:02 p.m. in Johannesburg trading, while Telkom advanced 0.4 percent to 22.50 rand.

Slow connections limit the ability of businesses to grow and hurts South Africa’s economy, which will probably expand by 2 percent in 2013, compared with 5.6 percent in sub-Saharan Africa, according to the International Monetary Fund.

The ruling African National Congress has pledged to extend broadband access to every citizen by the end of this decade, a mission that has been entrusted to Telkom, South Africa’s largest fixed-line operator. The ANC came to power under President Nelson Mandela after the end of white minority rule in 1994.

Telkom was awarded a near-monopoly five-year exclusive license in 1997 to expand fixed-line access in exchange for commitments including bringing cable to rural areas. That plan backfired because without competition, Telkom was able to price its packages above what people wanted to pay, according to Kate Turner-Smith, a BPI Africa Capital Ltd. analyst.

Little Competition

“Because there was no fixed-line competition Telkom priced their service too high, so the majority of people opted not to go for broadband because they couldn’t afford it,” she said.

Telkom charges 856 rand ($83) a month for 4 megabytes per second of uncapped Internet in a country where the average household income is $12,000. That compares with $30 offered by TalkTalk Telecom Group Plc (TALK) in the U.K., where the average household income is $49,000.

Of every 100 people in South Africa, 2.18 has a broadband fixed-line subscription in 2012, less than half the number in Vietnam and Peru, according to the World Bank. That compares with 15.8 percent broadband penetration for all methods of accessing the Internet in South Africa, according to research and consultancy firm World Wide Worx.

Video Streaming

For Adi Nduka-Agwu, whose job is to sell the output of Nigeria’s $800 million-a-year Nollywood movie industry in South Africa, the affordability of decent Internet presents more of an obstacle than the widespread availability of pirate DVDs that undermine her business.

“The Internet is pretty poor,” said Nduka-Agwu, head of Africa Business Development for iRoko Partners, a Nollywood film distributor. Broadband connections that are fast and reliable enough to stream movies are “quite rare” among low- and medium-income groups, she said.

South Africans are increasingly turning to the country’s two biggest wireless carriers, Vodacom Group Ltd. (VOD) and MTN Group Ltd. (MTN), as their primary provider of Internet access, as the number of smartphone users grows.

MTN had 13.5 million mobile-data users in South Africa as of June 30 compared with 11.9 million a year earlier, while Vodacom had 14.4 million at the end of March, an increase of 18 percent from a year earlier.

MTN and Vodacom may compete with Microsoft in bidding for unused TV spectrum, according to BPI’s Turner-Smith. “It’s much cheaper to roll out a wireless broadband system than it is to roll out a wired one,” she said.

Solar Powered

A spokesman at Vodacom declined to comment, while an MTN representative didn’t respond to an e-mailed request for comment.

As part of its white spaces project, Microsoft is bringing solar-powered wireless Internet and free tablet computers to schools in five rural South African townships in Limpopo, about 196 miles (315 kilometers) from Johannesburg. The signals are broadcast from solar-powered base stations and picked up by a receiver.

“Our agenda is to come up with a business model,” Microsoft’s Nyati said.

To contact the reporter on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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