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New Marketing Opportunities for Fixed Line Telecommunication Operators in South Africa: a Strategic Evaluation

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New Marketing Opportunities for Fixed Line Telecommunication Operators in South Africa: a Strategic Evaluation NEW MARKETING OPPORTUNITIES FOR FIXED LINE TELECOMMUNICATION OPERATORS IN SOUTH AFRICA: A STRATEGIC EVALUATION By FUAAD ALI submitted in accordance with the requirements for the degree of DOCTOR OF COMMERCE in the subject BUSINESS MANAGEMENT at the UNIVERSITY OF SOUTH AFRICA PROMOTER: PROFESSOR J.W. STRYDOM SEPTEMBER 2003 i DEDICATION Dedicated to my parents Suleiman Essop and Khatija Ali ii ACKNOWLEDGEMENTS This study was not my work alone and it is with a happy and grateful heart that I wish to thank the following Professor Johan Wilhelm Strydom, valued promoter, for his invaluable guidance, advice and support and his continuous encouragement throughout the study Suleiman Essop and Khatija Ali, my parents, to whom I owe the gift of life and teaching me to appreciate the value of education and knowledge from an early age Hawa Bibi Munshi my wife and Suleiman Rezaan Ali my son for their unwavering support encouragement patience and sacrifice during this study Ricardo Machado my dearest friend and advisor whose friendship I am very fortunate and honoured to have, for his constant guidance and support Telkom SA, my employer for financial and other support and for making a valuable contribution to my personal and professional development Marlize Alexander, Keneuoe Mosoang, Dr Basile Goungetas and Nicolene Rossouw my colleagues for their advice and unwavering support Professor Carel Johan van Aardt and Andries Masenge of the Bureau for Marketing Research at Unisa, for statistical analysis, and for being very patient with my constant nagging and pestering Telkom management and other individuals too many to name individually, for providing valuable comments and insight to the study All the respondents who participated in the study for their time and valuable contribution Ms Iauma Cooper for her professional and critical editing of the manuscript Last but not least, God who has been good to me throughout my life and without whose love mercy and grace neither I nor this thesis would have been written iii TABLE OF CONTENTS Page CHAPTER 1: BACKGROUND TO THE STUDY …..…………………………………1 1.1 INTRODUCTION 1 1.2 A BRIEF OVERVIEW OF THE TELECOMMUNICATIONS INDUSTRY 2 1.3 HOW ICT IS TRANSFORMING THE BUSINESS SECTOR IN SOUTH AFRICA 6 1.3.1 Information Free flow 7 1.3.2 New economy strategic marketing options 8 1.3.3 Customer Needs 9 1.3.4 E-commerce relationship marketing 10 1.3.5 Business-to-Business e-commerce 11 1.4 CHANGES TRANSFORMING THE TELECOMMUNICATIONS SECTOR 12 1.4.1 Convergence of Voice, data and image 13 1.4.2 Future composition of network traffic 14 1.4.3 Mobile telephony 16 1.4.4 Internet 20 1.5 BRIEF OVERVIEW OF THE TELECOMMUNICATIONS MARKET FORCES IN SOUTH AFRICA 23 1.6 THE STATEMENT OF THE PROBLEM 25 1.7 OBJECTIVES OF THE STUDY 26 1.8 LIMITS OF THE STUDY 26 1.9 FEFINITION OF TERMS 27 1.10 RESEARCH METHODOLOGY 29 1.11 CHAPTER OUTLINE 30 CHAPTER 2: THE SOUTH AFRICAN TELECOMMUNICATIONS MACRO AND GLOBAL ENVIRONMENT …………………………………………………………………………. 31 2.1 INTRODUCTION 31 2.2 THE BUSINESS ENVIRONMENT 31 2.2.1 The Micro environment 32 2.2.2 Market environment 33 2.2.3 The Macro environment 33 2.3 THE TELECOMMUNICATION BUSINESS ENVIRONMENT 34 2.4 THE SOUTH AFRICAN TELECOMMUNICATION GLOBAL ENVIRONMENT 36 2.4.1 Technology 36 2.4.2 Global telecommunication equipment suppliers 37 2.4.3 Global regulatory bodies 38 2.4.3.1 International Telecommunications Union (ITU) 39 2.4.3.2 Intelsat 40 2.4.3.3 Inmarsat 41 2.4.3.4 The American National Standards Institute (ANSI) 42 2.4.3.5 The European Telecommunications Standards Institute (ETSI) 42 2.4.4 Regional telecommunications organisations 43 2.4.4.1 Africa 43 2.4.4.2 North America 44 2.4.4.3 Europe 44 2.4.4.4 Asia 44 2.4.4.5 Middle East 45 2.5 GLOBAL ECONOMY 45 2.5.1 The health of the global economy 46 2.5.2 Future prospects for the global economy 48 2.6 THE SOUTH AFRICAN TELECOMMUNICATIONS MACRO ENVIRONMENT 50 2.6.1. Telecommunications political and regulatory sub environments 52 2.6.1.1 An overview of the South African political environment 53 2.6.1.2 The role of the South African Government in telecommunications 54 2.6.1.3 The Department of Communications 55 2.6.1.4 South African telecommunications policy evolution 57 2.6.1.5 Implications of telecommunications regulation on the telecommunications sector 65 2.6.2 South African telecommunications economic environment 67 2.6.2.1 Future outlook for the South African economy 70 2.6.3 South African telecommunications sociological environment 71 2.6.4 South African telecommunications technological environment 74 2.7 DEDUCTIONS FROM THE GLOBAL MACRO ENVIRONMENT 75 2.8 CONCLUSION 76 CHAPTER 3: THE SOUTH AFRICAN TELECOMMUNICATIONS MARKET ENVIRONMENT …………………………………………………………………………. 77 3.1 INTRODUCTION 77 3.2 SOUTH AFRICAN TELECOMMUNICATION MARKET ENVIRONMENT ANALYTIC MODEL 77 3.2.1 Infrastructure 78 3.2.2 Network services 80 3.2.3 Value added products and services 80 3.2.4 Support services 81 3.2.5 Buyers (consumers of ICT products and services) 82 3.2.5.1 Retailers 83 3.2.5.2 Wholesalers 89 3.2.6 Suppliers 91 3.2.7 Substitute products 97 3.2.8 New market entrants 99 3.2.9 Market rivalry (competition) 100 3.3 SOUTH AFRICAN FIXED LINE SERVICE PROVIDERS 106 3.3.1 Telkom SA 106 3.3.1.1 Products and services 107 3.3.1.2 Ownership structure 108 3.3.1.3 Turnover 109 3.3.1.4 Competitive positioning 109 3.3.1.5 Markets served 110 3.3.1.6 Number of employees 110 3.3.1.7 Market strategy 111 3.3.2 Transnet – Transtel 113 3.3.2.1 Network 114 3.3.2.2 Products and services 116 3.3.2.3 Company structure and ownership 118 3.3.2.4 Competitive positioning 119 3.3.2.5 Markets served 120 3.3.2.6 Turnover 122 3.3.2.7 Number of Employees 122 3.3.2.8 Market Strategy 122 3.3.3 ESKOM ENTERPRISES - Esi~Tel 124 3.3.3.1 Network and technology 125 3.3.3.2 Products and services 125 3.3.3.3 Ownership structure 126 3.3.3.4 Markets served 126 3.3.3.5 Market strategy 126 3.4 SOUTH AFRICAN WIRELESS SERVICE PROVIDERS 128 3.4.1 Sentech 128 3.4.1.1 Customer profile 129 3.4.1.2 Network 129 3.4.1.3 Products and services 130 3.4.1.4 Employees 132 3.4.1.5 Turnover 132 3.4.1.6 Market Strategy 133 3.4.2 MOBILE TELECOMMUNICATION NETWORKS (MTN) 134 3.4.2.1 Products and services 135 3.4.2.2 Network 135 3.4.2.3 Social investment 136 3.4.2.4 MTN Shareholding 136 3.4.2.5 Number of employees 137 3.4.2.6 Turnover 137 3.4.2.7 Market Strategy 137 3.4.3 Vodacom 141 3.4.3.1 Ownership structure 142 3.4.3.2 Products and services 142 3.4.3.3 Network 144 3.4.3.4 Turnover 145 3.3.3.5 Employees 145 3.4.3.6 Market Strategy 146 3.4.4 CELL-C 148 3.4.4.1 Network 148 3.4.4.2 Products and services 149 3.4.4.3 Ownership structure 150 3.4.4.4 Number of employees 151 3.4.4.5 Turnover 151 3.4.4.6 Market strategy 151 3.5 VALUE ADDED NETWORK SERVICE PROVIDERS 152 3.5.1 UUNET SA 156 3.5.1.1 Network 156 3.5.1.2 Products and services 158 3.5.1.3 Turnover 158 3.5.1.4 Employees 158 3.5.1.5 Market strategy 158 3.5.2 ARIVIA.KOM 160 3.5.2.1 Products and Services 161 3.5.2.2 Employees 163 3.5.2.3 Market Strategy 163 3.5.3 AST 165 3.5.3.1 Network 166 3.5.3.2 Products and Services 166 3.5.3.3 Employees 168 3.5.3.4 Turnover 168 3.5.3.5 Market Strategy 168 3.5.4 Dimension data (DiData) 171 3.6.4.1 Products and services 171 3.5.4.2 Network 173 3.5.4.3 Employees 173 3.5.4.4 Turnover 173 3.5.4.5 Market Strategy 173 3.6 A SUMMARY OF THE SOUTH AFRICAN TELECOMMUNICATIONS BUSINESS ENVIRONMENT 175 3.6.1 South African telecommunications market trends 176 3.7 SWOT (STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS) ANALYSIS 178 3.7.1 Strengths 179 3.7.1.1 Infrastructure owner 180 3.7.1.2 Current customer base 181 3.7.1.3 Established reputation 181 3.7.1 4 Market leadership 181 3.7.1.5 Quality of service 182 3.7.1.6 Human and financial resources 182 3.7.1.7 Dominant positioning in SA market 183 3.7.1.8 Ownership of Vodacom 183 3.7.2 Weaknesses 184 3.7.2.1 Fixed line limitations 184 3.7.2.2 Reactive to market changes 185 3.7.2.3 Network development cost 185 3.7.2.4 Lack of innovation 186 3.7.2.5 Low employee morale 186 3.7.2.6 Organisational culture 187 3.7.2.7 Reputation for poor service 188 3.7.2.8 Capital investment decision-making 188 3.7.3 Opportunities 189 3.7.3.1 Convergence (new ICT products and services) 189 3.7.3.2 Fixed/mobile 189 3.7.3.3 New markets in Africa 190 3.7.4 Threats 190 3.7.4.1 Competitors (SNO, Sentech, Wireless operators, VAN’s) 190 3.7.4.2 Telecommunication regulations 191 3.7.4.3 Global economic conditions 191 3.8 ISSUES TO BE SURVEYED 192 3.8 CONCLUSION 194 CHAPTER 4: STRATEGIC MARKETING …………………………………………… 195 4.1 INTRODUCTION 195 4.2 STRATEGIC MANAGEMENT 196 4.3 STRATEGY 199 4.3.1 Defining Strategy 199 4.3.2 Strategy as being different 200 4.4 LEVELS OF STRATEGY 203 4.4.1 Corporate strategy 204 4.4.2 Business strategy 205 4.4.3 Market strategy 205 4.4.4 Functional strategy 206 4.5 GENERIC STRATEGIC MANAGEMENT MODEL 206 4.5.1 Components of the generic strategic management model 208 4.5.2 Company mission 208 4.5.3 Internal analysis 208 4.5.4 External Environment 208 4.5.5 Strategic analysis and choice 208 4.5.6 Long-Term Objectives 209 4.5.7 Generic and Grand strategies 209 4.5.8 Action plans and short-term objectives 210 4.5.9 Functional tactics 210 4.5.10 Policies that empower Action 210 4.5.11 Restructuring, reengineering and refocusing the organisation 211 4.5.12 Strategic control and continuous improvement 211 4.6 STRATEGIC MARKETING 212 4.6.1 MARKETING’S STRATEGIC ROLE 212 4.6.2 Strategic marketing model 213 4.6.3 Strategic marketing components 215 4.6.3.1 Component 1: strategic Thinking and Environmental scanning and Analysis
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