Cell Phone Tower. Photo by Joe Ravi
South Africa is the most developed African nation, and enjoys Africa’s largest GDP: USD 357.4 billion in 2010. Despite this, one fourth of all South Africans are unemployed and live on a meagre USD 1.20 daily. The history of the cell phone industry in South Africa can be traced alongside the country’s growth.
History will show that South African Posts & Telecommunications (SAPT) held a monopoly in the postal and telecommunications services. It was known as the “Post Office” and was run by the Minister of Transport and Communications. It was a system fraught with a lack of income and operating capital as the government was offering utilities at a lower cost, which in turn led to a growing deficit. In 1989, when only landline phones available, a miserly 45.4% of the population had access to service lines.
Telkom was the company run and owned by the government to provide phone services, amongst other things, to the country. In an effort to privatize and streamline the haziness of being a regulatory body and provider, the government decided to award contracts to 2 cell phone providers in 1993. Nonetheless, there were provisions in the contract that protected Telkom: the government stipulated a 5 year moratorium for competition on voice telephony and an increase in the call charges, both on the local and national levels.
The awarding of the contracts was in itself a major controversy as there were more than 80 applications for broadcast licenses and authorities handling the cellular tenders were accused of being biased.
The tender application fee was pegged at R50 000 to discourage small-time operators from applying. The contracts would be for a 15 year term with a R100 million basic fee and a 5% of the net income charge. In addition, all applications were required to be specific on the kind of service they would offer to the public as well as show how the providers would plan to service the poor sectors.
The first contract was given to Telkom who signed a partnership deal with the UK based Vodafone and Rembrandt Group of South Africa. The new company was called Vodacom. There were 3 serious tenders for the 2nd contract: Mobile Telephone Network (MTN), Cellstar Cellular Networks (Cell C), and Reunert. There were other companies or groups, but they were either late in applying or failed to submit a complete tender.
MTN is a consortium of M-Net which is a TV provider in South Africa, NAFTEL (which is a group of black businessmen), Transtel, and Cable and Wireless, a UK-based company. Cell C is a partnership of Anglovaal’s Grintek Limited and Telecom Finland, while Reunert is a group consisting of Barlow Rand and Deutsch Bundespost Telekom.
By September 1993, the government announced the awarding of the contract to MTN even though both companies planned to use the Global Mobile Communications (GSM) system. Obviously, uproar ensued regarding the technicality and high expense for handsets and charges that would ultimately be passed on to the cell phone users. Thus, the pre-paid cards were introduced. It didn’t appease the critics and the threat of everything being called off grew.
The cellular contracts, however, were eventually confirmed, and the cell phone industry simply burst wide open in 1994 with a tremendous response from the consumers.