In more developed markets like the US, Europe, and Asia Pacific, IT spending in the telecommunications sector lags behind that of media, healthcare, and the banking sectors. IT spend in 2016 stood at 3.9% of operators' revenue in developed markets, while it made up between 2.3% and 3.3% for South African operators during the same year. The digital transformation of South Africa's telecommunications operators is currently in an early stage of development when compared to those in developed markets. This is predominantly due to the country's relatively lower connectivity rate, which is a crucial element to the digitisation process.

The development of the mobile communications market (with a penetration rate of 159.4% during 2016) is however contributing towards the growth of digital transformation in South Africa. Mobile operators are rigorously leveraging this well-established mobile communications distribution network to expedite the reach of their business to consumer (B2C) digital offerings; including Video-on-demand (VOD), e-Commerce, mobile payments, and other mobile app-based ICT solutions.

Driven by the need to explore new revenue streams, and to adapt to changing market dynamics, South African operators are embracing digital transformation to a large extent. However, legacy IT systems, disjointed IT stacks, and lack of integration between business support systems (BSS) as well as operations support systems (OSS) are limiting the flexibility of the operator to offer digital services.

In terms of digital strategy, Vodacom focuses largely on consumer offerings, and mobile-based entertainment, education, agriculture and healthcare solutions for consumers - leveraging its large mobile subscriber base and mobile network coverage in South Africa. FastNet is more focused on machine-to-machine (M2M) and point of sale (POS) solutions, while Telkom's acquisition of BCX has given it a strong footing in enterprise services. Its extensive data centre and fibre infrastructure in the country is facilitating the growth of its integrated offerings. MTN on the other hand is looking to position itself as the preferred ICT partner for SMEs, while also rolling-out consumer-based services.

If MTN succeeds in acquiring MultiChoice Africa, it will be even more inclined towards a largely consumer-focused strategy. Additionally, it will have ownership of the leading pan-African Pay TV services, DStv and GOtv, as well as VOD service and ShowMax, further strengthening its footprint across Sub-Saharan Africa. The operator is solidifying its presence in e-Commerce, digital content, and fibre segments, and is leveraging its large pan-African mobile subscriber base.

Telecommunications operators are considering internal organisational restructuring in order to more effectively execute their digital strategies. This is evident from the fact that Vodacom and MTN have set up dedicated Digital Units to accelerate the growth and development of their digital consumer offerings. Telkom has also integrated its enterprise unit into BCX, and rebranded it to the BCX unit, to bolster the enterprise offerings of both under a single and larger entity.

Market consolidation is rampant in the South African telecommunications services market, as operators are looking to build the capabilities required to position themselves as end-to-end ICT and digital solutions providers. Typical examples include the aforementioned acquisition of BCX, a leading IT services provider, by Telkom to boost its end-to-end ICT enterprise offerings; and Vodacom's acquisition of XLink, a leading M2M solutions provider to expand and strengthen the operator's IoT services portfolio.

During the next three years, telecommunications operators will be seen making significant investments in areas such as SDN/NFV, IoT/M2M, fibre, e-Commerce, and big data analytics so as to accelerate their digital transformation journeys, while further enabling them to enhance the agility needed to offer dynamic, innovative, and diversified services in the future.

Leading operators like Telkom, Vodacom, and MTN are constantly evolving and innovating while making steady progress in their digital transformation journey. It is evident that aggressive service diversification, increasing market consolidation, and organisational restructuring are crucial to enabling South Africa's telecommunications operators to transition towards becoming exceptional end-to-end digital services providers.

By Deepti Dhinakaran, Senior Research Analyst for the Digital Transformation Practice at Frost & Sullivan.