SA's telecommunications industry is in a state of extreme flux. New rivals are emerging to take on the incumbent operators, regulations are being drafted that will force down prices, and the sector, at the time of writing, looked set to be host to some of the biggest deals in the history of SA business.

Much of the change can be attributed to the Electronic Communications Act, the law that governs the sector. Unlike the Telecommunications Act, the new law has created a platform for opening the market to new players. But much of the act's implementation rests on the shoulders of a poorly resourced and poorly funded regulator, the Independent Communications Authority of SA (Icasa).

Larger telecom service providers, companies such as AltX-listed Vox Telecom, Dimension Data division Internet Solutions (IS) and MWeb, are champing at the bit to be given the licences and the radio frequency spectrum they need to build their own networks. A number of companies have already run trial networks using a promising new wireless broadband technology known as WiMax - MWeb ran a pilot with several thousand triallists but was forced to terminate it when its trial licence expired recently.

Not all of those companies seeking infrastructure licences will build extensive networks. Some see the licences as leverage in negotiations with other operators.

But many of these companies have expressed concern that the process of converting their licences could be derailed by recent court action by Altron telecom subsidiary Altech. The firm is taking action against Icasa and wants the whole licence conversion process reviewed. Altech CEO Craig Venter isn't saying much about the company's action, but rivals Vox Telecom and IS, who have been named as respondents, have said they will oppose the action. The case was due to be heard by the high court after Top Companies went to press.

Meanwhile, Telkom and the mobile operators are facing competition from another quarter. Neotel, licensed in 2006 as a rival to Telkom, is starting to flex its muscles. The company, controlled by India's telecom giant VSNL, is laying thousands of kilometres of fibre across SA's metropolitan areas. This fibre will initially be used to provide services to business customers, but residential fibre access should follow in the next few years. It is also rolling out wireless networks - using CDMA2000 and WiMax technologies - to serve the residential and small business markets. Its prices - for both high-speed Internet access and voice telephony - are aggressive and will force rivals to respond.

Mobile operators MTN and Vodacom are also taking advantage of the Electronic Communications Act. Under the new law, they are able to provide fixed-line services, in addition to mobile telephony. Both companies are aggressively rolling out fibre networks in the major metropoles and both have plans to build a national fibre grid, linking the country's main cities and towns. State-owned Broadband Infraco is constructing a similar network, building on infrastructure it inherited from Eskom Enterprises and Transnet.

Another development that will have a dramatic effect on prices is the construction of three new submarine cable systems that will provide high-capacity links between SA and Europe. Two of the cables - the private equity-backed Seacom Sea cable and the operator-led East Africa Submarine System (Eassy) - will run along Africa's east coast, which, until now, has not been served by a cable system. The sea cable will come on-stream in mid-2009 and Eassy will follow in early 2010. The third system, the Africa West Coast Cable (AWCC) is expected to go live in time for the soccer World Cup in mid-2010. AWCC, which will cost US$510m to construct, is expected to be funded by a dozen private-sector players and also enjoys the backing of Infraco, which has taken a 26% stake.

The new cables are expected to result in a flood of cheap international bandwidth into SA. The Sat-3/Safe cable, the only cable system that currently provides South Africans with access to the world, has an ultimate design capacity of only 120 Gbit/s. The three new cables have a combined design capacity of nearly 6 Tbit/s, almost 50 times more than Sat-3's. AWCC alone will have a capacity of 3,8 Tbit/s. Unlike Sat-3, no single company will be able to control pricing over access to any of the cables, which will further reduce prices.

All these changes are going to present a big challenge to the larger operators. Telkom is already feeling the competitive pressure. The fixed-line operator knows it has to expand into new business areas if it is to offset a decline in revenues in its core business. But it recently abandoned its plans to build a pay-TV operator when it announced it was withdrawing as the majority shareholder in Telkom Media. And its bid to buy IT services group Business Connexion was blocked by the competition authorities, leaving analysts questioning how the management team, under CEO Reuben September, will arrest the inevitable decline in the group's fixed-line business.

Earlier this year Vodacom launched Vodacom Business, a supplier of converged services to corporate customers. Ironically, the new business competes directly with its shareholder Telkom, which owns 50% of Vodacom's equity. The relationship between Vodacom and Telkom has always been tense but appears to be growing more untenable.

Telkom has been debating what to do about its Vodacom stake for some time. At the time of writing in early June, the UK's Vodafone, Vodacom's other shareholder, had made an offer to buy a further 12,5% of Vodacom from Telkom for $2,5bn. A separate proposed offer from Tokyo Sexwale's Mvelaphanda Group to acquire the entire issued share capital of Telkom, announced shortly before Top Companies went to press, looked set to lead to a divorce between Vodacom and its mobile partner.

The sale of Vodacom was put on hold earlier this year when MTN CEO Phuthuma Nhleko decided to walk away from talks to acquire Telkom. The fixed-line operator said the sale of Vodacom had been contingent on successful talks with MTN.

MTN has since moved on. At the time of writing it was in exclusive talks with India's Reliance Communications with an idea of building an emerging-markets telecom giant. The SA-based operator looked set to conclude a cash and share deal that would see it acquire up to 74% of Reliance, India's second largest mobile phone operator.