South Africa’s mobile operators, including Vodacom, MTN and Rain, will face a major challenge to their business models from an unexpected quarter: fixed-line broadband.
This statement may seem almost counter-intuitive. For at least the past decade, the opposite has been true: Consumers have disappeared from fixed lines, particularly Telkom’s lower copper cables that supply ADSL Internet (now hopefully slowly) to people at home, in favor of fixed line glass fiber where it available, but they also opt for 4G / LTE home delivery over mobile infrastructure.
In townships and other areas not yet served by fiber optic providers such as Vumatel, Openserve and Frogfoot Networks, LTE has become a popular choice for home access. Alternatively, consumers simply use mobile data bundles as expensive ad hoc prepaid data on their smartphones to connect – an expensive option, especially if one consumes a lot of multimedia content online (Netflix, YouTube, music streaming, etc.).
The inclusion of glass fiber services throughout South Africa has not been spectacular in recent years. Kick-started by the risk-takers behind Vumatel (Niel Schoeman and Johan Pretorius), glass fiber is now almost ubiquitous across the affluent parts of cities such as Johannesburg and Cape Town and is increasingly making its way into smaller cities and towns and into traditionally distinct areas in townships like Soweto.
Billions in investment
News that Vumatel’s senior CIVH has raised R3.7 billion in a second tranche of a court offering (raising shareholders’ total in just six months to R6.7 billion) shows that CIVH and its largest investor, Remgro, are taking the chance for solid fiber at home very true very serious. The offer, which was overbooked, comes as Vumatel’s network expands, including bringing coverage to areas never served by fixed lines, driven by an explosion in demand for uncovered internet, as people increasingly work from home and go online to educate and entertain themselves.
The second tranche of the rights offer, which was overwritten, placed a valuation on CIVH, which also owns Dark Fiber Africa, of R27 billion – several billion rand more than Telkom, which once enjoyed a total monopoly in the telecommunications industry of South Africa. In fact, it was Telkom’s delay in rolling out house fibers – instead of sweating its graying copper assets – that provided the space for Vumatel and others, such as Foxfoot, owned by Vox, to emerge as strong competitors in the fixed market. line home.
Comments made by Pieter Uys, chief strategic investor at Remgro and chairman of the board of Vumatel parent CIVH, in an interview with TechCentral on Monday clearly show that investors will not only see the domestic glass fiber in the coming years as a strong growth sector. it will increasingly challenge mobile operators, and not just fixed-infrastructure providers such as Telkom, to share consumers’ wallets.
“A lot of demand comes from residential areas where you wouldn’t expect it, like Soweto,” Uys said. “The uptake in those areas is twice as fast as in Sandton. If Sandton takes two years to reach 50% penetration (houses connected where service is available), Soweto or Vosloorus will achieve the same penetration in 12 months. “
That’s unbelievable! Many industry players had assumed that, given the cost of deploying glass fiber, it would never be commercially viable to expand it beyond the leaf waters of the major cities of South Africa. Vumatel, Frogfoot and others are now serving that assumption, demonstrating that demand for uncovered glass fiber is universal – and should be profitable as well.
Vumatel’s Reach product, which is mainly used in underserved areas on the outskirts of South Africa’s main urban areas, costs R399 / month for uncovered, prepaid 20Mbit / s (symmetrical) glass fiber. Unsurprisingly, according to Uys, it turns out to be hugely popular. Instead of relying on expensive mobile data, consumers in these areas are urging them to sign up for uncovered glass fiber that allows them to use the Internet as it is meant to be used – without fear of hitting a data cap or to make charges outside the bundle.
“There is growing demand and our ambition is to make a difference. We really think we can democratize the internet in South Africa,” said Uys, a former CEO of Vodacom. play a role, of course, especially in areas where glass fiber is simply never used, such as the rural Eastern Cape or on farms in the Karoo, where mobile will remain the primary way to connect people, although satellite solutions have also been dramatically improved and become cheaper.
But it is in urban areas, such as Soweto and Mamelodi and Vosloorus, where mobile networks could feel the greatest pressure from the aggressive pressure by Vumatel, Frogfoot and others to these areas. And if they have uncovered glass fiber at home, consumers will use less mobile data – probably much less! Companies like Vodacom and MTN will have to cut their data prices (more than they already have) in order to stay competitive. And even then, they will strive to provide equally priced unlimited services, given the spectrum constraints they still face – and may continue to do so, even after communications regulator Icasa finally completes its long-delayed auction of 4G and 5G capable spectrum .
If Uys and the teams at Vumatel, CIVH and Remgro are right, solid lines are far from dead – they are about to make a big and unexpected comeback. – © 2021 NewsCentral Media
- Duncan McLeod is editor of TechCentral. Follow him on Twitter