Fibre market in SA explodes

The fibre-to-the-home (FTTH) market is now so competitive big telcos are doing all they can – including snapping up smaller competitors – to stay ahead of the game. By Gugu Lourie

Oddly, the FTTH market rose out of the ashes of Telkom’s dwindling fixed-line telephone business that provides internet access to South Africans.

It is not a surprise that rival telcos and new players are taking Telkom on as they push for a market share of FTTH.

But the proliferation of companies that deploy fibre across the country is raising fears about the South African market becoming over traded.

JM Busha Asset Managers’ equity analyst Simba Chimhanzi says that there are not too many players seeking to or currently deploying fibre in South Africa.

“Globally, fibre deployment has outpaced South Africa as the established providers primarily have their focus around major metropolitan areas. Smaller and new players are taking initiative to build FTTH in areas that established providers have no presence,” he explains.

 

South Africa is at a turning point for the deployment of broadband access, which is a platform for knowledge exchange and creative development that leads to economic growth and job creation.

As part of its growth trajectory, Telkom aims to use its open access fibre broadband network to deploy FTTH to 500 000 houses by the end of 2016 and to reach one million houses by March 2018 through.

This week, Telkom also launched Openserve, which is aimed at increasing broadband access in the country through open access on its network and increase competitiveness of smaller players. Openserve will be rolling out its high-speed fibre-to-the-home service available on an open access basis to all licensed operators.

MTN, South Africa’s second largest mobile phone operator, is also expanding its FTTH network via acquisition and organic growth. The operator, which is rolling out its fibre across the country, recently bought Smart Village from MultiChoice for an undisclosed amount.

Smart Village fibre network services 29 000 residential homes in Gauteng, the Western Cape and Kwa-Zulu Natal.

Vodacom is also quietly deploying its fibre network and services. VumaTel is also connecting Johannesburg northern suburbrs to the fibre network.

Metrofibre Networx, a provider led by ex-Absa CEO Steve Booysen and supported by its active shareholder Sanlam Private Equity, has its eyes on the booming fibre market.

In July telecoms operator Vox Telecom acquired internet service provider, Frogfoot Networks, to hasten its move into the fast-growing fibre market.

There are more players deploying fibre such as Cool Ideas, Cybersmart, Dark Fibre, iBurst, M-WEB, Sainet and Web Africa.

Cell C is also planning to roll-out its fibre network soon.

The rapid proliferation of fibre providers obviously raises eyebrows. But Chimhanzi is unfazed.

“This is good for both the market and consumers as more players enhance the pace and reach of fibre deployment throughout the country,” says Chimhanzi.

 

“If deployment is run under an open access model whereby peers let people on its network, consumers will have more choice when it comes to choosing their preferred internet service provider. This encourages service based competition rather than Infrastructure based competition.”

Furthermore, big telcos such as Telkom, Vodacom and MTN can generate wholesale revenues by allowing rivals to come onto their networks within an open system.

Last month Telkom announced its intention of becoming an open-access operator. The fixed line giant has opened copper access at 200 exchanges on trial basis.

The industry is likely to experience organic and acquisitive growth. Chimhanzi agrees that big telcos are likely to be aggressive buyers of smaller players.

“They (large players) can also take an aggressive, predatory approach of acquiring the smaller ISPs that are providing ‘last mile’ connectivity into the homes,” says Chimhanzi.
The equity analyst warns that the possibility exists that underfunded and inexperienced companies might take short cuts and roll-out substandard cables.

 

“Fibre optic cables are very expensive to install, and this poses the risk of smaller inexperienced players providing sub-standard installation and connectivity,” explains Chimhanzi. “Organisational bodies like the FTTH Council Africa, bring governments, operators and regulators together to address these challenges and risks and therefore ensure a robust and efficient FTTH deployment not only in South Africa but across Africa.”

But the big question is whether the FTTH Council Africa is doing enough to police the deployment of fibre in South Africa.

That said, the industry and customers residing where fibre is being rolled-out are likely to benefit from faster broadband access in the near future

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