The issue of overbuild, also referred to as fibre infrastructure duplication, emerged as one of the major pain points for fibre network operators (FNOs).
During a high-level panel discussion at the Digital Council Africa Conext Conference 2022, in Cape Town this week, the CEOs of FNOs unpacked some opportunities and threat factors within the fibre sector.
The CEOs of Vumatel, MetroFibre Networx, Liquid Intelligent Technologies and Frogfoot Networks all agreed that the industry is in a good place at the moment, having gained momentum over the last few years.
However, it’s still confronted by a range of issues, including investments, consolidation, competition, government grants, vandalism and costs.
On the issue of fibre infrastructure duplication, Jan-Jan Bezuidenhout, CEO of MetroFibre Networx, said it’s not good for the industry or consumers.
He explained: “Rolling out fibre networks is an extremely capital-intensive endeavour. The people supporting these capex rollouts or deployments – our equity partners and our debt funders – require return or yield on the capital they put to work.
“If we’re duplicating capital, then you can imagine in an overbuild scenario what the relative performance looks like from a take-up perspective.
“What it does is that funders, both on the equity and debt side, look at the returns and yields that are provided out of those areas and they lose confidence. All that does is take capital that would have been otherwise available out of the system, and that translates into a detrimental effect on consumers, as underserviced areas won’t have capital available, or it will take longer to get capital.
“From a consumer perspective, if there’s an open access provider that comes into your neighbourhood; having an FNO there doesn’t really provide much more in terms of choice. This is mainly because on each of our networks, we have the same ISPs that provide services to the end-customers at very similar price levels.”
Vumatel CEO Dietlof Mare believes the biggest culprit is legacy swap-out. “This is where they rip out copper and replace it with fibre, so these are the old, traditional fixed-line copper line solutions.
“The places that we [Vumatel] already cover, those places are being overbuilt like crazy. It’s good in a way, but I think you can deploy things in other ways as well.”
Vumatel pioneered fibre-to-the-home in SA and has since connected thousands of homes across Johannesburg, Cape Town and Durban to broadband internet. Vumatel has 1.5 million homes passed, with at least a future two million anticipated in emerging markets.
Mare added: “We need to get the 11.6 million homes connected and we shouldn’t overbuild because our scarce resource is the capital. We’re just wasting it if we come and duplicate. There are places where there are three or four networks in areas and that’s not going to work.”
Everybody knows where everyone has built, commented Deon Geyser, CEO of Liquid Intelligent Technologies. “I think the culprit is…that if you enter a market with a new technology and there is an incumbent in that area or multiple providers, they will view this as a potential threat to losing their base.
“They have a natural incentive to go and build a network as well and convert the existing legacy base onto that network. That’s really when you start seeing overbuild occur.
“Sometimes it gets really ridiculous when everybody takes part. For example, we have built a network in one area where there’s now seven operators that have overbuilt each other. In a scenario like, that nobody ends up making money because it’s just a stranded asset.”
Market consolidation
Frogfoot Networks CEO Abraham van der Merwe noted the sector is capital-intensive, so consolidation is a natural progression. However, he cautioned against over-consolidation of the market.
“You can’t run a sub-scale business in this industry because you need capital, so consolidation is natural. There’s just always a line that we don’t want to cross.
“For instance, the cable industry would have had 50 cable operators in the market and that’s clearly not healthy. But it’s now consolidated down to one cable operator and that’s not healthy either.
“We have to be careful not to over-consolidate and end up with a duopoly or a monopoly. At the same time, I think it’s natural to assume there’s going to be further consolidation in the market.
“We simply can’t have a situation where there are 50 or 100 sub-scale operators – it doesn’t make sense.”
MetroFibre’s Bezuidenhout commented: “I think there is space for a handful of large players to service the market, compete with each other and to make sure we cover all of the underserviced areas.”
One of the pending consolidation transactions is Vodacom’s bid to acquire equity in Community Investment Ventures Holdings (CIVH), the Remgro and New GX-controlled parent company of fibre infrastructure operators Dark Fibre Africa and Vumatel.
Vodacom made a mega move for the CIVH fibre assets in November, in a deal that will see the telco co-controlling 30% equity in a newly-formed infrastructure company.
It is awaiting approval from anti-trust authorities and if approved, Vodacom will settle the CIVH deal through a combination of cash and access to its infrastructure.
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