London — The market for Fibre-To-The-Home connections in Africa is steadily growing. It may be a niche market compared to mobile data but it's potentially a big niche. Russell Southwood looks at the what's happening in South Africa to see whether there's any wider pointers there for how things might go in other parts of the continent.
The South African FTTH market is hotting up: roll-outs are proceeding at a pace but seem to only just be keeping pace with the voracious demand for real fast fibre connections.
One of the smaller players is individual investor-owned SA Digital Villages that has been around for over 10 years but was recently bought into by dark fibre operator DFA, which wants to take a majority shareholding in the company.
Someone familiar with the company described it as "DFA's FTTH play." Traditionally its roll-outs had been in estates, gated communities and places where businesses are concentrated. For example, its website shows a recent residential development in Melrose called Forty on Oak (part of its coverage over the whole development) and Plumbago Business Park. But it's now addressing the suburbs and making a big investment there:"It is scaling the business because it is not interesting at the current level".
It has carried out research that will enable it to target those suburbs that have a concentration of people who can afford the retail service. SA Digital Villages puts in the connections that will allow FTTH and offers these on an Open Access basis to ISPs with who they co-brand the service.
The final price is based on an internet connection plus SA Digital Village's charge for the FTTH connection. Existing ISP customers include MTN, IS, Cell C, EOH, Vox Telecom, Neotel and Vodacom. Bandwidth for the FTTH connection is sold in four differing capacity amounts depending on the final level of retail demand.
Retail fibre-to-the-home prices in South Africa have declined rapidly over the past three years, according to a new report from BMIT. Uncapped gigabit-per-second fibre connections previously cost around R40,000 (US$2859) per month or more. Today, prices have been cut to under R3,000 (US$214.42) per month. Similar price decreases are evident on capped packages and services that run at speeds below 1Gbps, according to the report. It concluded that entry level FTTH prices were affordable by most broadband households.
The two biggest operators in the market are Telkom's Openserve and Vumatel. Smaller operators include Frogfoot, Cyber Smart and SA Digital Villages. The latter currently has a presence in 3 regions but wants to be in 15-20 by March 2018. It will avoid duplicating in places where the two main players already has a presence.
So what's the potential market size? There are around 50 million residents, of whom around 10 million can afford the service. The average household is 4-5 people so there are probably two million potential households. Telkom has passed somewhere between 300-500,000 households and Vumatel 220,000 so there's still plenty of households out there who might become customers.
Most people migrating to FTTH are doing so either directly from ADSL or from a mobile connection:" The data hunger is out there. The price points, speed and capacity are all really compelling. We see a lot of people switching off their DStv subs and going on to Netflix. The hunger is just there and there is no sign of it slowing down. Prices have come down to match what you will pay for ADSL. There's no Telkom line rental so it takes that away. You will end up just having your mobile and fibre".
Interestingly no one is selling the equivalent of a fixed line voice service on fibre. SA Digital Viullagers also have a small business focus and it's supplying a number of the precincts in Johannesburg and that includes phone services.
SA Digital Villages has innovated the delivery of FTTH by micro-trenching: a small slit is cut next to the curb on the road. Overall this means less disruption and mess and the communities and the municipalities that manage the rights of way like this approach. It is also looking at other innovations that might bring down the cost of FTTH delivery to give it a competitive advantage.
Insights for other African countries looking to roll-out FTTH include:
* In every African country, there are households that have enough money to afford an FTTH connection. The real question is whether the price is equivalent to an ADSL connection or FTTH is pitched as a much more expensive premium connection. The larger the numbers the better the annuity income.
* Demand is there and its driven by video content. Therefore it is worth looking at the level of Pay TV subscribers in the country as well as looking at the level of ADSL subscribers. The providers of FTTH do not have to be content providers. You can leave that to the likes of Netflix and the many other more local platforms.
- It provides a way for telco incumbents or more agile mobile operators to get money from a key customers on a reasonably reliable monthly annuity basis.
- In some markets, it is worth offering a low cost fixed line equivalent service. Depending on mobile rates, there will be both competitive national and international call rate offers.