Fibre disaster in South Africa

In the three years it has taken for the Competition Tribunal to reject Vodacom’s acquisition of a 30% stake in South Africa’s biggest fibre network operator, the rollout of new fibre-to-the-home coverage has slowed to a crawl.

A specific recent example of a major fibre operator that has slashed its fibre rollouts is Telkom subsidiary Openserve.

Telkom released its interim results for the period between April and September 2024 on Monday, which shows that the company cut its fibre capital expenditure for the period by 23% compared to the year before.

This reduced Telkom’s six-monthly fibre network investment from R846 million to R651 million, causing its rollout rate to plummet.

Openserve increased its fibre footprint by a mere 2.7% during those six months.

Telkom Group CEO Serame Taukobong has long said their networking divisions must “earn their capex”.

In other words, Telkom will only roll out infrastructure where it can sign up sufficient customers to earn a return on its investment in a reasonable amount of time.

However, it is interesting to note that its fibre network investments have consistently declined over the past three years — which is how long the Vodacom-Maziv deal has been with the competition regulator.

Vodacom announced in November 2021 that it had entered into a deal to buy a stake in the fibre assets of Community Investment Ventures Holdings (CIVH), which owns Vumatel and Dark Fibre Africa (DFA).

The initial deal was for a 30% share, with the option for Vodacom to increase its stake to 40%.

After nearly two years of negotiations, which resulted in a voluminous set of conditions being proposed for the transaction, the Competition Commission rejected the deal.

It recommended to the Competition Tribunal that the deal be prohibited on the grounds that it would decrease competition in South Africa’s fibre market.

The Tribunal then conducted an extensive series of public hearings that ran from May until the end of September. It announced its decision in October 2024.

This had a chilling effect on fibre investments in South Africa, as evidenced by the reduction in capex from major network operators.

The chart below shows how Telkom’s fibre capex has fluctuated since 2016 and how it has declined since 2021, in particular.

Telkom is not the only network operator pumping the brakes on new rollouts. Several South African network operators have reduced deployments for varying reasons.

Some were awaiting the outcome of the recent Competition Tribunal hearings to inform their infrastructure investment strategy. Others are prioritising generating income from their assets to focus on paying down the huge debts they’ve incurred to build them.

One way to continue their aggressive rollouts was for an operator to get an outside investor to help reduce their debt. This is what CIVH was hoping for.

As part of the deal, Vodacom would contribute its own fibre network worth R4.2 billion at the time to a new entity that would be set up to house the assets. This entity was later named Maziv.

Vodacom said its fibre network would immediately become open access to match Vumatel’s operating model.

Additionally, Vodacom would pay R6 billion cash and a secondary cash amount based on CIVH’s valuation when the deal goes through, estimated to be approximately R3 billion.

Therefore, the minimum value of the deal when the companies first announced it was R13.2 billion in cash and assets.

This cash injection could have gone towards reducing CIVH’s considerable debt, giving it headroom to continue its rapid fibre deployments.

Remgro’s latest annual results revealed that CIVH has over R19.5 billion in debt, most of which belongs to Vumatel. Remgro has a 57% effective interest in CIVH.

Vumatel recently commercially launched its Vuma Key service in large parts of Alexandra and the whole of Kayamandi, offering uncapped fibre from R99 per month.

However, without additional funding, Vumatel will not be able to continue these rollouts rapidly.

Remgro strategic investment head and CIVH chairman Pieter Uys previously explained that without external investment, it would take 10–12 years for Vumatel to cover South Africa’s townships.

With a cash injection, that timeframe comes down to 3–5 years.

It’s also not just Vumatel’s township fibre rollout that has been impacted by the delays and decisions of the Competition Commission and Tribunal.

Vumatel slashed its capital expenditure budget to strengthen its balance sheet, resulting in only 138,000 new homes being passed across its portfolio between 1 April 2023 and 31 March 2024.

For the whole of CIVH, the capital expenditure (capex) budget declined from R3.5 billion to R2.7 billion in the past year — an almost 23% decrease.

An analysis of the number of new homes passed by all fibre network operators (FNOs) in the first half of 2024 also shows that this is not unique to Vumatel.

The following table summarises the six-monthly fibre footprint expansion by South Africa’s largest fibre network operators.