South Africa’s fibre and 5G war

Fibre and 5G fixed wireless access providers are in an escalating battle for customers as key players in both technologies invest in expanding their coverage. This is according to BMIT’s latest SA Broadband Report.

BMIT managing director Chris Geerdts says investment in residential fibre in recent years has been unprecedented, although a few large players did take a breather in 2023.

Meanwhile, 5G rollouts are challenging fibre for new customers after investment was partially diverted into mitigating the severe impacts of load-shedding, battery theft, and vandalism.

Mobile operators are also adding coverage and capacity to their LTE networks.

BMIT found that fixed-LTE remains by far the leading broadband medium in South Africa — by coverage and subscriber numbers.

It noted that Telkom periodically alternated between prioritising fibre and mobile network investments, but is now investing in both.

Telkom is tailoring its 5G/LTE/fibre mix to the data needs of each suburb and selling its tower assets to fund the updated strategy.

“Customers are the ultimate beneficiaries of these investments,” Geerdts stated.

BMIT projected that the combined growth in active broadband connections will grow at a compound annual growth rate of 9.1% between 2022 and 2027.

Fibre to the home targeting lower-income areas

BMIT said that a a good portion of that growth will come from fibre.

This is shown in BMIT’s baseline forecast scenario in the chart below, which projects active connections reaching just under 3 million by 2027.

Houses passed in that timeframe will reach 7 million in the context of a fibre “land grab” that has been ongoing for more than a decade and has now expanded to several fronts.

The competitive intensity in the most lucrative suburbs has resulted in “overbuild” — where operators deploy fibre in streets another operator has already passed.

BMIT estimates that 25% of homes are already overbuilt.

It found that the most significant growth in the last few years has been in the next tier of metro suburbs, secondary cities, and many towns.

Last year saw a slowdown in rollouts by a few key players, albeit temporary, it said.

BMIT forecasts ongoing deployment of access fibre in the residential and business markets, except with a greater focus on lower average revenue customers.

“This will require investors to show confidence in the emerging new business models tailored for the ‘township economy’,” BMIT stated.

These business models will incorporate innovative go-to-market strategies along with lower-cost network deployment techniques.

BMIT said these are either prepaid or pay-as-you-go services, with price points as low as R5 per day or R100 per month.

Examples include new entrants like Fibertime in Stellenbosch, Zing Fibre in Umlazi, and Ilitha in Mdantsane.

Mainstream fibre operators have also launched challenges in lower-income areas. These include Vuma with its “Key” offering, Frogfoot with Rise, and Openserve with Prepaid Connect.

These projects are currently characterised as pilots, although BMIT noted that Fibertime has already started expanding to other areas in Cape Town.

It said its proof of concept project in Kayamandi, Stellenbosch, has been successful, and the business case is now proven.

5G and LTE held back by load-shedding

Geerdts said 5G rollouts are scooping up new customers, especially in areas where fibre has yet to be deployed.

“The pace of rollout has been negatively impacted by load-shedding, as mobile operators were forced to divert funds to boost battery capacity at sites,” Geerdts said.

Operators then had to protect these sites from battery theft and vandalism.

“But operators are now once again focusing on accelerating 5G expansion,” continued Geerdts.

“Overall 5G population coverage passed 30% in South Africa last year, with the main focus being to provide fixed-wireless services in urban areas.”

Rain still has the highest coverage and is expanding as funds allow, he said.

Meanwhile, mobile operators are adding coverage and capacity to their LTE networks.

Fixed-LTE remains by far the leading broadband medium in South Africa — both in terms of network coverage and actual subscriber numbers.

“The LTE market is mature and operators are still in the process of maximising their deployment of the spectrum they acquired in 2022,” said Geerdts.

“They are also paving the way for the ‘sunsetting’ of their 2G and 3G networks, although BMIT anticipates 2G services will remain available in some form for years to come.”

Christopher Geerdts
Christopher Geerdts, BMIT managing director

Prices and average revenue per user (ARPU)

BMIT believes that fixed–4G and 5G adoption will likely be sustained by aggressively priced uncapped and quasi-uncapped offerings.

This will be supported by the ever-reducing cost of 5G devices.

“Most offerings, Rain being a notable exception, are currently either capped or otherwise restricted and have a Fair Usage Policy (FUP),” Geerdts noted.

“But the larger-cap options are generous enough to meet the consumption habits of many households.”

Fixed-wireless broadband remains the dominant use case for 5G — in South Africa and the world.

BMIT said the technical advantages of 5G will enable more competitive offerings.

“High levels of competition are expected to continue among ISPs within each access category, along with competition between various access media types,” BMIT stated.

Despite this, price increases are becoming increasingly common following years of ARPU attrition.

“This trend can be expected to continue in the future, driven by underlying inflationary cost pressure experienced by service providers.”

It’s a similar story in the business-to-business segment.

High growth in business broadband fibre connections has led to massive reductions in blended ARPUs over the past five years.

“Players interviewed by BMIT have expressed the belief that this big ‘category shift’ has now largely worked itself out and prices may start to stabilise or increase in line with rising input costs,” it said.

“Cost-related increases were strongly evidenced during the significantly heightened levels of load-shedding that took place 2022–2023.”

BMIT said temporary promotional offers will likely become more common as fibre and wireless offerings vie for market share while ultimately migrating the customer to a higher-priced offering.

Home broadband price points across access media types (fibre, fixed wireless and fixed LTE) aimed at the important R300–400 and R400–500 affordability levels are now generally rolled out.

Deals target customers in these brackets with uncapped services while, in most cases, differentiating the services from standard or premium services.

Most of the fibre products in this category are geography-specific.

Starlink and the rise of low-earth-orbit (LEO) satellites

“LEO satellite services are in focus now and regarded as potentially disruptive to the market,” said Geerdts.

OneWeb services are available in South Africa via BCX and QKon, but priced for the business market.

Starlink has around 2.3 million subscribers globally, but is not yet licensed to operate in South Africa.

BMIT’s view is that the equipment and services are currently too expensive to suggest there will be mass uptake in the near future.

On the other hand, BMIT is watching the direct-to-handset market closely, where subscribers can access satellite via their current LTE/5G handsets and their existing mobile subscriptions.

Geerdts expects South African operators to begin trialling this in 2024, although initially with text-based services only.

He sees this as a potential game changer as the country will then have 100% outdoor coverage, and service downtime will be reduced.

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South Africa’s fibre and 5G war