Why fibre networks are increasing prices and line speeds in South Africa

South African fibre network operators have implemented forced speed upgrades and price increases because their costs have increased substantially in recent years.

This was the feedback from industry heavyweights during a ZANOG@iWeek panel discussion on the future of fibre earlier this year.

Forced speed upgrades are a way to offer subscribers some value in exchange for a price increase rather than simply hiking fees and offering nothing in return.

Link Africa chief sales and marketing officer Mark O’Donoghue said their two biggest cost increases were caused by load-shedding and physical security.

O’Donoghue said they were spending up to R1 million per month for armed security for staff, primarily in KwaZulu-Natal.

Much of this cost was driven by extortion gangs, known euphemistically as “business forums”, who demand that companies hire their members to perform 30% or more of construction work in their areas.

“You have to hire their security companies to look after their staff that you are forced to employ,” said O’Donoghue. “We are constantly being pressurised and paying for things that, quite frankly, we shouldn’t be paying for.”

“We shouldn’t have to invest so much in generators and batteries. We should not have to pay armed security for staff to fix a fibre in a remote area.”

Regarding offering speed increases rather than pure price hikes, O’Donoghue said fibre provides a huge amount of bandwidth, allowing fibre network operators (FNOs) to offer more value when they increase prices.

O’Donoghue also said they had resisted any form of pricing adjustments as long as they could.

Metrofibre chief commercial officer Christian Wirtz said that interest rates, which make repaying loans more expensive, were another cost driver.

FNOs often finance rollouts with debt and, therefore, have substantial loans. Even fractional rate hikes can cause their repayments to balloon quickly.

Wirtz also agreed with comments from Mike Silber, who spoke on the panel in his private capacity.

Silber is an old hand in the industry with deep regulatory knowledge. He also served as a director for the Internet Service Providers’ Association of South Africa for many years.

“Maybe this is happening because people underpriced their services as part of the landgrab,” Silber said.

The landgrab Silber referred to is a period during which South Africa’s FNOs all rushed to be first to roll out to neighbourhoods and drive connection rates as part of their initial viability modelling.

These models showed that FNOs had to sign up a certain proportion of customers in the neighbourhoods they targeted to be sustainable.

However, most fibre infrastructure providers are reporting connectivity rates below 40%. Only Openserve and Frogfoot report higher connection statistics — 46% and 42%, respectively.

He said FNOs are realising they have to raise their prices to actually become commercially viable, and the only way to soften the blow is to offer customers faster speeds.

“They went in at pricing that was not commercially viable to get fibre uptake, and now the market grab is coming home to roost.”

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Why fibre networks are increasing prices and line speeds in South Africa