Vumatel fibre standstill

While most major fibre network operators (FNOs) in South Africa have slowed down their fibre-to-the-home (FTTH) rollouts in 2024, the network expansion of the country’s biggest operator — Vumatel — has ground to a near-total halt.

However, the hold-up is largely out of its control.

According to Remgro’s latest annual financial results, the majority shareholder in Vumatel holding company CIVH, the FNO had passed 2,003,583 homes with fibre-to-the-home (FTTH) by March 2024.

Vumatel previously announced it had exceeded 2 million homes passed in August 2023, half a year ago.

That means it could have added anywhere between zero and 3,582 new homes to its FTTH coverage area in six months.

For reference, Vumatel’s biggest competitor — Telkom’s Openserve — added 58,394 homes to its FTTH coverage footprint between September 2023 and March 2024.

Its total homes passed figure stood at 1,217,110 in March 2024, still well short of Vumatel’s.

However, in terms of customers actually using its network, Openserve is not as far behind Vumatel.

Vumatel had 730,259 of the 2,003,584 homes in its coverage footprint connected to its FTTH network by March 2024.

That means that close to 64% of households with access to its network are not using Vumatel for Internet access.

Openserve had 590,527 of its 1,217,110 covered FTTH households connected, meaning 51% were not using its services.

This is because Openserve has been employing a different strategy to most other FNOs, rolling out slower than it could have but ensuring a higher connectivity ratio.

However, it is also important to note that Openserve counts a home as connected so long as it has a fibre terminal installed — it need not be an active subscriber.

Openserve’s slower rollout allowed upstart Vumatel to overtake the once-dominant fixed-line operator in homes covered and connected by its network.

However, the tables have now turned.

Over the entire year, Vumatel added 137,772 new homes to its FTTH footprint, while Openserve managed 176,545.

Other FNOs are also likely to have rolled out to more households than Vumatel in the first quarter of 2024.

Herotel and MetroFibre added 18,908 and 17,000 more homes to their FTTH network footprints in the first half of the year, Frogfoot added 19,000 new households since Q4 2023.

This is much higher than the up to 3,582 new homes Vumatel added between August 2023 and March 2024.

Big debt and delay in key funding

Vumatel’s rollout slowdown is due to a cut in capital expenditure caused by rising debt and a delay in securing additional funding from a key transaction held up by South Africa’s competition authorities.

CIVH has built up well over R20 billion in debt to expand Dark Fibre Africa and Vumatel’s networks. As of 2024, the total debt stood at R19.5 billion, most of which belonged to Vumatel.

This large debt has proven a huge burden on Vumatel in 2023/2024 financial year, as it has carried significantly higher interest than in previous years.

As a result, Vumatel’s headline earnings dropped by over 550% in its last financial year — swinging from a profit of R82 million in 2023 to a loss of R374 million in 2024.

Vumatel’s future rollout plans will likely lean heavily on the outcome of the Competition Tribunal’s hearing into Vodacom’s proposed acquisition of a 30–40% stake in Maziv, a company established to house Vumatel, DFA, and Vodacom’s fibre assets.

The transaction has been pending approval by regulatory and competition authorities for over three years.

While the Independent Communications Authority of South Africa (Icasa) took about a year to approve the transaction, discussions with the Competition Commission spanned over 18 months.

This resulted in a series of conditions being negotiated for the transaction. However, the Commission ultimately recommended to the Tribunal in August 2023 that the deal be blocked.

The Competition Tribunal is set to conclude its hearings into the proposed acquisition this week, after which it should take ten business days to make its ruling.

Remgro recently announced that mobile network operators MTN and Rain and the Department of Trade, Industry, and Competition had voiced support for the transaction.

The capital injection that Maziv will get from the deal will likely accelerate Vumatel’s expansion in lower-income areas, making uncapped broadband more affordable for the masses.

Other telecoms players are also awaiting the decision with bated breath, as it could set a precedent for what they can expect from other future mergers and acquisitions that could unlock broadband growth in South Africa.

Bringing fibre to the masses

Vumatel’s rollout strategy has shifted focus to lower-income areas, and its latest numbers show this.

The footprint of Vumatel’s original Core product — aimed at affluent and middle-class suburbs with households earning over R30,000 per month — increased by just 109 to reach 906,315 in March 2024.

Vumatel reckons that areas with these households are 20% overbuilt, meaning there is low demand for new FTTH rollouts in these suburbs.

Many other FNOs share this view and have shifted their strategies from expansions to improving connectivity ratios.

The vast majority of Vuma’s households are now on its Reach product, which is aimed at middle-income areas where households earn between R5,000 and R30,000 per month.

Vuma Reach’s coverage reached 1,076,673 households by March 2024, over 128,000 more than at the same time last year.

Vumatel’s newest area of focus — households earning less than R5,000 per month — fall under its Vuma Key product.

Even before officially launching the country’s cheapest-ever fibre last week, Vumatel had rolled it out to more than 20,000 households as part of a pilot project.

Vumatel believes this market presents a huge opportunity as it is larger than the Core and Reach markets combined and is largely underserved.

However, to aggressively expand its rollouts to these areas, it will first need to pay down some of its debt.

The alternative to a merger or acquisition like the Vodacom-Maziv deal is to focus on profitability to manage its debt.

That means cutting back on rollouts, containing costs, and pushing uptake of its services in areas where it already passes homes.