Fibre slowdown in South Africa

The expansion of fibre networks in South Africa has slowed considerably, as operators prioritise generating income from their assets and focus on paying down the huge debts they’ve incurred to build them.

This is evident from an analysis of the number of new homes passed by fibre network operators (FNOs) in the first half of 2024.

There are two exceptions among South Africa’s major operators — Openserve and Frogfoot — but even they are not rolling out massive amounts of new coverage relative to their existing footprint.

“We are still building where it involves simple extensions of our existing infrastructure. However, to be honest, there isn’t much left to build in high Living Standards Measure areas,” Frogfoot CEO Shane Chorley told MyBroadband.

“We are now heavily focused on expanding into lower LSM areas and are eager to accelerate those efforts.”

Living Standards Measure (LSM) is a market research tool providing a more granular socio-economic class metric. The measurement ranges from 1 to 10, and higher numbers indicate greater access to wealth.

Chorley said although they haven’t slowed down at all, they had noticed a general slowdown in fibre deployments in South Africa, particularly with Vumatel significantly reducing the pace of its rollouts.

“That said, we have specifically seen a number of operators focusing on building in lower LSM areas and starting to raise funding to accelerate those builds,” he added.

Vumatel’s network expansion has ground to an almost total standstill since the second half of 2023.

This is because it has slashed its capital expenditure budget to contain costs after high interest rates and other macroeconomic headwinds put pressure on Vumatel’s bottom line.

Remgro’s latest annual results revealed that Vumatel’s holding company, Community Investment Ventures Holdings (CIVH), has over R19.5 billion in debt. Remgro has a 57% effective interest in CIVH.

Remgro strategic investment head and CIVH chairman Pieter Uys has said that most of the debt belongs to Vumatel.

Vumatel’s high levels of debt combined with high interest rates over an extended period, which also impacted consumer disposable income, caused its operating earnings to drop by 7.2%.

As a result, its headline earnings dropped from an R82-million profit to a loss of R374 million.

To help pay down some of its debt and unlock capital for further fibre rollouts, CIVH is pursuing a deal to sell a 30% stake in its business to Vodacom.

Under the terms of the deal, Vodacom will buy 30% of Maziv for a combination of assets and cash for at least R13.2 billion.

The deal includes an initial cash consideration of R6 billion, Vodacom’s fibre assets worth R4.2 billion, and a secondary purchase estimated to be approximately R3 billion.

The secondary purchase amount is based on the valuation of CIVH when the deal goes through.

Vodacom also has the option to increase its stake to 40%.

The deal is currently before the Competition Tribunal, which is hearing closing arguments today regarding whether to approve or reject the transaction and which conditions it should impose if approved.

Industry sources have told MyBroadband that many fibre operators have slowed their rollouts while waiting for the Tribunal’s decision.

They need the uncertainty surrounding the Vumatel-Vodacom transaction to be resolved to know what rollout strategy they should follow.

However, some operators disagreed with this assessment.

Chorley said their rollouts haven’t slowed and that they don’t believe this kind of consolidation is a prerequisite to unlock funding for the next phase of fibre rollouts in South Africa.

“Even though funding has slowed down, there is still significant funding available,” he said.

He reiterated that he believed the next growth area for fibre is in lower-income neighbourhoods, with several options available to fund rollouts.

Metrofibre CEO Jan-Jan Bezuidenhout agreed, saying they have also noticed a slowdown in fibre rollouts and that he doesn’t believe consolidation is the only way to unlock the capital needed to fuel future expansion.

“The slowdown of our fibre footprint expansion has no bearing whatsoever on the outcome of the Maziv-Vodacom deal,” said Bezuidenhout.

“We have slowed down our build to focus on the penetration and saturation of our network,” he explained.

“We are focusing on ‘sweating’ our assets to ensure better utilisation of our existing infrastructure and greater efficiencies.”

However, Bezuidenhout said consolidation was a natural evolution as the market matures.

“Further fibre rollouts will be funded using a combination of equity, debt, and internally generated cash flow off the back of market opportunities and a solid track record in capital allocation,” he said.

“This is part of the reason why we are currently focussed on ‘sweating’ our existing assets and infrastructure.”

The table below summarises how much South Africa’s major fibre network operators have grown their footprints between the end of 2023 and June 2024.

Vodacom and Vumatel’s figures measure more than six months. Vumatel’s is from around August 2023 to March 2024, and Vodacom’s from March 2023 to March 2024.