Herotel’s two-year explosion

Herotel grew from South Africa’s twelfth to its third–largest fibre network operator in two years, with most of the homes on its network in townships.

The company announced a major fibre push in 2021, targeting smaller towns all around South Africa.

By August 2021, Herotel had completed 53 separate rollout projects and added 100,000 homes to its footprint.

However, it was rapidly running out of capital and would have had to scale back its rollouts without a cash injection.

Fortunately, Herotel had been in discussions with Vumatel and its parent company, Community Investment Ventures Holdings (CIVH), about a potential investment since 2020.

“Following the successful execution of Herotel’s fibre strategy over the two years leading up to 2021, the only barrier we had to scaling our fibre rollout was access to capital,” the fibre network operator told MyBroadband.

“Available debt facilities were saturated, and without any shareholder of reference it was not possible to raise further debt facilities.”

Herotel explained that none of the existing Herotel shareholders had the capacity to insert further growth capital.

“So the barrier between Herotel’s existing 200,000 stands at the time, and its pipeline of a further 400,000 stands was capital.”

On 24 February 2022, Vumatel and CIVH announced they had acquired a 45% non-controlling stake in Herotel. It soon increased this to a 49.5% stake.

Additional funding from Vumatel allowed Herotel to expand rapidly in the following months, reaching 345,000 homes in December 2022.

By May 2023, Herotel’s network included 500,000 stands.

Unfortunately, it once again reached the extent of its funding facilities.

While Herotel has continued rolling out consistently since then, it only added around another 83,000 homes by June 2024.

Most of these are in previously underserved areas. Herotel said it has 338,000 fibre stands in townships and 245,000 in traditional suburbs.

“The acquisition by Vumatel of a 49% minority interest in Herotel, and the resulting capital injection, is the predominant reason why an additional 400,000 stands could be built,” the network operator told MyBroadband.

“The speed, quality, and commercial effect of the additional rollout was driven by the Herotel strategy, but the access to capital allowed the strategy to be played out.”

Herotel noted that there was no overbuild in rolling out those 400,000 stands.

Overbuild is industry jargon for rolling out in areas where another fibre operator has already built infrastructure.

“All those people gained access to the Internet, which they never had before,” said Herotel.

Remgro, which owns an effective 57% stake in CIVH, recently estimated in its annual financial results that South Africa’s more affluent suburbs are 20% overbuilt.

It also estimated that middle-income neighbourhoods — where households earn between R5,000 and R30,000 per month — are already 10% overbuilt. This is despite market penetration in this segment only being at 42%.

Before Herotel reached the end of the capital injection that fuelled its 2022/23 rollout, Vumatel made an offer to increase its stake to over 98% by buying out existing shareholders.

Unfortunately, the transaction has got stuck at the Competition Commission, severely limiting Herotel’s expansion plans.

“Vumatel made an offer to acquire a further 49% from Herotel shareholders, but this transaction has been sitting with the Competition Commission since early 2022,” it told MyBroadband.

“Due to the competition process, Herotel has not been able to raise any further capital, and could therefore not expand its fibre pipeline of a potential further 400,000 stands in townships.”