BMIT’s latest SA Wholesale Telecoms Report projects healthy growth in South Africa’s fibre industry over the next five years, building on an amazing success story going back a decade.
According to the report, the wholesale fixed access market will see a compound annual growth rate (CAGR) of 9.1% to 2027 — soon overtaking mobile facilities in revenue.
It noted that wholesale fixed access revenue derives mainly from fibre network operators (FNOs) who have transformed South Africa’s urban broadband access market in just ten years.
BMIT managing director Chris Geerdts said this growth is a tribute to the South African levels of entrepreneurship in the face of substantial headwinds.
He said the industry was wise to adopt an open-access model, which has proven itself in many other countries worldwide.
This allowed FNOs to focus on rolling out infrastructure, while Internet service providers (ISPs) focused on sales and customer support services.
Although fibre deployment has been nothing short of a “land-grab” since 2014, BMIT has noted accelerated growth in the past two years.
Renewed investment in the rollout of access fibre in the residential segment (FTTH), including rapid deployment in second-tier cohorts and selected middle- to lower-income, high-density urban areas helped drive this expansion.
Geerdts said much of the next wave of FTTH coverage growth is expected to come from rollout projects in third-tier cohorts by new and existing players.
These are largely still pilot projects in which new, innovative business models are being tested.
The projected growth therefore depends on how feasible these projects prove to be, as that impacts investor confidence.
“Operators connecting lower-income areas need to connect higher numbers of houses to maintain their revenue growth,” Geerdts said.
Mobile wholesale is still South Africa’s largest wholesale telecoms market, worth R15.4 billion annually.
However, BMIT expects slower growth than for fixed access (around 4.7% CAGR, to 2027).
While the fibre market was open access from the start, the mobile market is opening slowly.
“Much of the revenue in this market derived from active network sharing between operators when Vodacom and MTN could not get access to LTE spectrum for over 10 years,” BMIT explained.
“And so [they] entered into wholesale agreements with smaller mobile operators to supplement network capacity.”
Following the 2022 spectrum auction, these large operators are investing in their own networks.
Therefore, BMIT believes growth in the active network-sharing market will come more from the capacity that smaller operators lease from MTN and Vodacom.
5G may also catalyse new sharing agreements in time, it said.
Mobile operators worldwide are selling off their mobile tower assets to mobile tower companies for various reasons, including unlocking cash to invest in network expansion and reducing costs.
Mobile tower companies generally operate on an open-access basis, which results in better utilisation of their sites as they seek to attract multiple customers to share each tower.
An added requirement in South Africa is that mobile towers must provide extended power backup due to load-shedding. At the same time, vandalism and battery theft at sites continue to plague the industry, and investors are showing greater interest in sustainable energy sources.
Telkom was the first operator to separate its tower assets and is actively seeking investors into that entity.
Last year, the passive infrastructure market was dominated by MTN’s tower carve-out with IHS (completed in June 2022), which includes IHS providing power-as-a-service to MTN.
Meanwhile, Vodacom has formed a tower subsidiary to own and operate its towers as the largest tower company in the country.
“As operators increase their LTE capacity and roll out 5G, the demand for mast space and for new sites continues to increase, whilst the orderly shutdown of legacy (2G and 3G) services will allow the removal of older, less efficient equipment,” BMIT stated.
“Each site requires backhaul transmission, which is ideally provided by fibre, where feasible, to support the gigabit data speeds needed for LTE and 5G sites.”
Government’s recent regulatory and legislative focus has been on opening the mobile market to greater competition, particularly at the wholesale level.
The draft Electronic Communications Amendment Bill has been published for public response and includes a range of proposed updates. This includes introducing a new licence category for providing facilities services.
There are also specific measures to promote the mobile virtual network operator (MVNO) industry.
The MVNO industry represents a smaller component of mobile wholesale overall, but BMIT sees significant potential for growth.
Although new entrants such as Melon Mobile aim to offer innovative new services, most of the large retailers, like Shoprite, and the banks (including FNB, Standard Bank and Capitec) see the potential to offer convergent mobile and financial services.
The recent landing of three high-capacity cables in South Africa — Equiano, 2Africa and PEACE — will bring substantial capacity to South Africa, whilst offering great choice to the local market and improving resilience through route diversity.
In some cases, better latency can be expected.
The national routes between cities are now all served by multiple operators with dark fibre, leading to a robust wholesale market with greatly increased capacity and reduced pricing, whilst the push by FNOs to smaller towns has extended demand beyond the cities.
BMIT expects this market to grow to just over R9 billion by 2027.
Telco Colocation and Hubbing
Teraco pioneered the carrier-neutral model in data centres in 2008 and soon became the dominant player in the wholesale market.
BMIT said it further assured its popularity in 2012 by providing free peering between customers through Internet exchange point NAPAfrica.
“This move has both entrenched Teraco’s market position and become a catalyst for new service development, because businesses can create secure, fast and reliable connections to their customers, service providers and partners via peering, at relatively low cost,” BMIT stated.
ZA-INX continues to grow as a multi-site, neutral peering alternative.
New players in the past 24 months include Vantage Data Centres — with Oracle also expanding capacity.
WIOCC’s business, Open Access Data Centres (OADC), focuses on providing edge data centre facilities interconnected with larger centres.
NTT and Liquid (LIT) are also making significant plays in South Africa and the rest of the continent.
BMIT sees this market growing at 2.8% CAGR to 2027.
Overall, BMIT said FTTH has been, and will continue to be, the key contributor to South Africa’s wholesale telecoms market.
Geerdts expects the combined wholesale market to grow at 6.1% CAGR to reach R52 billion in 2027.