South Africa

Vumatel beat Telkom on its home turf

Dietlof Mare

Vumatel broke Telkom’s fixed-line broadband monopoly in South Africa and established itself as the leader in the fibre-to-the-home market.

Telkom must now play catch-up in an area it dominated for over a decade and enjoyed a tremendous advantage.

To understand the significance of Vumatel’s achievement, you have to turn back the clock to 2014, when Telkom ADSL was the only fixed-line broadband game in town.

At the time, it was inconceivable that anybody could compete against Telkom in the fixed-line market.

Telkom had conduits and copper lines into millions of homes and points of presence in neighbourhoods across the country.

Telkom could roll out fibre using its existing network infrastructure at a fraction of the cost of any competitor.

It also had over a million ADSL subscribers, which it could convert to fibre, a resource no other operator enjoyed.

To replicate Telkom’s infrastructure would require a huge investment, and with the threat of Telkom competing against any new fibre operator, it was challenging to sell the business case.

However, a gritty new company called Vumatel took the fight to Telkom in 2014 when it rolled out a fibre network in Parkhurst.

Its fibre-to-the-home model rapidly gained momentum and soon covered many neighbourhoods in South Africa’s major cities.

Through its wholesale network arm Openserve, Telkom was jolted into action by Vumatel’s appearance on the scene.

Openserve launched its residential fibre broadband products on 1 December 2014 and quickly overtook Vumatel in the number of homes passed.

However, it scaled back on its fibre rollouts in 2018 and 2019 after a strategic decision by Telkom to focus its investments on its mobile network.

Telkom cut its fibre network capital expenditure from over R2 billion per annum in 2016 and 2017 to R1.2 billion in 2018 and R703 million in 2019.

These cutbacks allowed Vumatel to overtake Openserve as the top fibre-to-the-home network in South Africa.

It happened during a crucial time in South Africa’s broadband industry, with network operators scrambling to roll out fibre in neighbourhoods which were not covered.

Telkom realised its strategic blunder, but it was too late. It has lost significant ground to Vumatel and is now trying to catch up.

Today, Vumatel passes 1.5 million homes with 450,000 connections, while Openserve passes 890,000 homes with 414,847 homes connected.

Telkom fibre capital expenditure (ZAR)

Telkom has increased its fibre capital expenditure from R703 million in 2020 to R2.052 billion in 2022, but this may not be enough to close the gap with Vumatel.

Over the past year, Vumatel and DFA increased their combined capital expenditure from R3.127 billion to R3.617 billion.

Vumatel is aggressively rolling out fibre-to-the-home through three services – Vuma Core, Vuma Reach, and Vuma Key.

  • Vuma Core targets households with a monthly income over R30 000.
  • Vuma Reach connects homes with a monthly income between R5 000 and R30 000.
  • Vuma Key is aimed at households with an income below R5 000 per month.

For Telkom to catch up to Vumatel will take a significant increase in capital expenditure and a strong focus on greenfield fibre deployments.

Fibre war goes nuclear

Over the past few years, the South African fibre landscape changed significantly, with over 40 prominent open-access fibre providers and over 45 small-scale fibre operators.

Vumatel remains Telkom’s biggest competition, but the company is no longer a gritty telecommunications startup.

Remgro’s CIVH acquired Vumatel in 2018, which gave it significant resources to accelerate its network rollouts across the country.

Last year, Vodacom signed a deal to buy a 30% stake in Vumatel and DFA. As part of the deal, Vumatel, DFA, and Vodacom’s fibre assets will be merged under a new fibre company, FibreCo.

Vumatel and DFA’s fibre assets under FibreCo

Former Vumatel CEO Dietlof Mare has been appointed chief executive officer of the new infrastructure company, which signals their focus on fibre-to-the-home services.

The combined network assets of Vumatel, DFA, and Vodacom and the deep pockets of FibreCo’s shareholders – Remgro and Vodacom – means Telkom’s previous advantage is disappearing.

Telkom seems to realise that it will be difficult to match FibreCo on its own and has recently started discussions about MTN acquiring Telkom.

Industry speculation suggests that MTN wants access to Telkom’s extensive fibre assets following the Vodacom/CIVH deal.

MTN’s financial resources and expertise can help to unlock Telkom’s untapped assets, including its extensive national fixed-line resources.

The deal will face significant regulatory scrutiny around spectrum and concentration of ownership in the mobile telecoms industry.

But even if the deal goes through, it is not certain whether Telkom will be able to gain lost ground against Vumatel in the fibre-to-the-home race.