Vumatel-owner gets R25 billion debt refinance

Maziv, the owner of Vumatel and Dark Fibre Africa (DFA), has refinanced its R25 billion debt with a group of lenders led by Standard Bank.  

This was revealed by Standard Bank Corporate and Investment Banking in a note on its website, which said that it was mandated as the lead arranger of the deal. 

The R25 billion deal is the largest debt transaction in South Africa so far this year. 

Standard Bank said the transaction would enable deeper broadband penetration in underserviced areas, describing it as “one of the most significant transactions in the telecoms sector in South Africa over the past decade”.

Maziv’s parent company, CIVH, is majority owned by Remgro, a holding company led by Johann Rupert. Maziv has two fibre offerings in Vumatel and Dark Fibre Africa which aim to serve different parts of the market.

DFA specialises in long-distance fibre infrastructure and has total fibre assets spanning 13,600km. DFA leases its assets to telecommunications companies.

Vumatel specialises in fibre-to-the-home networks, with its fibre assets spanning over 31,000km. It leases its fibre assets to internet service providers.

Vumatel is rapidly expanding its network coverage and, by the end of 2022, passed 1.8 million homes with 600,000 homes connected.

Building fibre networks is highly capital intensive as it typically involves trenching and laying down the fibre in protective tubing.

Even when aerial fibre is used, it still requires a great deal of work to build the network and get the fibre into people’s homes.

However, after the fibre is installed, it requires minimal maintenance and has an extended useful life spanning over 20 years.

Simply put, fibre network operators spend billions up-front on building networks and only reap the rewards much later. Hence, Maziv’s desire to enter into such a large debt transaction to expand its network in unserved areas.

Maziv’s willingness to consistently expand its fibre network stands in stark contrast to Telkom-owned Openserve, which has let its lead in the fibre-to-the-home (FTTH) market slip. 

In its latest results, Telkom said it is not concerned that its competitors are increasing their capital expenditure for fibre as the company is focused on investing where it can monetise its services rather than simply investing wherever it can.

Telkom cut capex in all its segments except for digital platforms and innovation, which grew by 29.6%.

Notably, Telkom’s fibre capex was cut by 12.5% to R846 million.

This sizeable cut comes amidst many of Telkom’s competitors in the fibre market increasing their capital investments to connect more homes to their fibre networks.

Apart from the latest fibre cut, it is also striking that Telkom’s fibre capex has fluctuated significantly over the past decade.

In 2017 and 2022, the company’s investment in fibre skyrocketed but dwindled in the years in between, as shown in the graph below.

Telkom CEO Serame Taukobong said the company’s strategy with its fibre business is “earning the capex they spend”.

He said the company’s FTTH connectivity rate of 46.8% is driven by the principle, “we build where we can connect”.

For example, he said Telkom’s capex spend is considered ‘smart capex’, meaning it is deployed where there is higher roaming traffic.

“We will continue to focus on expanding our FTTH footprint while simultaneously connecting premises to ensure we maintain a high connectivity rate,” Taukobong said.

Telkom CFO Dirk Reyneke said the company is “not playing the land-grab” like its peers and simply building wherever it can.

He said the company has been investing in fibre capex for the past 30 years while its competitors are “playing catch-up”, and Telkom can, therefore, not be compared to its competitors on a like-for-like basis.

However, Telkom’s dominance in South Africa’s FTTH market has slipped over the past few years due to strategic missteps. This has allowed its competitor, Vumatel, to emerge as the premier fibre-to-the-home provider. 

Telkom initially had a monopoly in the fixed-line broadband sector for many years. However, it faced a challenge from Vumatel in 2014. 

Although Telkom’s Openserve initially surpassed Vumatel in homes covered, cutbacks in fibre rollout from 2018 to 2019 allowed Vumatel to take the lead.

Telkom attempted to catch up in 2022 by doubling its fibre capex but cut back again in 2023. 

Therefore, despite Telkom maintaining a high connectivity rate, the company lost ground to Vumatel. 

Vumatel, owned by Remgro’s CIVH, experienced significant growth over the past few years, passing 2 million homes and connecting well over 600,000 – higher than Telkom’s numbers. 

Maziv, the holding company for Vumatel and DFA, is continuing its network expansion, reducing connection costs, and targeting less affluent areas, while Telkom is cutting back on its investment in fibre.

Despite Telkom’s efforts to recover, Vumatel’s aggressive network rollout and investment have allowed it to establish small fibre monopolies across South Africa.