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    Home » Duncan McLeod » David vs Goliath in Parkhurst fibre battle

    David vs Goliath in Parkhurst fibre battle

    By Duncan McLeod2 November 2014
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    Duncan-McLeod-180-profileThe leafy Johannesburg suburb of Parkhurst, one of the first in South Africa to get high-speed fibre-to-the-home broadband, now looks set to be the scene of a turf war between two competing fixed-line telecommunications providers. It’s a David vs Goliath battle that could also help decide which of two competing operating models for delivering home fibre in South Africa is better.

    Stellenbosch-based start-up Vumatel identified Parkhurst as the first suburb for its fibre broadband network, offering blistering fast connections unheard of in South Africa until now.

    For the past few months, the company has been trenching through the streets of Parkhurst and this week connected up the first homes at speeds of up to 1Gbit/s. That’s 100 times faster than the fastest copper-based ADSL broadband available from Telkom. Vumatel plans to have the entire suburb — 2 200 homes, plus businesses — wired up by February and has now identified a further 50 suburbs where it intends duplicating the Parkhurst model.

    But Telkom, which announced earlier this year that it would deploy home fibre broadband to 22 suburbs in well-heeled parts of Johannesburg, Pretoria, Cape Town and Durban before the end of the year, in the past week began begun laying its own fibre in Parkhurst, effectively duplicating Vumatel’s efforts. A turf war between David (Vumatel) and Goliath (Telkom) now looks inevitable.

    But does this duplication make sense? Ryan Hawthorne, the technical adviser to the Parkhurst residents’ association, welcomes it. He says it’s the sort of competition in fixed lines that consumers have dreamt of for years.

    However, Vumatel CEO Niel Schoeman says South Africa can ill afford infrastructure duplication. He says it could destroy the financial feasibility of fibre projects, where the return on capital is already very long. Instead of Telkom’s wholesale arm duplicating Vumatel’s network, its retail arm should be leasing access from Vumatel to provide services to Parkhurst residents, he says.

    Schoeman warns that duplication of infrastructure is hard to justify in a market like South Africa where homes are relatively far apart. “In South Africa, there are long distances between customers. If you really want to make the business case work, you have to share infrastructure. If another player comes into Parkhurst, they will double expenditure and halve the market, making it unfeasible.”

    But for telecoms operators like Telkom, willingly giving up control of the infrastructure — historically their bread and butter — could prove to be a step too far. One has to ask why the company chose Parkhurst as one of its first 22 suburbs to target with fibre broadband after it was already aware of Vumatel’s plans to deploy infrastructure there. The idea of a fixed-line infrastructure rival, even if it’s a small start-up, must displease a company that’s historically had an absolute monopoly.

    In theory, infrastructure competition should help bring down prices for consumers, but in the fibre market, where upfront capital costs are high and short-term returns unlikely, it may make sense to consider a different model.

    Fibre-optic-640

    Unlike the model favoured by entrenched telecoms operators like Telkom, MTN and Vodacom — all of which, by the way, have big plans to deploy home fibre networks across South Africa — Vumatel is providing its network using what’s called the “open-access model”.

    Unlike the incumbents, which favour a model of “vertical integration” — they like to provide the infrastructure as well as many if not all of the services on top of it — Vumatel believes the better approach is to provide only the infrastructure. Internet service providers then lease access to the network on a wholesale basis to provide Internet access and other services to retail consumers.

    Vumatel’s Schoeman and many other players in the fibre industry, including metropolitan and national long-haul operators Dark Fibre Africa and FibreCo, argue that open access is the best model for building this next-generation infrastructure. MTN and Vodacom take the opposing view, while Telkom, intriguingly, has vacillated on the issue in recent months and may even join the open-access camp. If it does, it will signal a significant change in approach.

    In the meantime, Parkhurst looks set to be a fascinating battleground.

    • Duncan McLeod is editor of TechCentral. Find him on Twitter
    • This column was first published in the Sunday Times


    Dark Fibre Africa Duncan McLeod FibreCo MTN Niel Schoeman Telkom Vodacom Vumatel
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