Investors in fibre telecommunications infrastructure should not expect the sort of returns that South Africa’s big operators have come to enjoy. Instead, they should be satisfied with the returns traditionally enjoyed by providers of utility infrastructure.
“There needs to be a utility type of return. It’s a different mindset,” Schoeman says. “[There must be] a utility mindset rather than a telco mindset on return on capital.”
Vumatel is a new player in South Africa’s fixed-line market. It is building a fibre-to-the-home (FTTH) network in the Johannesburg suburb of Parkhurst, with plans to expand this to as many as 50 more neighbourhoods in the medium term.
It is deploying its infrastructure on an open-access basis, allowing Internet service providers to offer solutions to consumers on top of its fibre rather than providing those services itself.
Schoeman warns that duplication of infrastructure for FTTH networks makes no sense, especially in a market like South Africa where homes are relatively far apart.
The big incumbents have a different view, Schoeman says, but a “sense of understanding” is developing that the duplication of home fibre networks is a bad idea.
“Common sense should prevail, but it’s not a commodity in our industry,” he says. “We [Vumatel] don’t pose a threat to the vertically integrated operators and we will benefit from their business and they will benefit from our infrastructure and it’s time they came to the party.”
Telkom, the fixed-line incumbent, is duplicating infrastructure in Parkhurst as part of its plan to roll out fibre to 22 areas by the end of the year.
“There should be a [separate] wholesale and retail company in Telkom, and in theory the retail arm should be providing their services over our infrastructure,” says Schoeman.
“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.”
He says fibre operators have to deploy infrastructure quickly to ensure a return on investment. “There’s huge overhead and it’s complex. We have to run as fast as we can. Speed is key to making that working capital as efficient as possible, otherwise it erodes your business case very quickly. You need to get critical mass quickly, before you run out of juice.” — (c) 2014 NewsCentral Media