At Telkom’s recent annual results presentation, CEO Sipho Maseko revealed an astonishing fact. He said there are now at least 25 companies building fibre-to-the-home (FTTH) broadband infrastructure in South Africa.
That the interest in FTTH, which delivers Internet access speeds of up to a blistering 1Gbit/s, has exploded in the past year is not in dispute. After all, fibre is an easy sell: it delivers speeds up to 250 times faster than a typical copper ADSL connection. Fibre is the future of the fixed-line network.
But the rate at which consumers are turning to alternatives to Telkom to build these high-speed last mile networks is remarkable. Until a year ago, the operator’s absolute dominance over the “last mile” into homes and businesses seemed set to last for years to come. No more. Telkom’s core business has suddenly become threatened.
Hardly a week goes by now without another community or neighbourhood announcing it is going ahead with plans to deploy FTTH infrastructure. And more often that not, these contracts are not going to Telkom, but to small telecoms businesses with names such as Link Africa and Vumatel.
From Sea Point in Cape Town to Blairgowrie in Johannesburg and the Upper Highway area (Kloof, Hillcrest) in Durban, residents are banding together to get developed-world broadband into their neighbourhoods. Speak to them, and more often than not, the view is they’d rather have an untested start-up than Telkom delivering the work for them.
The speed at which these start-ups are emerging must be rattling cages at Telkom. For the first time, the lumbering incumbent, which once held an absolute monopoly over fixed lines, is having to compete for consumers’ attention with a range of nimble start-ups that promise superb broadband at decent prices, and often on an “open access” basis — meaning that consumers are free to pick and choose Internet service providers and service providers are able to get direct access to the infrastructure.
Sure, much of the FTTH activity is currently centred on the most well-to-do suburbs in South Africa’s big cities. But in some areas, like Johannesburg, it’s started radiating out to other areas.
The challenge for Telkom is that the new guys are cherry-picking its most profitable suburbs. In a few short years, it could have lost many of its best residential clients.
But the problems run even deeper than that.
Vodacom and MTN are both planning to get into the FTTH market in a big way. Vodacom says its proposed acquisition of Neotel — which is still subject to approval by the competition authorities — will give it the platform it needs to become a meaningful national competitor in residential fibre.
Until recently, Telkom pretty much ignored FTTH, focusing instead on sweating its investment in copper, deploying a speedier technology called VDSL. But relatively few customers have access to VDSL, with many still on 4Mbit/s or slower ADSL connections.
Telkom could have been far ahead of the game by now if it hadn’t wasted the R10bn-plus it did on an ill-fated adventure in Nigeria and then attempting and failing to take on MultiChoice in pay television. Imagine the unassailable position it would be in today if it had invested those billions in building fibre access into homes across South Africa.
Now it’s having to tackle more than two dozen start-ups — with Vodacom and MTN looming on the horizon — while embarking on the biggest restructuring in its history. As many as 7 800 jobs are affected by the latest shake-up.
The restructuring is necessary – by most metrics, Telkom remains overstaffed as a fixed-line operator, despite cutting its workforce by 45 000 since 1994.
Management’s strategy of “deep functional separation”, particularly of its wholesale services business, makes sense – at least on paper. It should change Telkom for the better. But the overhaul will require enormous internal focus by management at a time when its core business is threatened.
There’s still time for it to respond. Building fibre networks is a time-consuming and expensive process, and many city neighbourhoods will still be champing at the bit for access for years to come. But that Telkom’s core business of fixed lines is now threatened is no longer in doubt.
- Duncan McLeod is editor of TechCentral. Find him on Twitter
- This column is also published in the Sunday Times
