Telkom's plan to take on Vumatel's R89 township fibre - TechCentral

Telkom’s plan to take on Vumatel’s R89 township fibre

Openserve CEO Alphonzo Samuels

In a move that has stunned the market, fibre-to-the-home operator Vumatel will begin a pilot before the end of the year to offer uncapped 100Mbit/s fibre connectivity to residents of Alexandra in Johannesburg.

The connectivity itself is not ground-breaking; rather it is Vumatel’s price for the service of just R89/month. If the Alex pilot is a commercial success, and Vumatel CEO Niel Schoeman told TechCentral that he believes it will be, it has an ambitious plan to connect millions more in underserviced areas inside the next two years.

This is the first move by a connectivity provider to specifically target township markets with an offering at a price point (and model) that is exceptionally compelling.

Alphonzo Samuels, CEO of Telkom’s wholesale business Openserve, contends that the operator has “been in townships for a long time”. Samuels argues that it has both fixed-wireless access coverage and fixed-line coverage in Alexandra, but that it hasn’t seen the uptake. It must be noted that Telkom’s entry-level (4Mbit/s) uncapped service costs R599/month.

Selling uncapped, high-speed Internet access at under R100/month could upend the broader market (and create an entirely new one). In an interview on the sidelines of Telkom’s Satnac conference earlier this month, Samuels admitted frankly that he is “really struggling to see the business model”. While referring to “international benchmarks”, he conceded that this pricing had simply not been seen before.

“Remember, they’re calling it a pilot,” said Samuels. “If you look at the contention ratio, it’s not exactly what they’re offering to other customers.”

Aerial fibre

Vumatel will apply a contention ratio of 20:1, which means that as many as 20 customers will use the same 100Mbit/s of capacity. This means that, in the worst case, with all 20 placing high demands on their connections, customers will experience speeds of around 5Mbit/s. The contention ratio, as well as the fact that it is deploying aerial (not trenched) fibre, is what has helped Vumatel achieve the aggressive pricing it has.

Importantly, this pilot (and any future roll-out) is not being subsidised by its customers in the suburbs in any way. Schoeman told TechCentral: “This is a fundable model… Without giving away too much of our business model, we have a little bit of magic that will make the economics work.”

Vumatel CEO Niel Schoeman

One hurdle facing Vumatel, or anyone else who attempts to copy this model, is that the fibre installation process is not quite as straightforward as a landline (a few strands of copper). Another is that there are unique infrastructure challenges in informal areas.

It is here that Openserve believes it can compete.

Samuels argues that a more appropriate model for a township would be to get the fibre backbone connectivity in place and then layer a Wi-Fi offering on top of that.

“I don’t see that market doing 4K streaming, for example”. Rather, there is demand for “social media, WhatsApp calling, a little bit of video calling”, said Samuels.

He confirmed that this is the model being explored by Openserve, with the aim to “run a pilot in one or two townships. We’re completing the modelling and the idea would be to start developing community-based Internet service providers to be able to offer those kinds of services.”

These ISPs will be the key for Openserve as Telkom is not “wired” to sell these kinds of services and deal with customers outside of formal channels. Samuels would not be drawn on the timing for its pilot, although Vumatel’s announcement has surely accelerated Openserve’s plans.

The market will certainly be watching Vumatel’s roll-out and consumer uptake in Alexandra very carefully into next year. If it looks anything close to successful, one can be guaranteed there will be a number of copycats who will “figure out” the model.

  • Hilton Tarrant works at immedia
  • This article was first published on Moneyweb and is used here with permission

6 Comments

  1. too little too late Telkom you’ve been in townships and have offered absolutely nothing but that R150pm line rental and ripped off consumers for far far too long. Viva VumaTEL

  2. Greg Mahlknecht on

    >Vumatel will apply a contention ratio of 20:1

    That’s a standard contention ratio for consumer best-effort services, which is what Telkom’s ADSL/FTTH are. I’m not sure why Samuels would bring this up, apart from being FUD.

    What I get from this article is that Telkom have no idea how to respond to this, and doesn’t appear that they have any ideas what to do yet. Their wifi model isn’t going to fly, it simply doesn’t scale for broadband services in high density areas, which is exactly what the township s are. But it’s the only thing that Telkom can get out as a response in the short term, so I would guess they’d shove it out there and try sell it, however crap it is.

  3. I honestly think that Vumatel would better serve customers in the townships by blanketing the area with Wifi a la AlwaysOn, and allowing up to say 4 devices to connect for a monthly subscription. In that way, there is less for criminals to steal/damage, and the infrastructure offering the WiFi can be locked up appropriately.
    The end result is that the customer in low cost housing doesn’t have to buy and power an expensive WiFi router themselves, but still gets the same contended service that they would have got, for the same price.

  4. Ofentse Letsholo on

    We don’t want Wi-Fi hotspots but we want internet in our homes on a reliable connection. Telkom can go to hell.

  5. Greg Mahlknecht on

    The sad thing in all of this, is that Telkom has 2mil+ lines without ADSL. But their ADSL prices are too high, so the customers dont’ take up data services. Telkom could score a quick win with R89 1-2mbit uncapped ADSL – they did something similar in India and it worked REALLY well. But this is Telkom – the chances of them doing something forward-thinking and consumer friendly is pretty much zero.

  6. Ofentse Letsholo on

    Yeah I agree with you, it’s unfortunate they don’t see a market where there is a market. If things will be like this it means we won’t reach the “internet for all by 2020”.

    They should also go to communities and check which ones have interest in getting fibre at home and also do the same thing Vumatel did, knocking on every door if they have to. They don’t have to go to places they don’t believe in but they will be shocked when they see Vumatel succeeding. This could be a missed opportunity on their side. It won’t be easy but it is possible.