Residential Customers benefit from robust fixed and wireless broadband coverage expansion

BMIT’s latest SA Broadband Report highlights the escalating tussle for customers between fibre and 5G fixed wireless access providers, as key players in both technologies invest in coverage expansion.

According to BMIT’s Managing Director, Chris Geerdts, investment in residential fibre in recent years has been unprecedented, although a few large players did take a breather in 2023.

Meanwhile 5G rollouts continue to challenge fibre for new customers, after investment was partially diverted into mitigating the severe impacts of loadshedding, battery theft and vandalism.

Mobile operators are also adding coverage and capacity to their LTE networks, with fixed-LTE still by far the leading broadband medium in South Africa – by coverage and by subscriber numbers.

Telkom, for its part, has periodically alternated between prioritising fibre and mobile network investments, but is now investing in both, and tailoring its 5G/LTE/fibre mix to the data needs of each suburb. It is selling its tower assets to fund the updated strategy.

Customers are the ultimate beneficiaries of these investments, with the combined growth in active broadband connections projected by BMIT to grow at a CAGR of 9.1% between 2022 and 2027.

Fibre to the Home

A good portion of those connections will come from fibre, as shown below in BMIT’s baseline forecast scenario, which projects active connections reaching just under 3 million by 2027.

As the chart shows, houses passed in that timeframe will reach 7 million, in the context of an ongoing fibre ‘land grab’, which has extended for more than a decade, and has now expanded to several fronts.

The competitive intensity in the most lucrative suburbs has resulted in overbuild – where operators deploy fibre in streets which another operator has already passed. As the above chart shows an estimated 25% of homes are already overbuilt.

However, the most significant growth in the last few years has been in the next tier of metro suburbs and secondary cities and many towns, although last year saw a slow down by a few key players, albeit temporary.

BMIT forecasts ongoing deployment of access fibre in both the residential and business market, but now far more focused in the lower-ARPU market cohorts. This will require investors to show confidence in the emerging new business models tailored for the ‘township economy’, incorporating innovative go-to-market models along with lower-cost network deployment techniques.

These are either prepaid or pay-as-you-go services, with price points as low as R5 per day or R100 per month. Examples are prepaid models from new entrants such as fibertime in Stellenbosch, Zing Fibre in Umlazi and Ilitha in Mdantsane, along with challenges from mainstream fibre operators such as Vuma with its ‘Key’ offering, Frogfoot with Rise, Openserve with Prepaid Connect, amongst others.

The projects are currently characterised as ‘pilot projects’, although fibertime has already commenced with expansion to other areas in Cape Town, stating that its proof of concept project in Kayamandi, Stellenbosch, has been successful and the business case is now proven.

5G and LTE

Geerdts notes that 5G rollouts are continuing to challenge fibre for new customers, particularly in areas where fibre has yet to be deployed. The pace of rollout has been negatively impacted by loadshedding, as mobile operators were forced to divert funds to boost battery capacity at sites, as well as to protect these sites from battery theft and vandalism, but operators are now once again focusing on accelerating 5G expansion. Overall 5G population coverage passed 30% in South Africa last year, with the main focus being to provide fixed-wireless services in urban areas. Rain still has the highest coverage and is expanding as funds allow.

Meanwhile, mobile operators are also adding coverage and capacity to their LTE networks, with fixed-LTE still by far the leading broadband medium in South Africa – both in terms of network coverage and actual subscriber numbers. The LTE market is mature and operators are still in the process of maximising their deployment of the spectrum they acquired in 2022. They are also paving the way for the ‘sunsetting’ of their 2G and 3G networks, although BMIT anticipates 2G services will remain available in some form for years to come.

Telkom has historically alternated between the years when it prioritised fibre networks and those when mobile network investments were favoured. The strategy is now more integrated in terms of investments and area selection. Investments were made in both networks recently, with subscriber numbers growing accordingly. Telkom has reported it is concluding the sale of its tower assets and this sale will unlock funds for both fibre and mobile broadband.

Prices and ARPUs

BMIT believes that fixed-4G/5G adoption will likely be sustained by aggressively-priced uncapped and quasi-uncapped offerings, supported by the ever-reducing cost of 5G devices.  Most offerings (rain being a notable exception) are currently either capped or otherwise restricted and have a Fair Usage Policy (FUP), but the larger-cap options are generous enough to meet the consumption habits of many households. The technical advantages of 5G will enable more competitive offerings going forward and fixed-wireless broadband remains the dominant use case for 5G, both in South Africa and the world.

However, while high levels of competition are expected to continue among ISPs within each access category, along with competition between various access media types, price increases are becoming increasingly common, following years of ARPU attrition. This trend can be expected to continue in the future, driven by underlying inflationary cost pressure experienced by service providers.

Similarly, in the B2B segment, while high growth in Business Broadband Fibre connections has led to massive reductions in blended ARPUs over the past five years, players interviewed by BMIT have expressed the belief that this big ‘category shift’ has now largely worked itself out and prices may start to stabilise or increase in line with rising input costs. Cost-related increases were strongly evidenced during the significantly heightened levels of load shedding that took place 2022-2023.

Temporary promotional offers are likely to become more common as fibre and wireless offerings vie for market share, while ultimately migrating the customer to a higher-priced offering.

Home broadband price points across access media types (fibre, fixed wireless and fixed LTE) aimed at the important R300-400 and R400-500 affordability levels are now generally rolled out, targeting customers in these brackets with uncapped services, while in most cases differentiating the services from standard or premium services. Most of the fibre products in this category are geography-specific.

Low-earth-orbit (LEO) Satellites

LEO satellite services are in focus now and regarded as potentially disruptive to the market. OneWeb services are available in South Africa via BCX and QKon, but priced for the business market. Starlink has around 2.3 million subscribers globally, but is not yet licensed to operate in South Africa. BMIT’s view is that the equipment and services are currently too expensive to suggest there will be mass uptake in the near future.

On the other hand, BMIT is watching the direct-to-handset market closely, where subscribers can access satellite via their current LTE/5G handsets and on their existing mobile subscriptions. Geerdts expects South African operators to begin trialling this in 2024, although initially with text-based services only. He sees this as a potential game changer as the country will then have 100% outdoor coverage and service downtime will be reduced.