BMIT, Wholesale Telecoms Services Market Revenue Overview (Rm)

BMIT’s latest SA Wholesale Telecoms Report projects healthy growth in South Africa’s fibre industry over the next 5 years, building on an amazing success story going back a decade.
As the chart below shows, the wholesale fixed access market will grow a solid 9.1% CAGR to 2027, and will soon be overtaking mobile facilities in revenue.This wholesale fixed access revenue derives mainly from the fibre network operators, or FNOs, who have transformed the urban broadband access market in just ten years.

Chris Geerdts, Managing Director of BMIT, says this growth is a tribute to the South African levels of entrepreneurship in the face of substantial headwinds. He says the industry was also wise to adopt an open-access model, which has proven itself in many other countries across the world. This model allows the FNOs to focus on rolling out infrastructure, whilst the internet service providers (ISPs) focus on sales and customer support services.

Whilst fibre deployment has been nothing short of a ‘land-grab’ since 2014, BMIT has noted accelerated growth in the past two years, driven by renewed investment in the rollout of access fibre in the residential segment (FTTH), including rapid deployment in 2nd-tier cohorts and selected middle- to lower-income, high-density urban areas.

Geerdts says that much of the next wave of FTTH coverage growth is expected to come from rollout projects in 3rd-tier cohorts by both new and existing players. These projects are largely still in pilot mode, in which new, innovative, business models are being tested. The projected growth therefore depends on how feasible these projects prove to be, as that obviously impacts investor confidence. Obviously, operators connecting lower-income areas need to connect higher numbers of houses to maintain their revenue growth.

Mobile Wholesale
Mobile wholesale is currently still South Africa’s largest wholesale telecoms market, worth R15,4 billion per annum. However, BMIT expects slower growth than for fixed access (viz. 4.7% CAGR, to 2027). Whilst the fibre market was open access from the start, the mobile market is opening slowly.

Much of the revenue in this market derived from active network sharing between operators when Vodacom and MTN could not get access to LTE spectrum for over 10 years and so entered into wholesale agreements with smaller mobile operators to supplement network capacity. Following the 2022 spectrum auction, these large operators are investing in their own networks. Therefore growth in the active network-sharing market will come more from the capacity that smaller operators lease from MTN and Vodacom. 5G may also catalyse new sharing agreements in time.

Mobile operators around the world are selling off their mobile tower assets to mobile tower companies for various reasons, including unlocking cash to invest in network expansion and reducing costs. Mobile tower companies generally operate on an open-access basis, which results in better utilisation of their sites as they seek to attract multiple customers to share each tower.

An added requirement in South Africa is that mobile towers need to provide extended power backup due to load shedding, whilst vandalism and battery theft at sites continue to plague the industry, and investors are showing greater interest in sustainable energy sources.

Telkom was the first operator to separate its tower assets and is actively seeking investors into that entity. Last year, the passive infrastructure market was dominated by MTN’s tower carve-out with IHS (completed in June 2022), which includes provision for IHS provides power-as-a-service to MTN. Meanwhile, Vodacom has formed a subsidiary tower, to own and operate its towers, as the largest tower company within the country.

As operators increase their LTE capacity and roll out 5G, the demand for mast space and for new sites continues to increase, whilst the orderly shutdown of legacy (2G and 3G) services will allow the removal of older, less efficient equipment. Each site requires backhaul transmission, which is ideally provided by fibre, where feasible, to support the gigabit data speeds needed for LTE and 5G sites.

Government’s focus of legislation and regulation recently has been on opening the mobile market to greater competition, particularly at the wholesale level. The draft Electronic Communications Amendment Bill (ECAB) has been published for public response and includes a range of proposed updates, including the introduction of a new licence category for providing facilities services. There are also specific measures to promote the mobile virtual network operator (MVNO) industry.

This MVNO industry represents a smaller component of mobile wholesale overall, but BMIT sees significant potential for growth. Whilst new entrants such as Melon Mobile aim to offer innovative new services, most of the large retailers (such as Shoprite) and the banks (including FNB, Standard Bank and Capitec) see the potential to offer convergent (mobile and financial) services.

Transmission
The recent landing of three high-capacity cables in South Africa (Equiano, 2Africa and PEACE) will bring substantial capacity to South Africa, whilst offering great choice to the local market and improving resilience through route diversity. In some cases, better latency can be expected. The national routes between cities are now all served by multiple operators with dark fibre, leading to a robust wholesale market, with greatly increased capacity and reduced pricing, whilst the push by FNOs to smaller towns has extended demand beyond the cities.
BMIT expects this market to grow to just over R9 billion by 2027.

Telco Colocation and Hubbing
Teraco pioneered the carrier-neutral model in data centres in 2008, and soon became the dominant player in the wholesale market, further assuring their popularity in 2012, by providing free peering between customers. This move has both entrenched Teraco’s market position and become a catalyst for new service development, because businesses can create secure, fast and reliable connections to their customers, service providers and partners via peering, at relatively low cost. ZA-INX continues to grow as a multi-site, neutral peering alternative.

New players in the past 24 months include Vantage Data Centres – with Oracle also expanding capacity. WIOCC’s business, Open Access Data Centres (OADC), is focusing on providing edge data centre facilities interconnected with larger centres. NTT and Liquid (LIT) also making significant plays in both SA and across Africa.
BMIT sees this market growing at 2.8% CAGR to 2027.

Overall, FTTH has been, and will continue to be the key contributor to South Africa’s wholesale telecoms market. This market has been open access from the start, whilst Teraco introduced the carrier-neutral model as the catalyst for growth in the data centre market. The mobile facilities market is gradually opening to new players and greater competition, with government seeking to open this market further.
Geerdts expects the combined wholesale market to grow at 6.1% (CAGR) to reach R52bn in 2027.