Openaccess model takes root
For years telecommunication providers lobbied government to transform Telkom’s ADSL infrastructure monopoly into a wholesale open-access network, which was a model touted as the panacea to SA’s broadband constraints. Unfortunately local loop unbundling failed to materialise.
Now, the boom in fibre to the home (FTTH) is leapfrogging copper, with the open-access model adopted by most FTTH players, effectively rendering ADSL obsolete.
“The open-access value proposition, where private infrastructure providers invest in and build fibre optic networks, then lease capacity to internet service providers on a nondiscriminatory wholesale basis, is resonating with a market hungry for high-speed, competitively priced broadband,” says Abraham van der Merwe, co-founder and MD at Frogfoot Networks.
“While there are numerous vertically-integrated providers, duplication of effort and a lack of choice makes them more expensive and less appealing to consumers.”
This is evidenced by consumer uptake of openaccess FTTH, which also means there’s no shortage of private sector funding to continue expansion into high-density urban areas. And securing this wide footprint is critical to success, says Van der Merwe, as is penetration rate, which is the primary factor determining the viability and success of a fibre infrastructure project. “A 50% penetration rate is needed to ensure viability.”
Given the lack of choice offered to consumers from vertically-integrated providers, Van der Merwe suggests it can be hard to convince one in two households, outside of exclusivity agreements with gated estates, to sign up for a service that potentially locks in users to fair usage policies, limits access to content and cannot compete on price.
“The other important factor is average revenue per user. At prevailing wholesale rates, the current model is sustainable. Lastly, effectively managing the build process and costs — a factor of trenching, trunking and reinstatement — ensures costs can be recouped quicker and leasing becomes profitable.
“Importantly, the openaccess model makes commercial sense because it offers choice. This creates a competitive market and a sustainable long-term business environment is created.”