Seizing an opportunity

Property company enters the network infrastructure market, giving it a great source of annuity income from its estates

Jse-listed real estate developer Balwin Properties has set up a new telecoms arm to take on network infrastructure providers at their own game.

Balwin Properties, which operates a build-to-sell model, plans to finish building 36,000 sectionaltitle apartments in 24 locations in the next few years.

But its plans put it in direct competition with companies such as Vumatel, Telkom’s Openserve, Vodacom, or Liquid Telecoms’ Neotel.

To protect the company from an economic downturn or a cooling property market, CEO Steve Brookes made the decision earlier this year to create an annuity income business that generates consistent revenue streams from the company’s estates.

The main profit-driver of the division will be Balwin Fibre, which was granted a licence from the Independent Communications Authority of SA

(Icasa) several months ago that allows it to deploy and operate physical networks in its estates.

That means Balwin will have a captive market for its fibre offering. It will run open-access networks, meaning that residents will be able to choose their own Internet service provider (ISP).

Essentially, the company is moving in-house a function that would otherwise have been left to fibre companies.

Balwin is among the first to trial this model. Its status as a listed company means the public will get greater insight into the rollout and profitability projections than they’d typically get for Balwin’s rivals. In Waterfall City in Gauteng, an open-access network has been operating for some time.

Network operators in new estates have an advantage in that fibre is far easier to install during the property development stage, rather than arriving later and having to dig up pavements where streets have already been built.

Assuming a healthy take-up rate, Balwin expects to connect 30,000 homes to its network within the next few years, says Balwin Fibre MD Andre Pillay. While that pales in comparison to the speed at which others are investing in fibre — Vodacom added 39,000 homes and businesses to its fibre network in the six months to October — it will be a fillip for Balwin’s bottom line.

The annuity income business could contribute to 10% of Balwin’s group profits within the next five years, Pillay says.

He says fibre will account for the bulk of that. The fibre business will have low overheads and healthy margins.

Other annuity revenues will come from leasing solar-energy systems, schools and storage facilities. Balwin has partnered with a schools operator group and will develop schools either within or close to its estates.

Pillay says Balwin’s Malakite complex in eastern Johannesburg has already gone live with its fibre network, while three other estates should have fibre installed by February.

But while Balwin should become a significant network