Spectacular growth on a high-fibre diet

How Vumatel’s risky Parkhurst project turned to gold while Telkom’s copper quietly rusted

Community Investment Ventures Holdings. The name doesn’t exactly roll off the tongue, does it? And it’ sa company few South Africans have heard of.

Yet CIVH, now part of Remgro the Johann Rupertchaired firm has amassed a 57% stake worth R15bn — has quietly become a powerhouse in SA telecommunications, one that’s now valued at more than Telkom.

One of the amazing things about the CIVH story is just how new the business is.

Its subsidiary, Dark Fibre Africa (DFA), which owns and operates a national and metropolitan fibre network, is just 15 years old. It got its start providing fibre to base stations for Vodacom and other mobile operators and today offers wholesale and business-to-business fibre services across SA. Fibre-to-thehome player Vumatel, CIVH’s other big subsidiary, is even younger. It got its start in 2014 when two risk-taking entrepreneurs, Niel Schoeman and Johan Pretorius, decided to wire up the Joburg suburb of Parkhurst with fibre.

The Parkhurst community, which had long suffered from slow speeds due an unreliable copper ADSL network provided by an indifferent Telkom, decided to seek a supplier to help it build an ultra-fast alternative into residents’ homes. Schoeman and Pretorius rallied to the call and Vumatel was born.

The rest, as they say, is history.

The market was ripe for the taking: none of SA’s big telecoms operators Telkom among them had invested in fibre to the home. The mobile players had grown fat and complacent on high margins, and Telkom didn’t have the incentive to disrupt its legacy copper network, despite customer dissatisfaction over slow speeds and high prices.

Telkom had long argued that the economics for home fibre didn’t make sense; South Africans lived so far apart from one another (we’re known for our urban sprawl) that it would have been unaffordable. (In hindsight, perhaps what Telkom was really hinting at was that its margins would take a big hit. Either that, or its modelling was simply wrong.)

Still, taking on these telecoms giants, with billions on their balance sheets, was seen as incredibly risky at the time even for go-getters like Schoeman

and Pretorius. Vumatel was a plucky upstart, scraping together capital and expanding as quickly as its small but fastgrowing team could manage from Parkhurst into adjoining suburbs, and then further afield

in a race to build scale before the giants woke from their slumber.

South Africans, hungry for real broadband, signed up in droves. Soon, Vumatel (and its many subcontractors) were everywhere, digging up streets and pavements. Dozens of start-ups followed in its wake, some more successful than others.

Perhaps the biggest surprise in all this investment activity was just how long it took Telkom to respond. A lumbering corporate behemoth, it watched as Vumatel took away its ADSL customers literally street by street. It was several years before it responded aggressively. By then, it had ceded a significant chunk of the market. It had been asleep at the wheel.

A lot has happened since Vuma’s early days in Parkhurst

indeed, there’s a riveting business book waiting to be written.

But fast-forward to today, and CIVH is valued at R26.5bn by Remgro (as at December 31 2021, using a cash flow valuation based on management’s 10-year forecast). And Vodacom, SA’s biggest telecoms

operator by revenue, is now buying a 30% co-controlling interest in FibreCo, the newly created parent of Vumatel and DFA, investing alongside Remgro and Khudu Pitje ’ s New GX Capital.

The deal, which must still be approved by the Competition Commission, will see Vodacom pump R6bn into FibreCo and contribute fibre assets of its own worth a further R4.2bn. Vodacom has the option to increase its stake to 40% within six months of the deal’s conclusion using a pre-agreed formula (likely about R3bn more).

Some industry players have expressed concern about Vodacom’s involvement and the impact on competition, particularly internet service providers (ISPs) that use Vumatel’s infrastructure to provide broadband to consumers.

But Vodacom has committed itself to the DFA and Vumatel model of “open access”, meaning the telecoms giant won’t be able to create a vertically integrated operator as it has in its mobile business. This should mean competition between ISPs will continue to thrive and prices to fall. Vodacom has even said the fibre it’s contributing to the pool will be made available on an open-access basis.

Remgro, New GX Capital and Vodacom have big plans to grow FibreCo, whose CEO, Dietlof Mare, told investors at a recent Remgro capital markets day that Vumatel wants to wire up townships with ultra-lowcost uncapped fibre. It even has eyes on smaller towns, helped by its recent acquisition of a large stake in Herotel, a fibre and wireless ISP.

CIVH is undoubtedly one of the biggest business success stories in recent SA history. And there are clearly many more chapters still to be written.