Fibre roll-out leaves Telkom far behind

AT Telkom’s recent annual results presentation, CEO Sipho Maseko revealed an astonishing fact: there are now at least 25 companies building fibre-to-the-home broadband infrastructure in South Africa.

That the interest in “FTTH”, which delivers internet access speeds of up to 1 gigabit per second, has exploded in the past year is not in dispute. After all, fibre optics is an easy sell: it delivers speeds up to 250 times faster than a typical copper ADSL connection. Fibre is the future of the fixed-line network.

But the rate at which consumers are turning to alternatives to Telkom to build these networks is remarkable. Until a year ago, the operator’s absolute dominance over the “last mile” into homes and businesses seemed set to last for years. No more. Telkom’s core business is suddenly threatened.

Hardly a week goes by without another neighbourhood announcing plans to deploy FTTH infrastructure. More often that not, the contracts are not going to Telkom but to small telecoms companies with names such as Link Africa and Vumatel.

From Sea Point in Cape Town to Blairgowrie in Johannesburg and the Upper Highway area (Kloof and Hillcrest) in Durban, residents are banding together to get developed-world broadband. Speak to them and, more often than not, the view is they’d rather have an untested start-up than Telkom delivering the work for them.

The speed at which these start-ups are emerging must be rattling cages at Telkom. For the first time, the lumbering incumbent, which once held an absolute monopoly over fixed lines, is having to compete for consumers’ attention with a range of nimble start-ups that promise superb broadband at decent prices, and often on an “open access” basis — meaning consumers are free to choose internet service providers, and service providers can get direct access to the infrastructure.

Sure, much of the FTTH activity is centred on the most well-to-do suburbs in big cities. But in some areas, such as Johannesburg, it has started radiating out to other areas.

The challenge for Telkom is that the new guys are cherrypicking its most profitable suburbs. In a few short years, it could have lost many of its best residential clients.

But the problems run even deeper. Vodacom and MTN are planning to get into the FTTH market in a big way. Vodacom says its proposed acquisition of Neotel — which is still subject to approval by the competition authorities — will give it the platform it needs to become a meaningful national competitor.

Until recently, Telkom pretty much ignored FTTH, focusing instead on sweating its investment in copper, deploying a speedier technology called VDSL. But relatively few customers have access to VDSL, with many still on 4 megabits per second or slower ADSL connections.

Telkom could have been far ahead of the game by now if it hadn’t wasted R10-billion-plus on an ill-fated adventure in Nigeria, and then tried — and failed — to take on Multi-Choice in pay-TV.

Imagine the unassailable position it would be in today if it had invested those billions in building fibre access to homes across South Africa.

Now it’s having to tackle more than two dozen start-ups — with Vodacom and MTN looming on the horizon — while embarking on the biggest restructuring in its history. As many as 7 800 jobs are affected.

The restructuring is necessary — by most metrics, Telkom remains overstaffed as a fixedline operator, despite cutting its workforce by 45 000 since 1994.

Management’s strategy of “deep functional separation”, particularly of its wholesale services business, makes sense — at least on paper. It should change Telkom for the better. But the overhaul will require enormous internal focus by management at a time when its core business is threatened.

There’s still time for it to respond. Building fibre networks is a time-consuming and expensive process, and many city neighbourhoods will still be champing at the bit for access for years to come.

But that Telkom’s core business of fixed lines is now threatened is no longer in doubt.

McLeod edits TechCentral. co.za. Find him on Twitter @mcleodd