Meeting EC's big appetite for faster internet
Former East Londoner Rich Henn explains Herotel’s plans to provide a one-stop service throughout the region
Even before Covid-19 reached SA, internet connectivity was already a “hot” business, with many more South Africans going online both at home and at work. And the coronavirus has certainly had the effect of forcing more people either install or upgrade their internet access.
“Yes. The industry was hot leading into Covid already,” says Herotel chief commercial officer Rich Henn, when I ask him about the state of the telecommunications sector before and after the onset of the coronavirus.
“The fundamentals of people going online from their homes and businesses was increasing, and how we use internet for streaming movies was already a trend that was unstoppable.”
And after, was there a massive increase in demand for internet connectivity?
Resorting to more modest corporate-speak, he acknowledges there was an “uptick, definitely no downturn”, before firmly committing: “We definitely saw an increase in revenue, we traded very well.”
Apart from new fibre customers, the lockdown also resulted in existing customers increasing their bandwidth to account for increased internet activity for work and play — employees working from home, parents having to educate their children, families with more time to stream movies and series.
Stellenbosch-based Herotel was started in 2014 and is headed by executive chair Alan Knott-Craig. It was valued at R600m in a telecoms industry worth R194bn in 2019.
As Henn’s comments confirm, the sector has continued to grow despite the tough trading conditions faced by every other sector in the country. Technological innovation is driving massive change in the industry away from legacy subscriptions such as DSL internet towards mobile and fibre.
Its business model has been to buy up existing internet companies across the country and mainly in the platteland, where connectivity is not as easily available and it is making its presence felt in the Eastern Cape.
In East London, Herotel bought Border Internet in 2017 from Luke Phillips and Dean Wolmarans, who have remained in the business. Border had been in the wireless network game since 1997, and had just under 2,000 customers when Herotel came on board, with the base more than doubling to 5,000 customers today.
“We realised five years ago that if you live in Stutterheim or Queenstown, you were less likely to get any attention from major national players. Starting a national telecommunications company from scratch is a pretty difficult thing. We realised there’s another way of doing it — acquiring independent businesses all over the country,” says Henn.
The company acquired 40 businesses in five years at a total cost of R600m, including Border Internet, Lcom in Komani, Crowd Karoo in Cradock and Igen in Nelson Mandela, making it the biggest fixed wireless internet service in the country.
“Buying into Border was a substantial acquisition. We bought a wireless network with a customer base and then we plugged it into a greater business. That kind of capital and expertise wouldn’t have been available to Border Internet as a local standalone company. That’s the advantage we bring to the table.”
As has been the case with most of its acquisitions, the
original Border owner-operator remained heavily invested in the future of Herotel.
Today Herotel has about 100,000 customers around the country, including wireless and now fibre connections in 400 cities and towns.
“This is a serious growth industry and we plan to triple that size in a three- to five-year window,” says Henn.
Still, it regards itself as a small player in the massive SA telecommunications market and has no interest in competing against the huge mobile operators MTN and Vodacom, or Telkom.
It offers a direct access model — “we build our own network, and we maintain it and connect our own customers to that network ”— with Telkom as its only direct competitor in this telecoms segment, although Telkom outranks it almost 20fold in every market.
Telkom is by far the predominant player, and Henn estimates its market penetration in Buffalo City is between 8090%.
“We are definitely the second biggest in EL but we’re talking about a 5% market share and a 3% market share of somebody else ... which is why Telkom acts the way it does, it has a monopolistic position and the gap
is very large for anybody else to close.”
For a customer — whether a householder or a small business owner — the huge segmentation in internet services can be a nightmare to understand.
Some of the biggest companies and brands which are involved in internet connectivity only supply network infrastructure, including the fibre optic cabling which has been rolled out in major cities, and do not deal with customers.
“Why would somebody build a network and I have to work with somebody else to access it?” asks Henn.
“And when my internet is not working, this guy who handles the customer can’t really fix it because he doesn’t run the network. We don’t believe there is any place for a middleman. That’s what leads to price inflation,” he says.
“There was a time when the internet was a much more complex world, when there was a
time and a place for the middle man. We believe we build our own networks, we have our own offices in the towns in which we operate, we sell to our own customers, and we service them.”
In East London, Herotel has opted for an overhead cable network, claiming that it makes for cost-effective and quicker installation.
“We are starting to build fibre in big areas of town — Vincent and Beacon Bay — and we move our wireless network into the gaps to places like Kidds Beach which don’t have the density to [warrant] fibre.
“Internet should become a utility — we want as many people in SA to have access to the utility of internet — to get as much as they want, at a very low price.
“Because of our local presence, we believe we have a winning model. We build local at a much lower price than our competitors can and those
prices get passed on to our customers.
“In some places in Vincent and Gonubie, we’re probably 35% cheaper for the exact same product than the competitors, because we are local and we build locally; they send contractors in from elsewhere, contractors upon contractors and they put how fast they can grow ahead any other measurement.”
What about future growth? “I don’t see a hockey stick uptick. We were already on a helluva trajectory,” says Henn.
The business will not be focusing on how to get more customers signed up. Instead, the focus is on installing “more, higher quality networks, faster than we might have thought we needed to”.
“As soon as you try to do it more quickly, put more contractors in, costs balloon, quality goes down, you reduce the local community flavour. That’s what keeps us awake at night.”
Starting a national telecommunications company from scratch is a pretty difficult thing. We realised there’s another way of doing it — acquiring independent businesses all over the country