Entries by Andre Wills

2021 South Africa 5G Market Outlook Report

This report, published in February 2021, presents an analysis of the mobile data market as background to the development of the 5G market. The state of the current 5G market is analysed. The expected 5G coverage and subscribers are forecast to 2025. Various 5G use cases are discussed.

Mobile Data Market
Currently five retail mobile operators compete in the SA mobile data market (Cell C, MTN, Rain, Telkom, Vodacom) along with a host of retail MVNOs. Rain is a data-only mobile network operator. 

Other than Rain, the balance of the mobile operators sell mobile data through their direct-to-market channel and a host of indirect channels. Rain only sells through a direct-to-market channel.

Mobile Operators

Overall, the mobile data growth was strongly helped by the demand for connectivity created by the 2020 COVID-19 hard lockdown and required distancing protocols. As a result, mobile data traffic annual growth delivered a three year high. The 2020 market numbers are:

  • Total mobile data traffic reached 2.6EB, showing annual growth of 73%.
  • Revenue earned from the retail mobile data market reached R58 billion, showing annual growth of 9.5%.
  • Overall, the mobile data traffic growth is growing at 4.8x the CAGR of retail mobile data revenue.

5G Market Status
South Africa is a leading adopter of new mobile generation technology. This is based on the dates of the 2G, 3G and 4G launches in South Africa against the dates for all networks launched in these generations across the globe. Typically, South Africa is among the early 10% of networks launched. The launch of 5G by Rain, in 2019, continues with this trend. In 2020, MTN and Vodacom launched 5G services. While the market is in an early growth phase, the 5G population coverage reached 4.4% with an estimated 90 thousand 5G subscribers.

5G Market Forecast
Following the conclusion of the upcoming spectrum auction, the market is expected to show strong growth. This will drive 5G subscribers to reach 11 million by 2025. Some of the key drivers are:

  • Spectrum: In terms of timing, the key driver will be the conclusion of the upcoming high-demand spectrum auction planned for March 2021. On conclusion of the auction, we expect to see rapid 5G coverage roll out. For example, MTN, at its 5G launch, stated that it will cover 10 million people within 12 months after being awarded the spectrum.
  • Low cost 5G smartphones: Another key driver will be the availability of 5G devices. Specifically, the range of low cost 5G smartphones as this will be a key driver of uptake. The number of announced 5G devices, from a global view, at December 2020 has already surpassed the equivalent number of 4G devices at three years after the introduction of 4G. This shows the strong support for 5G by device OEMs.
  • Prepaid: Introducing prepaid 5G products will enable the mobile operators to tap into the largest mobile market segment.
  • Network roaming: The licensing of the WOAN (Wireless Open Access Network Operator), the commercial national roaming agreements and the role of wholesale network operators will enable 5G coverage to grow rapidly.

Buy this critical report
Understanding the current mobile data market, the market drivers and the anticipated growth in 5G is critical to any stakeholder looking to understand the 5G market opportunities in South Africa. This 50 page report covers the following topics:

  • Summary
  • South African Mobile Data Market
  • High-Demand Spectrum Auction and WOAN Licensing
  • The Current 5G Market
  • The 5G Market Opportunity
  • 5G Use Cases
  • Acronyms / Glossary / Research Methodology

Please contact Dobek Pater (dobek@africaanalysis.co.za) to discuss the purchase of this critical report.

2019 South Africa M&A in the ICT Sector

Summary

2019 SA ICT Mergers and Acquisitions (M&A) deal flow was defined by the acquisition of Vumatel at an estimated R8 billion. The top three deals by deal value were about the sale of telecoms and data centre infrastructure. Six of the eight infrastructure deals involved fibre network operators being acquired.

2019 saw the end of the strong and aggressive M&A strategy used by Blue Label Telecoms, EOH and HeroTel. In 2019, Blue Label Telecoms and EOH sold assets to raise capital to offset long term debt, whereas HeroTel simply ran out of attractive assets to buy.

In 2020, the M&A deals will be defined by companies seeking to add strategic assets to their existing portfolio. Potential deal flow includes the sale of Cell C, the likely sale of the tower portfolios of either MTN or Vodacom or both, and the ongoing select acquisition of fibre network operators and retail service providers by their larger competitors.

2019 M&A Deal Count

Over the past three years, the number of reported ICT M&A deals has dropped from 41 (2017) to 35 (2019). Deal classification system:

  • Networks & Infrastructure category covers deals that involve the acquisition of companies who own network and/or infrastructure (e.g., data centres, fibre networks).
  • Customers & Channels category covers the acquisition of companies that have large customer bases or channels and distribution assets.
  • Capabilities & Skills category covers deals that typically involve IT Services.

This decline has resulted from the slowdown by companies which previously drove M&A activity.

  • From 2016 to 2018, HeroTel was a major driver of M&A through its aggressive acquisition of regional wireless internet service providers (WISPs). In 2019, HeroTel only concluded one transaction. The large decline in network deals resulted from HeroTel’s winding down of its acquisition spree.
  • After many years of driving M&A, EOH in 2018 began the process of selling subsidiaries and equity it held in companies. The selloff gained momentum in 2019.

Interestingly, six of the eight network infrastructure deals involved fibre network operators. There is no single large investor or network operator who has been buying up fibre network assets. Instead, the market has seen selective buying of fibre network assets.

The higher volume, but generally lower priced deals, involving the buying of IT companies, continued in 2019. The number of reported deals has risen from 18 in 2017 to 22 in 2019. It is rare to see IT deals that surpass R1 billion in deal value. Thus, the R1 billion price tag paid by Vodacom Group for its 51% equity in IoT.NXT stands out. It is difficult to unpack this deal’s valuation drivers but it does seem that Vodacom Group may have paid a premium for the equity. There is still some hype around IoT which may have influenced the price tag.

In terms of media deals, the purchase of media assets by Lebashe Investment Group from Tiso Blackstar Group for R800 million is another standout deal. There are very few media deals undertaken in South Africa. This is a reflection of the local media market concentration.

2019 Deals not Concluded

There were two deals that were not concluded: the sale of WebAfrica (an ISP) and Vox (a fibre network operator and a service provider).

The asking price for WebAfrica was not met and thus the sale was aborted. The reported asking price was R300 million while bidders submitted bids in the R170 to R220 million range.

A similar situation arose with Vox where it was reported that an equity sale was imminent, but no deal was concluded. Subsequently, a Vox shareholder, Investec, sold its shareholding to the existing shareholders and a new management shareholding scheme was put in place.

Towards the end of 2019, Telkom Group offered to buy Cell C, but the shareholders of Cell C rejected the Telkom approach. Had a deal been concluded, then this deal would have been the largest deal reported for the year.

2019 Top Three Deals

The top ten deals accounted for an estimated M&A transaction value of R18 billion, while the top three deals accounted for R16.6 billion. The top three deals in 2019 are:

  1. The largest deal is estimated to have been the CIVH acquisition of Vumatel at an estimated value of R8 billion . We included both the first and second transactions in this estimate.
  2. This was followed by Berkshire Partners estimated R5.6 billion purchase of 51% equity in Terraco from Permira. The estimated deal value is broadly based on limited information published about the deal.
  3. The most surprising valuation is the R1.028 billion paid by Vodacom Group for 51% equity in a young four-year old IoT solutions company IoT.NXT. The surprise element is based on the fact that the value of projects undertaken by IoT.NXT to date does not support this valuation. The purchase price must have been based to a degree on anticipated future revenue flow, given IoT market expectations.

The unconfirmed sale of the Standard Bank data centre to Liquid Telecoms is a significant deal. However, there is no published information that indicates that this deal has been concluded.

2020 M&A Outlook

We expect to see the following deal flow in 2020:

  • TowerCo deal with MTN/Vodacom towers: Both operator groups have disposed of tower portfolios in some of their other country markets of operations. SA remains a significant market where both operators own their towers. Over the years there have been rumours about the sale of the respective tower portfolios. We expect that an international towerco with a strong local BEE partner will likely acquire the tower portfolio of either MTN or Vodacom or both in SA.
  • Fibre network operator M&A: There will be continued M&A activity with the smaller fibre network operators being purchased by the larger network operators. A likely M&A target remains Octotel, given its strong position in the Western Cape.
  • IT Service Providers M&A: This will continue through 2020. The focus will see innovative and strong market position players being targeted in a M&A drive.
  • CIVH acquisitions: CIVH has indicated interest in expanding their infrastructure business. This may lead to CIVH buying into a data centre business and/or into a wireless network operator.
  • Blue Label Telecoms and EOH: Both companies will likely continue to seek to sell assets as they strive to raise capital to improve their balance sheet.

We will not see single companies drive aggressive M&A strategies. Rather the M&A deals will be defined by companies seeking to added strategic assets or skills to their existing portfolio.

Contact Andre Wills (andre@africaanalysis.co.za) for further information on this topic.

Helios Towers – Entry into the South African Market

Helios Towers (HT) was founded in 2009 and concluded its first tower sales and lease back deal (S&LB) deal with Millicom in Ghana. Subsequently, HT has undertaken similar deals in Congo Brazzaville, DRC, and Tanzania. In 2018, Helios Towers entered the South African market.

Strategy

HT’s principal business lies in building, acquiring and operating telecommunications towers that are capable of accommodating and powering the needs of multiple tenants. These tenants are typically large MNOs and other telecommunications providers who in turn provide wireless voice and data services, primarily to end-consumers and businesses.

HT uses the sales and lease back method of buying towers from mobile network operators.

KPIs

By end 2018:

  • HT had acquired 82% and had built 18% of its total tower stock (total towers 6 745) since commencing operations in Africa. 
  • In 2018, there were 13 549 tenants that yielded an average tenancy across its towers of 2.01x.
  • In 2018, HT earned an average of USD4 435 per month per tower, or USD2 208 per customer per tower per month.

South Africa

In 2018 HT entered into a partnership with Vulatel (Pty) Ltd and formed Helios Towers SA (HTSA) with HT owning 66% and Vulatal 34%. Vulatel has been in operation since 2017. The company acquired Dimension Data’s fibre and wireless division (formerly Plessey South Africa).

Subsequently, Vulatel acquired Gio Construction, a provider of network deployment and maintenance services.

Contact Andre Wills by e-mail to discuss the profile or answer any queries you may have.

The Rise of the New IT Service Provider Superstar

AYO Technology published pre-listing plans which show that it has strong ambitions to grow its revenue from R479 million to R7.7 billion over two years. The strategy it plans to adopt consists of a strong M&A element, combined with a novel approach to team up with a global IT Service Provider. BT SA Alliance AYO […]

3G vs 4G vs 5G – Analysis of Vodacom SA

Summary Since the deployment of the first 3G base stations, Vodacom has led the market in expanding network coverage. An analysis of the network deployment and uptake of 3G and 4G services, shows the following interesting points: Reviewing the Technology Investment: Vodacom has aggressively accelerated the deployment of 4G coverage, reaching 80% population coverage after […]

Cell C 2017 Results Analysis

Cell C announced their FY2017 results on 21 February 2018. This note presents a summary of their results.   FY2017 Summary The refinancing of Cell C has removed a significant financial burden and has freed up cash flow for investment into the business. Cell C looks confident in the marketplace and has displayed a dedicated […]

2018 Bosch Connected World

It has become increasingly obvious that in practice, the Internet of Things (IoT) can be simplified into three generic applications – location tracking, event monitoring and condition monitoring. The rest is about applications to get data into the system, and to respond appropriately and securely to changes. What is less clear is telcos’ role in […]

Potential Sale of Dimension Data MEA

There has been market speculation that Dimension Data Middle East Africa (DD MEA) is for sale. This analyst note explores the potential sale of DD MEA, reviews the corporate activity of 2017, explores possible sales scenarios and highlights potential buyers. 2010 NTT Group buys Dimension Data Group In 2010, the NTT Group acquired Dimension Data […]

2016 Adoption of Mobile VoIP

A leading indicator that signals the adoption of mobile VoIP is the adoption by mobile subscribers of social networking/instant messaging OTT services. The precursor to OTT service adoption is the strategic drive by mobile operators to increase smartphone penetration combined with an effective data pricing strategy. Mobile VoIP OTT usage leads to traditional mobile revenue […]