Posts

FTTH and FTTB in Africa

Fibre broadband connectivity has been much talked about in many markets in Africa over the past few years. It is touted as required infrastructure for the next generation of services both in the business and residential markets – from operating out of the cloud by small and medium sized businesses (SMEs) to eGovernment services to future household entertainment (streaming content).

Factors limiting fibre growth

Yet, with the exception of a few countries, the growth of fibre access networks has been very limited in across most of the African continent. This can be ascribed to a number of factors, including:

  • Cost of fibre infrastructure deployment – This remains quite high in many markets and makes for a difficult business case, given the service adoption rates (although aerial fibre deployment is less expensive). It is less expensive to build wireless networks.
  • Cost of infrastructure maintenance – Once a fibre network has been built, the cost of maintenance and repairs can also be quite high if the fibre cable keeps being damaged due to other infrastructure development in the same area.
  • Small target market – Socio-economic development is often still slow, with slow middle class growth, and correspondingly low affordability levels. This is coupled with comparatively high prices of fibre connectivity, paying a premium for a superior service. In the business market, and in particular small businesses, the level of maturity (and often also affordability) limits the adoption of fibre broadband.

Fibre Access Infrastructure Market

The fibre access infrastructure provider environment tends to be quite fragmented in many markets, with a number of smaller fibre network operators (FNOs) operational. It is difficult for small operators to maintain a sustainable operation with a small footprint. Hence, in most markets in Africa, operators follow a multi-technology strategy, where possible, for the provision of connectivity services. Fibre is one of the technologies used but most of the connections may be provided wirelessly. Only in a limited number of cases have we seen the evolution of a pure fibre access infrastructure provider. This is most pronounced in South Africa, where around 50 FNOs are operational. Many of them very small and unsustainable. This leads to growing consolidation in this market.

As at mid-2018, there were 136 commercial FTTH / FTTB networks operational in Africa in 40 countries (including territories) and another ten networks either planned or in deployment. The presence of fibre broadband infrastructure on the African continent and growth over the past few years are presented below. The year-on-year growth of connected premises from mid-2017 to mid-2018 was 75%.

Concentrated Market

Fibre broadband uptake is concentrated in a handful of country markets, with almost 97% of total fibre connections on the continent (top five account for 85% of total). Even at that, household penetration is very low in these countries. The notable exceptions are Mauritius (where fibre deployment is being pursued as a national strategy) and La Réunion – both small islands with small populations in the Indian Ocean. This concentration of fibre broadband in several market on the continent is illustrated in the following graphic.

Some of the key market trends observed in the fibre broadband market are:

  • Access infrastructure has been expanding and improving, underpinned by improving national long-haul and metro backhaul infrastructure.
  • Pricing of fibre-based products has seen some reduction, making the products more affordable. This is combined with increasing disposable income levels (at least in growing economies).
  • Economic improvements (not in all markets) have led to improved business climate and demand for fibre-based services.
  • Government policy direction moving towards national fibre roll-out, digital agenda, etc.
  • Access to relevant content has been improving.

Market Opportunities

The present FTTH / FTTB market landscape in Africa provides for a number of opportunities going forward. These include:

  • Lack of legacy fixed infrastructure in many markets presents an opportunity to address this shortage with fibre. However, this can also be a challenge due to, for instance, lack of duct infrastructure which could be reused to lower the cost of deployment or lack of fixed line product / service culture and understanding of such products / services within the target user base.
  • Middle class migration to gated communities / complexes and increasing concentration of businesses in office parks means that the potential users can be reached more easily at a lower cost. New residential and business developments also provide an opportunity for greenfields fibre infrastructure deployment in such premises.
  • Once the first wave of FTTH deployment and uptake is past its peak (this may take a number of years in most markets in Africa), the cost of deployment and provision of services may be suitable for a second wave to address the lower socio-economic segments.
  • The fragmented fibre infrastructure provider environment presents M&A opportunities for (typically) larger operators or non-telecoms investors.
    Future evolution of the FTTH / FTTB markets in Africa will be driven by a combination of socio-economic development and government policies.

Market Outlook

However, given the diversity of markets in Africa in terms of ICT and socio-economic development, the pace of fibre broadband deployment and adoption will also differ significantly from country to country over the next five years. The expected market evolution trends are highlighted below.

Home Market

  • Greater focus on back selling of fibre services to achieve higher connectivity rate of homes passed.
  • Geographic expansion of the FTTH footprint (although limited to main cities in most countries).
  • Introduction of new products (including smaller bundled offers) to address households with lower disposable income levels (than the top end).
  • Introduction of converged products combining fixed and mobile services.
  • Increase in relevant content (requiring fast and reliable internet access) will drive uptake.
  • Continued downward trend in retail prices of fibre products, resulting in greater affordability.

Business Market

  • Geographic expansion of the FTTB footprint (although limited to main cities).
  • Introduction of converged products combining fixed and mobile services.
  • Move towards IoT (and IoE) over time, requiring greater good quality connectivity.
  • Government policy direction aimed at expansion of broadband (including fibre) infrastructure and services to drive socio-economic development.
  • Growth in maturity of the business community, realising the benefits of IP and cloud services. Fibre will be used for delivery of these services.

2018 Broadband Trends in Africa

Broadband is being increasingly considered as a necessity for future socio-economic development, with some parties viewing it as a basic human right. Essentially, without broadband connectivity, the digital divide in the social and business spheres (between businesses / households / individuals who have access to broadband vs. those that do not) will continue to widen to the point where the have nots will be left out of mainstream development altogether.

This presents a significant problem in many countries in Africa which have limited financial resources for telecommunications infrastructure builds on the one hand and continue to experience relatively low levels of socio-economic development on the other hand. Private sector telecoms infrastructure operators tend to build where they can generate a reasonable return on their investment (ROI) while large segments of the population and many small / micro businesses struggle cannot afford proper broadband connectivity or sufficient quantity of broadband services.

Implementation of Polices and Programmes

To remedy this situation, a number of national governments have been developing and implementing policies and programmes to build out broadband infrastructure as widely as possible and to decrease the prices of broadband services to a point where ultimately can afford them in sufficient quantity. To achieve this, they need to involve private sector operators while remaining mindful of the fact that private entities need to remain profitable to maintain sustainable operations.

While most countries in Africa now have access to good quality and adequate bandwidth on international, national long-haul and metro infrastructure (albeit in some markets still expensive), the constraint is now focused on broadband access infrastructure. In some regions of the continent inland backbone networks also need to be improved, although a number of projects are underway to address this.

Although broadband penetration has shown steady growth over the past several years, penetration levels of fixed broadband remain very low at approximately 7% of households on the continent, while mobile broadband has demonstrated a notable decline in growth and plateauing of the penetration rate. These trends are illustrated below.

Note: For the purposes of this analysis mobile 3G is considered a broadband service, although in many instances speeds achieved on a 3G connection would not be reflective of a good quality broadband service.

The Challenge

The challenge to higher fixed broadband penetration is the speed of deployment of fixed broadband infrastructure, to a large degree dictated by sales opportunities. A barrier to entry into the mobile broadband market is often still the price of a 3G or 4G phone. Mobile operators typically pursue a strategy of making lower cost handsets available as much as possible to lower this barrier.

Additionally, mobile broadband coverage (even 3G) is still not available across parts of the continent, particularly in rural / remote areas. Build-out of 4G infrastructure in sub-1GHz spectrum holds promise of providing coverage in such areas but in many markets 4G is still at an early stage of deployment, focusing on the larger urban environment.

Broadband Access Technologies

A range of broadband access technologies is used by operators in Africa to provide services, although the vast majority of connections is wireless and most of the connections are mobile.

The map provides an indication of key broadband technologies deployed. Most of the markets have seen implementation of multiple technologies, with various fixed wireless access (FWA) present in all markets. However, the geographic footprint of these technologies, in particular fixed technologies, remains very limited in most of the markets.

The mix of technologies used for the delivery of broadband services is changing. Older FWA technologies such as pre-WiMAX and WiMAX are being replaced with fixed LTE / LTE-A, while historical copper lines (where they exist) are gradually giving way to fibre (FTTH and FTTB), although on a very limited scale at present, with the exception of a few countries.

In the mobile space, the focus will be on 4G infrastructure footprint build-out far more extensive than currently, with 5G hovering on the distant horizon.

Only South Africa has begun to pilot 5G technology, with first commercial services expected to be offered in the second half of 2019. However, wider 5G implementation is also a couple / few years away in that market.

Broadband Adoption will grow

As the use cases for true broadband connectivity grow, so will adoption of broadband across the consumer and business markets in Africa. This will be aided by decreasing prices of broadband connectivity (in time, all of the connectivity will become commoditised) and government-led initiatives aimed at wider broadband availability.

Broader socio-economic development, supported by good GDP growth in many countries in Africa, will also contribute to making broadband services more affordable and increasingly indispensable to sustain this development.
The opportunity for expansion of broadband penetration is there, as evidenced, for instance by the total mobile penetration rate (80% in mid-2018 for Africa) vs. mobile broadband penetration of 53% at the same time.

There is room for growth

Fixed broadband adoption will need to compete with mobile broadband, certainly in the consumer / residential market and in the micro / small company market.

However, certain drivers such as migration to cloud services and accessing online content in large quantities will create a demand for fixed broadband services.

It would also be sensible for operators in Africa to consider moving to a more open access network environment in the fixed wireline space, where wholesale infrastructure operators would host a number of retail service providers on their networks to stimulate service-based competition.

2017 FTTH Africa Council Conference Review

This year’s 2017 FTTH Africa Council Conference highlighted some interesting developments that were presented and discussed among the delegates. These are our key take-outs from the conference:

Besides looking at the fibre developments in the various markets, with current focus on the importance of rolling out quality infrastructure in the Africa, LATAM, MENA, Europe and the Americas, the key messages at conference also centred around the recent topical issues, mainly the road to 5G, and the need to build next generation mobile networks to support fibre. The telecoms sector players seem to be actively tracking developments around 5G, not only because it is expected to complement fibre solutions, but also because 5G is no longer regarded as a spectrum-based network, but rather a platform that is scalable, segmentable and designed for the Internet of things.

The influence of the regulatory authorities in shaping and growing economies around the globe also came under scrutiny. As discussions gained momentum around the subject, it became clear that the market does not favour heavily regulated environments, as previous studies indicate that there is little economic growth achieved in such markets. Regulators were also urged to be agile to ensure that policies and legislations that being introduced, move at the same speed as the technological developments themselves. Locally, the government was urged to entrench investment-friendly policy and market certainty before infrastructure investment take place on a scale needed by SA.

The developments in the IOT market also received attention at the conference, as well growing interest in Big Data analytics. This despite growing concerns that Big Data is susceptible to hacking, and can also be used for spying. Privacy as well as discrimination challenges were also highlighted as possible danger areas as far as Big Data is concerned, as everything can be tracked and analysed through Big Data.

In the fibre market, opportunities in the highly urbanised areas are increasingly becoming small, this has prompted operators to now target small towns in their endeavours to build smart cities. The operators however conceded that the high cost of extending fibre internet services beyond urban areas does not make expansion to smaller towns viable, especially combined with the lower number of potential subscribers, although expenses associated with equipment and electronics of fibre networks have come down. Notably, operators are currently considering various models that they can adopt in order to bring fibre to these towns in a sustainable way, and have also urged governments to put incentives on the table, that will encourage them to roll out fibre in the small towns and cities, as well to stimulate uptake of services.

In terms of monetising fibre, operators were urged to embrace infrastructure sharing models, as these would allow them to reduce costs. It must nonetheless be emphasised that each market is different, meaning this preferred model might not be ideal for some markets. In terms of rolling out fibre networks, the general view is that Africa continues to be challenged by shortage of funding, shortage of skills, lack of proper planning as well as policy uncertainty, although the continent is at least getting the fibre footprint right.

Overall, an intervention to deal with the issues highlighted above will require operators to undertake careful studies to understand the problem, before possible solutions are implemented. This as we are moving to a fragmented world, that will be characterised by cloud services, integrated services, simplicity, and single identity.

Moreover, the increasing adoption of fibre solutions in various markets around the world is expected to have a positive impact on our journey to the 4th Industrial Revolution and the global digital economy. This is because the industrial Internet, Internet of Things (IoT) and Big Data are also driven by optics, and so is the foundation of platform economics. However, telcos of today will continue to be challenged by the disruptive players such as OTTs and MVNOs, as well as growing competition facilitated by open access networks, more innovative solutions entering the market, and competitors that are quick to embrace newer technologies.

For further details, please contact Ofentse Mopedi.

Broadband Infraco – Treading water

In summary, Broadband Infraco (BBI), a wholesale telecommunications operator, is in a concerning financial position. Failure by BBI to grow its revenue, outside of the top four customers, coupled with its current net burn rate (operating costs less revenue), will most likely see the operator run out of cash to fund its operations by March 2017. Should this happen, the government will be forced to reconsider its strategy regarding BBI. Unpacking the latest Broadband Infraco report shows that it’s key challenge remains it’s poor financial position.

On the 23rd August 2016, BBI presented its FY2017 Q1 report to the Parliamentary Portfolio Committee on Telecommunications and Postal Services. This note presents a brief review of the operator’s financial outlook.

Broadband Infraco Revenue: FY2016 Results and FY2017 Forecast

The following chart and table presents BBI’s historical and forecast revenue:

Broadband Infraco - Pic 1

Source: Broadband Infraco Annual Reports (FY2012 to FY2015), FY2017 Q1 Performance Report submitted to the Portfolio Committee on Telecommunications and Postal Services

Historically, BBI has benefited from South African government support. It concluded a multi-year contract with SITA (the State IT Agency) and sold 70% of the international submarine capacity (on WACS), that it had purchased, to the Department of Science and Technology (DST).

Analysis of the presented FY2016 information shows the following:

  • BBI earned 90% of its FY2016 revenue from four customers: Cell C, Neotel, SITA, WACS (DST, the sale of the international submarine capacity).
  • SITA is BBI’s single largest customer, who accounted for 33% of the revenue.
  • The combined SA government revenue, DST and SITA, accounted for 43% of this revenue.

Analysis of the forecast FY2017 revenue information shows the following:

  • SITA will remain BBI’s single largest customer, representing 27% of the forecast FY2017 revenue.
  • BBI plans to significantly grow the revenue earned from the rest of its customer base (and from new customers) by 219%, from R47 to R150 million.
  • BBI will remain dependent of the top four customers, given that the operator forecasts to earn 81% of its future revenue from this group. On paper, BBI’s revenue is at risk, given the high revenue concentration in the top four customers. However, it is unlikely that the revenue from this group is under threat. If there was any risk, it would arise from the pending sale of Neotel to Liquid Telecom. Following the completion of this sale, Neotel’s spend with BBI will likely decline.

The BBI challenge is its financial position. The following charts show the historical and forecast EBITDA margin and retained earnings trends:

Broadband Infraco - Pic 2

Source: Broadband Infraco Annual Reports (FY2012 to FY2015), FY2017 Q1 Performance Report submitted to the Portfolio Committee on Telecommunications and Postal Services

  • By March 2017, BBI expects its accumulated loss (or negative retail earnings) to surpass R1 billion.
  • The 7% EBITDA margin was achieved through a combination of revenue growth and cost reduction. BBI plans to continue these initiatives in FY2017.

So what are Broadband Infraco’s Strategic Initiatives?

A study of the top ten strategic risks, that BBI has presented in its FY2017 Q1 report, provides some insights into the company’s strategic intentions. The risks associated with the issues raised in this post are presented here (not all the risks are presented):

Risk #1 – Likelihood not to continue as a going concern – actions taken:

(a) Continue with key focus and drive on sales by all executives and KAMS, and (b) Enter into long term tenure with customers
(a) Continue cost optimisation of Cost of Sales and Operational costs – by renegotiating fibre maintenance and leases with the suppliers, (b) Continue with cash management initiatives, through daily bank reconciliations and working capital management
(a) Continue with renewed intensity to source funding from commercial banks, developmental institutions and specific vendors

Risk #6 – Difficulty to raise funds – actions taken:

Continue interactions with suppliers, commercial banks and developmental institutions to source funding for working capital, ring-fenced projects and selective maintenance projects.
Continue with renewed intensity to source funding from commercial banks, developmental institutions and specific vendors.

Risk #7 – Damage to the reputation of Broadband Infraco – actions taken:

Pro-active relationships are being put in place with IT Web, Tech Central, Money Web and Business Day to source inputs from BBI before publication.
Pro-active integrated PR & Marketing strategy to be activated to convey BBI‘s positive success stories.
High brand visibility is being maintained through all stakeholder – related events and programmes.

These actions show that BBI is embarking upon a reputation management campaign to ensure that the market does not perceive BBI as a supply risk in its capacity as a supplier.

Broadband Infraco Financial Challenge – Revenue and Net Burn Rate

BBI’s FY2017 revenue forecast is premised on growing the revenue contribution from customers, other than the top four, by 219%. Failure to grow the customer base will see further pressure placed on BBI’s ability to fund its operations and invest in network capex. Failure to invest will result in the operator becoming more constrained in its ability to generate new revenue.

The inability to invest will result in the operator losing the opportunity to win new customers. Furthermore, the inability to fund replacement capex will see the BBI network deteriorate, leading to poor service delivery. This in turn will cause customers to move away from BBI.

BBI will require financial assistance within this year from the government to continue as a going concern if it (1) fails to grow revenue, outside of its top four customers, and/or (2) is unable to reduce its burn rate.

Overall, Broadband Infraco operates in a competitive market where the slightest slip-up results in lost business. Quite likely, the SA government will need to review its plans regarding this operator.

The current FY2017 financial forecast sees this company treading water.

In closing, what are the SA Government options?

The strategic options that the SA government could consider, are presented in the following table:

Broadband Infraco - Pic 3

As shown, the SA government has a key decision to make over the coming year. What to do with Broadband Infraco!


Use our Contact Page to request a pdf version of this post.


 

The Role of WiFi and Mobile Broadband

The WiFi relationships uncovered through preliminary analysis would suggest that mobile subscriber WiFi usage is far more prevalent than may at first appear. In the higher income countries, the greater use of WiFi by mobile subscribers would indicate that their per unit cost of broadband would be lower than that of their counterparts residing in lower income countries.

Introduction

In this post, we uncover relationships between mobile broadband, WiFi usage and fixed broadband adoption.

The information used in this analysis is sourced from OpenSignal (with permission), International Telecommunications Union (ITU, fixed broadband household penetration) and the World Bank (GDP per Capita, PPP). Specifically the data used in this post are taken from the following sources:

  • Global State of Mobile Networks (August 2016) Report, OpenSignal
  • 2015 ICT Statistics, ITU
  • World DataBank, dataset from World Bank

We typically use this type of analysis to draw inferences about market behaviour. They provide good departure points for robust discussion about what market factors drive consumer behaviour.

Fixed Broadband Household Penetration (2015) vs. GDP per Capita (2015)

This chart shows the country adoption of fixed broadband per household versus the GDP per Capita (PPP).

Over the years, we have seen this classical plot presented where we have explored the relationship between GDP per Capita (as a proxy for income) and the various telecommunications indicators. While we can raise various arguments for and against this type of a plot, it nevertheless does provide an indication of whether your country is inline, above or below your peer countries.

The Role of WiFi - Pic 1

Source: ITU 2015 Indicators, World Bank 2015 GDP per Capita (PPP), Africa Analysis, data plotted for the 93 countries presented in the OpenSignal report

Fixed Broadband Household Penetration vs. Average 3G/LTE Speed

The graphic shows the plot of the fixed broadband household penetration and the average 3G/LTE speeds.

The Role of WiFi - Pic 2

Source: Africa Analysis, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report), ITU 2015 Indicators

While there is some data scatter, we can make some interesting observations:

The higher the fixed broadband penetration, the higher the 3G/LTE speeds. The trend suggests that in the more broadband abundant markets, mobile operators have needed to increase the average speeds in order to compete against their fixed broadband counterparts.

In countries with lower fixed broadband penetration, the following reasons can be put forward to explain the observations:

  • Mobile operators are not under strong competitive pressure to increase the average 3G/LTE speeds. Perhaps mobile operators believe that consumers have very little broadband choice and, therefore, there is less pressure on the mobile operators to invest in their networks.
  • There is a lack of spectrum for LTE, thus mobile operators are limited to 3G.
  • In developing markets, where the mobile operators are deploying 3G, they may have the licence requirement to achieve a certain population coverage, and therefore, focus on extending reach before focusing on increasing the capacity to offer higher 3G/LTE speeds.

Fixed Broadband Household Penetration vs. Time Spent on WiFi

Intuitively, it makes sense that as the country’s fixed broadband penetration rises, so does the time spent by mobile subscribers on using WiFi.

The Role of WiFi - Pic 3

Source: Africa Analysis, ITU 2015 Indicators, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report)

Given that there is some data scatter, we can still make some interesting observations:

  • In the higher fixed broadband markets, more mobile subscribers will have access to WiFi at their homes, thus they would switch from mobile to fixed broadband when they are at home.
  • In addition, the availability of WiFi is driven by the greater availability of fixed broadband to serve as backhaul to the WiFi sites. Thus, we see the rise of more public WiFi sites.
    This observation can serve as a strong motivator for decisive mobile operator WiFi strategy.
  • At a country level, we would put forward that the greater use of WiFi will, in general, lower your cost of broadband access as WiFi is either used at rates ranging from no charge to at most price parity with fixed broadband.

This trend shows that as fixed broadband is deployed, mobile operators will experience more competition.

GDP per Capita vs. Average 3G/LTE Speed (Mbps)

The plot of GDP per Capita vs average 3G/LTE speed shows that the average speed increases as the country’s GDP per Capita increases.

The Role of WiFi - Pic 4

Source: Africa Analysis, ITU 2015 Indicators, OpenSignal (2016, data plotted for the 93 countries presented in the OpenSignal report ), World Bank (2015)

While there is some data scatter, we can make some interesting observations:

  • There is a wider spread of data points for the higher GDP per Capita (PPP) countries. Inspection of the data shows that there are fewer higher GDP per Capita countries where the average 3G/LTE speed was measured on the low side. Rather, these countries would be deemed to be poorly performing.
  • In the lower income countries, under GDP per Capita of USD20,000 (PPP), we can see a much less scattered and, more likely, a stronger relationship between GDP per Capita and the 3G/LTE average speed. This observation can be ascribed to various factors, but what it does show is that these countries are placed at a strategic competitive disadvantage regarding strategic capabilities to grow the country. This is based on the observation that broadband is critical to a country’s development.

In Summary

Analysis of the OpenSignal data does highlight interesting subscriber behaviour. When this data is combined with other 3rd party data (ITU and World Bank), we uncover interesting relationships.

  • In higher fixed broadband countries, mobile operators offer higher average 3G/LTE speeds. This is most likely driven by the need to compete against the higher fixed broadband speeds.
  • In the high income countries (as measured by GDP per Capita), subscribers have more broadband choice (mobile and fixed) regarding speed and availability. There is wider availability of good quality WiFi networks, both in and outside of the home. Therefore, subscribers spend more time on WiFi.

These relationships would suggest that WiFi usage is far more important than operators may want to admit to. The data does suggest that a more clearly articulated and executed WiFi strategy is called for.

 


OpenSignal is the leading source of insight into the coverage and performance of Mobile Operators worldwide. OpenSignal data is directly measured from consumer devices as opposed to traditional methods of simulating or approximating mobile experience. With over 15M downloads, the OpenSignal app represents the largest crowdsourced measurement of Mobile Networks. Operators across the globe use OpenSignal data for competitor benchmarking, network spend optimization, understanding true customer experience and more. OpenSignal also works with regulators and analysts globally and is backed by top tier investors including Qualcomm, Inc.