Fibrehoods vs Futurehoods: A battle won by consumers
In the second decade of the 21st century, fibre-to-the-home represents the arrival of the future. Once the cost of installation is covered, it has the potential to deliver almost unlimited speed, capacity and quality in broadband connectivity, at a similar cost to far slower and unreliable services.
So imagine you have the potential to roll it out to numerous businesses in South Africa, as well as to hundreds of thousands of homes. Let’s say, in the process, you could not only revolutionise connectivity, but also win the goodwill of a consumer base that has done little but vilified you for the previous decade.
What would you do? The answer is obvious.
Yet, a company that presides over a 144 000km network of fibre optic cable and that has been the butt of consumer ridicule since the turn of the century, initially decided to sit out the battle for the future.
The company was Telkom, which has developed its fibre network to serve the exchanges from which copper wire extends to homes and businesses across the country. At one time, it had 5.5-million connections via this fibre-copper marriage. Today it is down to less than 3.5-million. ADSL lines, which deliver broadband to homes and small businesses, reached the million mark for the first time this year, but their growth is constrained by ever-lower ceiling of fixed lines, through which ADSL services are provided.
It’s been obvious for years that Telkom should be modernising its network, replacing copper with fibre and pioneering fibre-to-the-home services. In fact, it had done exactly that for larger business customers, resulting in a nimble, profitable and high-quality business division within the organisation. But it refused to enter the battlefield for smaller businesses and consumers.
Into this gap came the so-called second network operator, Neotel, which also failed the consumer, but got one thing right: it laid down an urban fibre grid, and began serving fibre to business customers more economically and eagerly. At the same time, a private entity called Dark Fibre Africa built out its own urban fibre grid, offering to lease capacity to any operator that needed to light up additional fibre to service its own network.
These businesses opened the way for smaller operators to use these backbones to roll out their own mini-networks in specific areas or niches. For example, Metrofibre serves business customers where many of them are clustered together, such as in central business districts or business parks. And the newest kid on the block, Vumatel, lights up consumer homes, one suburb at a time.
When the Parkhurst Residents’ Association announced last year it had appointed Vumatel as its fibre-to-the-home network provider, Telkom suddenly leaped into battle and declared it would also supply FTTH to Parkhurst, along with a bunch of other suburbs.
It quickly discovered, though, that Vumatel had that high-income suburb neatly wrapped up and crossed it off the roll-out list. One suburb after another, it is having to do the same, as Vumatel engages directly with resident’s groups while Telkom declares its offerings from a distance.
It is no coincidence that it is even borrowing the terminology used by Vumatel in its suburban marketing. The latter calls the new connected suburbs “Fibrehoods”. Telkom calls them “FutureHoods”. Unintentionally, the term underlines the extent to which Telkom is responding to competition rather than leading it.
Telkom also appears to have an additional connectivity weapon: LTE-Advanced, or 4G mobile broadband. That means it can offer high-speed connectivity through the simple mechanism of well-placed towers, rather than having to dig trenches across entire suburbs and still have to build connections into homes.
However, Vumatel see this as a means of job creation, and has fine-tuned the process to make it both efficient and economical. The result is that the average homeowner in a targeted suburb pays only R1 500 to be linked up and then chooses the Internet service itself from a range of service providers.
The cost of the service is equivalent to or little more than what many households were previously paying for the combination of fixed-line rental, ADSL rental and data charges. Fibre services typically include a fixed-type phone service at no additional cost.
The announcement last week that residents of Victory Park, Linden, Bryanston South and Blairgowrie had endorsed Vumatel may not have been big news in itself. However, it came on the back of similar announcements by residents of four other suburbs: Killarney, Riviera, Saxonwold and Parkwood. And these, in turn, were underlined by the switch-on of Parkhurst, Greenside and Parktown North.
Each successive endorsement or switch-on is trivial in itself. The momentum it represents, however, is revolutionary. With Vumatel expanding its reach from one suburb to the next, to cover an ever-increasing expanse of suburban Johannesburg, we are seeing nothing less than the emergence of an alternative communications network in the city.
As new suburbs are linked, hundreds of new fibre users suddenly discover the massive impact it makes on work, entertainment and communication activities. Word spreads, and the appetite for fibre mushrooms.
“We typically sat in a chicken and egg situation, where you don’t have high speed broadband so it’s difficult for people to understand what it means,” says Niel Schoeman, CEO of Vumatel. “Consumers are skeptical about paying for something they’ve never experienced. Its only know the price shift has happened that fibre broadband has been commoditised and people are willing to experience it.”
Meanwhile, Telkom has embarked on a marketing blitz to sell its FutureHoods via mobile broadband. But suddenly, its ability to offer both infrastructure and connectivity services in one package has become its biggest weakness: it has to attempt to be all things to all people, which forces it to take a couple-of-sizes-fits-all approach to packaging its services.
Vumatel, on the other hand, is able to draw on a dozen service providers, each structuring its packages to suit a different customer category. Competition between these providers has forced prices down even further. It is not so much a battle as a series of skirmishes that is being fought suburb-by suburb. In almost every case, consumers are the winners.
Arthur Goldstuck has been a judge in the digital category of local and international advertising festivals. He is founder of World Wide Worx and editor-in-chief of Gadget.co.za . Follow him on Twitter on @art2gee and subscribe to his YouTube channel .