Consolidation expected in the SA ISP market
South Africa’s Internet Service Provider (ISP) market is fiercely competitive – which means that margins are generally thin and volumes are needed to build a strong business model.
An acquisition is a quick way to increase subscriber numbers, and over the years there have been a few high profile ISP acquisitions. Some of the high-profile deals include Vox Telecom’s acquisitions of @lantic; ABSA’s Internet access business; and Afrihost’s purchase of Axxess in 2011.
This raises the question whether 2012 may see more consolidation in the South African ISP market.
According to Internet Solutions MD, Derek Wilcocks, there will be continued consolidation in the market by the players who don’t own their own network.
“In this highly automated world, service providers can basically add an infinite number of clients without significantly increasing their operating cost. As such, the players with the best systems and processes will continue to be targets,” said Wilcocks.
Wilcocks however added that the shareholders of the bigger players, especially those who own their own networks, are unlikely to make acquisitions cheap and therefore attractive.
“We are therefore unlikely to see any big buy-outs in this sector during 2012,” he said.
Vox Telecom CEO Douglas Reed agrees with Wilcocks, saying that he does not expect “anything material” in terms of ISP acquisitions in 2012.
MWEB CEO Rudi Jansen concurs, saying that he only sees limited opportunity for consolidation in the local ISP arena.
Cybersmart MD Laurie Fialkov however disagrees with Jansen, explaining that he expects a great deal of consolidation in the local ISP market as resellers’ margins are shrinking.
“We are seeing a lot of the smaller guys defaulting on their payment,” said Fialkov.
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