Making fibre to the home profitable
Fibre to the home (FTTH) is starting to make headlines in South Africa, but while consumers are eagerly awaiting higher broadband speeds, companies argue that it is challenging to develop a sustainable FTTH business model.
The cost of connecting a home via a fibre connection – hence the last mile – is usually the biggest cost, and too high to provide an affordable service to residential users.
Businesses in South Africa’s major cities have long-enjoyed fibre broadband access from companies like Neotel, but to date residential customers had to settle for either ADSL or a wireless solution.
One industry player, however, argues that telecoms operators can make FTTH work as long as they explore non-traditional business models.
Making FTTH work financially
According to Gerhard Loots, commercial director at ATEC, which operates numerous commercial FTTH networks in South Africa, the business models the companies are considering are wrong.
“Last mile connections can’t be completely subsidized by the operator in a developing country. Even in developed countries like America and Australia, last mile FTTH has become a government deliverable,” says Loots.
“In an ideal world the government should provide these connections as connectivity is a massive national asset, however in the South African context, a nationwide FTTH network expense can’t be justified for as long as we have people who don’t even have the “H” of FTTH.”
“I do however think that we need to tackle the problem with existing South African mechanisms in mind: If you want better infrastructure you have to pay for it.”
Loots argues that other players like Vodacom Gated Services have failed to make FTTH work because their business model came down to buying clients by owning the last mile network.
“If you take this decision and the cost of a FTTH connection 5 years ago: A 32mbps FTTH connection would have cost in the vicinity of R35 000 per house. At the time a Gig was selling for R200, so if your business model was to repay this R35 000 selling at R200 per Gig, you’re in trouble now,” explains Loots.
ATEC has a more progressive way to find the last mile fibre portion. ATEC sells the FTTH connection to the home owners as their property, adding value to the property and delivering services, according to a SLA. “If we mess up, we get kicked out,” said Loots.
“We then don’t have to try and capitalize the network over a period of time, which results in really competitive usage prices and high service levels,” says Loots.
“Our biggest challenge has been to reduce the cost per unit. We became more efficient, and we can now provide an FTTH connection for an average of R15,000 per house in greenfield developments.”
ATEC traditionally functioned in gated communities, but Loots said that they are currently busy with their first non-gated community FTTH deployment in the country. The results may well show whether they can make FTTH work in a less controlled environment.
Competing against Telkom
One of the problems highlighted by gated community telecoms players is that it can be challenging to compete against Telkom’s ADSL offerings.
Loots, however, says that they are effective in competing with Telkom by offering a differentiated product.
“There is currently not a single service provider in the country that delivers the same service as us, as our services are true FTTH. This backed up with high service level agreements ensures a better experience than what is on offer from any of the large service providers,” says Loots.
Loading ...