Consolidation at the telecoms infrastructure level is expected to gain momentum, with satellite providers set to play an increasing role in internet connectivity.
Following the approval of the merger of Vodacom’s fibre business with that of Vumatel and Dark Fibre Africa, there has been increasing speculation of more similar deals as industry experts say the sector will likely end up with two to three infrastructure providers, leaving the rest of the companies competing on services. Vodacom, MTN, Telkom and small regional fibre network providers are spending billions of rands on infrastructure. Cell C has opted to piggyback on its competitors’ networks.
“I think the market will have different types of consolidation. There will be two to three infrastructure players … with more competition at service level from mobile virtual network operators (MVNOs),” said Cell C CEO Jorge Mendes in a recent interview.
In the coming years there will be a “shift towards non-terrestrial, low Earth orbit satellites”, he said. “So you may not carry the same traffic you carry today through the terrestrial spectrum. Maybe in the future you can have an infrastructure company where we all put our spectrum together and our infrastructure together, and then from there we compete fairly. Running the network is expensive.”
MTN Group CEO Ralph Mupita has repeatedly said that consolidation in the telecoms sector is inevitable. At a media event last month, he said South Africa “doesn’t have space for four players”, adding that the country will be “going against global trends on consolidation”. Countries such as the UK, Nigeria, China, India and the US all have two to three operators.
“I don’t see a sustained market structure [with four operators] ... if that exists, the returns on capital are going to be unattractive to investors and you will see less and less capital,” Mupita said.
I don’t see a sustained market structure [with four operators] ... if that exists, the returns on capital are going to be unattractive to investors and you will see less and less capital.
— Ralph Mupita, MTN Group CEO
MTN has previously attempted to take over Telkom, but the discussions fell apart.
Telecoms analyst Dobek Pater said there may be other attempts in future. “I think this merger will take place,” he said. “It’s more of a question which entities will merge. MTN and Telkom [group] or MTN and Openserve? Ultimately, I think, it would make sense for the Telkom mobile network infrastructure [not only Openserve] to merge with MTN as well, particularly as we move into a [radio access network] RAN-sharing environment in the future.”
Pater said the country may end up with three large national infrastructure operators:
- Vodacom (expanded, with Maziv);
- MTN, probably with Telkom/Openserve; and
- some sort of a state-owned telco, for example Broadband Infraco and Sentech.
“This SOE may be either purely a wholesale operator (more likely) or also wholesale and retail.”
Apart from the large national operators, there will continue to be a number of more regional operators — a second tier of fibre network operators (FNOs) such as Metrofibre Networx, Octotel, Frogfoot Networks, Pater said, “although consolidation within the FNO market will accelerate so that the number of current FNOs will be reduced greatly, with several larger entities remaining”.
He added that the “extent of consolidation at the retail layer will not be as extensive as at the network/wholesale layer, but there will be a trend towards larger retail service providers, which will make those entities more sustainable into the future. However, there will still be a place for smaller, niche retail service providers.”
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