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Rain finds ‘window of 5G opportunity’ in spectrum impasse

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 19 Mar 2021

Rain says the delay in SA’s spectrum auction process is working in its favour, as it capitalises on the opportunity to aggressively rollout its 5G strategy this year.

The data-only mobile network operator, which in September 2019 was Africa’s first telco to deploy a commercial 5G network, currently has the widest 5G coverage in the country, with plans to extensively expand its standalone 5G services that are already available in certain parts of Johannesburg, Tshwane, Cape Town and Durban.

The Independent Communications Authority of South Africa (ICASA) was set to auction the long-awaited high-demand spectrum by 31 March. However, it was dealt a blow this month, when it was interdicted by the North Gauteng High Court following an urgent application by Telkom to halt the spectrum auction.

Telkom claimed the process was flawed and telecoms regulator ICASA must address its concerns before proceeding with the allocation of high-demand spectrum.

In a business update webinar held yesterday by JSE-listed investment holding company African Rainbow Capital (ARC), which owns 20.37% of Rain, the company outlined its plans to quickly rollout 5G services throughout the country, following a R750 million funding boost raised by the ARC Fund late last year.

Speaking at the webinar, Johan van Zyl, ARC co-CEO, said the telco had reached a R17.1 billion valuation and is making good progress with the rollout of its strategy to deploy more than 2 000 5G towers in SA to bring ultra-fast broadband connections to more homes and small businesses at affordable data costs.

The court showdowns, which are expected to delay the spectrum auction by up to a year, according to industry insiders, will buy Rain some time to quickly expand its 5G coverage, which is deemed critical to grow SA’s digital economy, he noted.

“As we all know, the spectrum auction has been delayed and this gives us a window of opportunity in the 5G space as we really try to capitalise on that.

“We have sourced funding and our facilities are in place to get to those numbers up and rollout 5G services quicker. So management is working very hard to get those plans in place and we’re growing every day,” said Van Zyl.

Rain was previously known as Wireless Business Solutions (WBS), the holding company of iBurst and Broadlink acquired in 2015 by the Michael Jordaan- and Paul Harris-backed firm Multisource.

The company has the necessary spectrum, in some of the right bands (such as 3 600MHz), as a result of what it inherited from WBS and Multisource.

Last year, Vodacom and MTN launched their own 5G mobile networks in several cities across SA, using the COVID-19 lockdown emergency spectrum allocated by ICASA. However, they are unable to expand their 5G services until more spectrum is licensed to them by the communications regulator.

Having built a 4G network already, Rain says it is leveraging its infrastructure to build the 5G network in its regulated 3 600MHz spectrum band.

The 5G network, built in partnership with Huawei, allows Rain to provide next-generation wireless networking technology and services at speeds as much as 10 times faster than existing 4G/LTE networks.

“By 31 December 2020, 685 5G towers have been activated and the aim is to increase this to 1 150 towers by February 2022. Ultimately, more than 2 000 5G towers in larger metropolitan areas throughout South Africa are planned,” noted Van Zyl.

Johan van Zyl, co-CEO of African Rainbow Capital.
Johan van Zyl, co-CEO of African Rainbow Capital.

Expanding retail, network footprint

Rain also competes with Vox, Telkom’s OpenServe and Vumatel in the lucrative fixed-line broadband market, offering unlimited 4G and 5G services via WiFi routers.

Since WBS rebranded as Rain, the business has seen massive growth over the last two to three years and it has reached profitability, as it moves to become a full-service mobile network operator, focusing on data as a primary offering, said Van Zyl.

The lockdown period resulted in a more than 50% increase in traffic and a spike in demand in sign-ups for Rain’s 4G and 5G services, with 5G customers consisting of about 20% of its total customers.

Rain has a lease agreement with Vodacom to use its network towers, while Vodacom has a roaming agreement to use Rain's 4G network.

While this agreement has, in the past, played an important role in increasing the telco’s revenues, a big part of the company’s R17.1 billion valuation is based on the scope of future growth, which is more of a “discounted cash flow type of arrangement”, which comes from selling the business capacity going forward, according to Van Zyl.

“From now on, we expect to do quite well and start generating cash and move forward with positive growth and use a more tried and tested methodology to value the business, like cash flow, dividends, etc. Vodacom was our biggest partner when we were established; however, as we move forward, a bigger chunk of our business value comes from the efforts of the business itself to create traction and our own retail footprint, particularly as we move more into 5G.”

Rain has set its sights on racking up two million local customers over the next two to three years. As it nears a one million customer base, the operator is largely focusing on expanding its retail footprint and its network.

The company collaborated with logistics company Pargo, to make SIM cards available at over 100 pick-up points in select Clicks stores, and it has a partnership with ARC subsidiary TymeBank, to make it easier for customers to sign up at TymeBank kiosks at Pick n Pay and Boxer stores across SA.

While it has the widest 5G coverage in the country, some of Rain’s customers have taken to social media in recent months to express disappointment at its network quality.

Responding to questions about the company’s perceived poor network quality and below-standard customer service, Van Zyl acknowledged the operator had received a lot of criticism on this; however, it has put structures in place to improve its service.

“Overall, it’s a work in progress. If a business grows from 100 000 customers to five-, six- or seven-fold, that amount in a very quick period, you will have some issues. Our biggest issue doesn’t come from client service but our network wasn’t wide enough and also the fact that the network coverage isn’t consistent enough – that’s why we’ve moved fairly quickly, particularly in the 4G and 5G space, by trying to get the coverage up.

“We’ve also grown the staff complement from about 120 people to 800 people and most of these people in the customer services division focus solely on servicing clients’ needs.”