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Lower returns push Patrice Motsepe’s ARC out of Metrofibre

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Patrice Motsepe, African Rainbow Capital founder.
Patrice Motsepe, African Rainbow Capital founder.

Four years after picking up a stake in Metrofibre, African Rainbow Capital (ARC) is exiting the business, citing lower returns expected by the investment firm.

ARC, which released its full-year results on Tuesday, says it has reached an agreement to dispose of its entire investment in Metrofibre, worth over R200 million, pending regulatory approval.

The investment holding company, founded by business mogul Dr Patrice Motsepe, picked up a stake in Metrofibre in 2016, when the fibre land grab was ballooning.

Metrofibre is a South African-owned and -managed open access fibre network and broadband fibre provider, based in Gauteng.

Founded in 2010, the company owns and manages SA's first globally-compliant Carrier Ethernet 2.0 open access fibre network. Apart from providing Layer 2 services to over 60 internet service providers and international telcos, Metrofibre supplies voice and data connectivity products in the enterprise space.

In ARC’s year-end results, the business reported a satisfactory financial year, despite some challenges with its infrastructure rollout brought on by COVID-19, the investment group told shareholders on Tuesday.

Nonetheless, Ainsley Moos, ARC executive for corporate and stakeholder relations, tells ITWeb the company is offloading its 8.7% interest in Metrofibre, valued at R268 million.

“Our view is that we regard Metrofibre as a good business, but now that it is a mature business, we see it as more of an infrastructure play going forward. It would require more capital but is likely to deliver a return lower than our internal hurdle rate,” he says.

ARC, whose telecommunications portfolio also includes data-only network Rain, says going forward, it will not pursue any fresh investments in the fibre sector.

However, the company says Rain remains solid and rewarding, as the business continues to exceed rollout and performance targets.

In the year ended June, ARC says Rain’s goals in the 4G and 5G markets were exceeded, while 5G coverage has expanded six-fold since launch in September 2019.

The company says the key focus remains to improve customer service, as the business case did not expect such rapid customer growth.

“The business has been experiencing an unprecedented surge in demand for its products and services,” says ARC.

“The company's share in the value of the investment in Rain increased from R3 111 million at 30 June 2020, to R3 314 million at 30 June 2021, as a result of R56 million additional investment and a fair value gain of R147 million over the year.”

The data-only network “will fully participate in the upcoming spectrum auction”, says ARC, adding that “a modest capital raise is in process” to accelerate 5G network rollout and fund participation in the spectrum auction.

Despite the readiness of Rain and other sector players to participate in the spectrum auction, the process has stalled as bickering between the regulator and other telcos over spectrum continues.

Last week, the Independent Communications Authority of South Africa failed to reach an out of court agreement in the ongoing spectrum impasse.

The deadlock will further delay auctioning of the much-needed spectrum, which is expected to reduce the cost of data.

Analysts have also voiced their concerns over the prolonged fight for spectrum.

Ofentse Dazela, director for pricing research at Africa Analysis, says the continuous bickering between the regulator and telcos is a “real blow” to the telecoms industry.

“The current situation paints a different picture that says we are heading to a chaotic future, likely to be characterised by poor network quality, increasing data prices and long litigation battles among the warring factions.”

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