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Herotel positions to become national fibre player

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Emerging fibre and wireless broadband service provider Herotel is positioning to become a national player, as competition in SA’s fibre market heats up.

So say analysts, after the fibre network operator (FNO) announced revised fibre-to-the-home (FTTH) pricing, including a 50Mbps symmetrical uncapped option for R499 per month.

According to the FNO, all of its products are symmetrical (the download and upload speeds are the same) with no fair use policies, and includes free installation and a free-to-use router.

The other FTTH products announced are 75Mbps for R699, 100Mbps for R849, 200Mbps for R999 and 1Gbps for R1 499.

Herotel says these new prices will be available within the next two weeks across more than 100 fibre projects that are either live or being built across SA.

It notes all existing customers will be automatically aligned to the new product speeds at no additional cost.

Van Zyl Botha, Herotel CEO, says: “These new products are the result of our unique approach to the market. We build aerial fibre networks which allow us to deploy faster and with far less disruption to municipal infrastructure and private property.

“We always want to lead the market in terms of value to the customer, and hope that eventually we can remove all speed distinctions from our products.”

Botha adds Herotel is a direct access operator, which sells directly to the end-customer to keep quality high and prices low.

“No middlemen or Internet service providers are involved, which means we can keep prices low. Why pay two companies when you only need a service from one? Direct access also means Herotel is responsible for your full-service experience, from sale to install and life-time support.

“To do this, we employ local staff across South Africa who can assist directly with any service issues that may crop up. The buck truly stops with us.”

Bigger picture

Ofentse Dazela, director for pricing research at Africa Analysis, comments that Herotel’s new prices are very low, relative to the average market prices of similar offerings available from competitors.

However, Dazela notes the prices are not too impactful in the grand scheme of things, as Herotel’s fibre footprint remains small, fragmented and mainly outside the main urban centres of the country.

“This retail and fibre network operator is in the process of consolidating the fibre infrastructure of acquired regional market players such Airband, Safricom, Sonic Telecoms and TrueCom. It is, nonetheless, positioning itself to be national player, and an aggressive fibre network deployment drive is under way to connect several towns in the provinces of the Free State, Limpopo, Mpumalanga, North West, Northern Cape and Western Cape.”

Dazela believes the move will create new revenue opportunities for the company, from a retail and wholesale perspective.

Last month, Herotel said it is constructing 16 fibre networks in Mpumalanga and Limpopo.

A week later, the company announced plans to bring fibre Internet to more than 18 new towns in the Western Cape, taking the tally to 24.

Dazela is of the view that if Herotel is able to successfully expand its network, and also embrace the open access model that will allow big Internet service providers (ISPs) such as Afrihost, Cool Ideas, Supersonic, Vodacom and Vox with greater operational scale to leverage its network, perhaps at that stage, it would be in a position to effectively influence market competition locally.

“The fibre network deployment drive undertaken by Herotel to connect several towns in SA will, nonetheless, open new revenue opportunities for the company, from a retail and wholesale perspective.”

Van Zyl Botha, Herotel CEO.
Van Zyl Botha, Herotel CEO.

Newcomer rivals

According to Dazela, Herotel’s major competition lies in emerging players eyeing secondary cities, rather than established networks such as Frogfoot, Openserve and Vumatel.

“In this group of ambitious and fast-growing network players, you will find FNOs such as Accelerit, Clear Access, DNATel, Evotel, Light Struck, TT Connect, and WAN, among others.”

Dazela says at the moment, retail FTTH price trends are highly influenced by wholesale prices that FNOs charge ISPs for bandwidth capacity.

“Whenever established networks with greater footprint increase wholesale prices, like Vumatel did recently, this is a great impediment for ISPs to further reduce retail prices. In the shorter term, I do not expect prices to significantly come down.

“What we are likely to see is a different form of price reductions, where customers are instead upgraded to higher packages; for example, Openserve recently migrated customers on its 10Mbps line package to a 25Mbps package. This has been a trend in the local market for the past 12 months.”

However, he points out the disadvantage with these line speed upgrades is that they turn out to be temporary.

Claiming territory

Meanwhile, Christopher Geerdts, director and senior telecoms consultant at BMIT, says Herotel’s expansion plans focus on towns across SA, outside of Gauteng.

“At the moment, it is more a case of expanding the market than shaking it up. Customers can only make use of Herotel’s services in the towns where they have deployed. The initiative is exciting for the industry and a great contribution to extending fibre to more households,” says Geerdts.

He adds that FNOs are involved in more of a land grab than a price war because operators seldom overbuild in an area already serviced with fibre.

“There is, therefore, little incentive for fibre operators to simply reduce pricing. They tend to rather increase entry-level prices and reduce higher speed prices, effectively migrating customers to higher speed lines rather than giving them discounts.

“Actual price competition usually takes place between ISPs rather than the fibre operators. The need for lower fibre prices comes because the higher-income suburbs in the metro areas are close to being fully covered. Therefore, these operators are looking for markets in middle-income areas and outside the metros. By reducing the costs of installation and hence the product costs, they can tap into these substantially larger markets.”

For example, Geerdts says, Vumatel has expanded into mid-income suburbs with its Vuma Reach prepaid product, at R399 per month for 20Mbps download (and 10Mbps upload), available in parts of Cape Town and Johannesburg; this is an attractive entry-level cost for fibre.

However, he says, Vumatel is still focusing on the metro areas.

Herotel’s business model as an FNO is to focus on towns outside metro areas, and use innovative, lower-cost aerial fibre to reduce the installation costs.

“A few fibre operators, such as Openserve, Frogfoot and Evotel, have been active outside the main metros, usually deploying traditional trenched fibre. Herotel is bucking the trend by reducing prices in these areas, even though it costs more for the backhaul to bring the Internet into these areas,” Geerdts concludes.

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