This article was originally published on News24 by Sibongile Khumalo
- Since its founding in 2013, Herotel has acquired 36 smaller operators to consolidate its market share.
- The company’s CEO, Van Zyl Botha, says access to capital is key as the industry is a scale business.
- Vumatel acquired a 45% stake in Herotel, and there is a possibility that the company could increase its stake.
- For more financial news, go to the News24 Business front page.
Herotel, one of the country’s early internet provider startups, has been gobbling up smaller providers to make its mark in non-metro areas, and its CEO Van Zyl Botha says consolidation is key for survival.
Founded in 2013, Herotel’s growth has been marked by consolidations and capitalising on slower moves by its competitors.
Telkom, the country’s former fixed-line operator, had the advantage of extensive ADSL/copper infrastructure on the ground but had been slow to drive last-mile connections to homes and businesses. It presented competition, but Herotel managed to take the gap and gain ground.
“They [Telkom] had massive infrastructure along the national and regional roads, but they took a long time to do the last mile. Now they are starting to do the last mile, and the new entrants have overtaken them,” said Botha.
Last-mile connectivity refers to the final leg of the telecommunications networks that deliver the internet to end users.
Herotel has 150 000 wireless and fibre customers in South Africa, including in the smallest of towns, such as Jourbertina, Ladybrand, KwaMagxaki township in Gqeberha, and Lephalale and offers month-to-month and prepaid fibre.
A total 300 000 fibre stands, which are homes that are ready connect to fibre internet, have been passed. The company plans to grow the number in the next 6 months to 400 000.
“These efforts are supported by 4 233 wireless towers on the urban edge to connect those close to the towns,” the company said.
Townships and underserved areas have emerged as new growth area for the industry as the demand for fast, reliable internet grows. It is a battle that is likely to boil down to quality of service and access to capital required to scale this critical market.
Small companies and market giants alike appear to be alive to the economic return it holds.
In the areas where mobile operators have not been able to roll out fibre, companies have been increasing wireless capacity and rolling out infrastructure for new technologies.
Botha said Telkom’s move of not ramping up last-mile connectivity earlier created an opportunity for Herotel. But this has not been the only thing that helped Herotel increase its market share. The company has, over the years, made 36 acquisitions of smaller operators in the sector.
“When we arrived at some of the towns, there were local players … we consolidated some of these operators into Herotel, instead of duplicating infrastructure. From there, we built our own infrastructure,” said Botha.
“In telecoms, there will always be consolidation. If you fail to reach scale, there will always be an operator that is willing buy you out,” he said.
The company has not been the only one buying. In February 2022, Community Investment Ventures Holdings (CIVH), Vumatel’s holding company, acquired a 45% stake in Herotel, as part of consolidating its own investment in broadband fibre power. There is a possibility that it could increase its stake.
CIVH, which is controlled by Remgro, this year folded Vumatel and its other company, Dark Fibre Africa, into a single entity which assumed a new name, MAZIV. Vodacom is set to acquire a 30% stake in the new entity, in a deal that will have to be approved by the Competition Commission.
Speaking about the potential of being fully controlled by Vumatel, Botha said the acquisition would make raising debt from banks and capital easier, allowing them to roll out more fibre and get the country connected.
Botha, who was appointed CEO in 2018, describes broadband access as a basic human right, and says access to capital in the telecoms space is critical, as the industry is a scale business.
“The bigger you are, the more services you buy and the cheaper it gets. Telecom is a scale business.”
In 2018, Herotel delivered R356 million in revenue, which in 2021 accelerated to R893 million, and assets increased from R208 million to R1 billion.
The booming fibre industry recently added a new entity, Ilitha Telecommunications, co-founded by the former CEO of South African Airways, Vuyani Jarana. The business launched in East London this week, and hopes to make inroads in underserved areas.