Speedy fibre for all should be SA’s new call

Working from home is here to stay, but the digital divide undermines any efforts to tackle inequality, by Old Mutual Alternative Investments Hybrid Equity co-head Mujaahid Hassan and Ed Stumpf, Investment Director at African Infrastructure Investment Managers

Covid-19 has changed the way the world works. Like their global counterparts, SA office workers have made the transition to the new era of online work seamlessly. As workers were forced to stay at home, productivity in office-based jobs remained steady, largely due to the investment in and construction of an impressive fibreoptic infrastructure ecosystem over the past decade or so.

High-quality internet fibre access has now reached most metropolitan middle-class homes and suburbs across the country, but this impressive infrastructure rollout is yet to reach more than 10-million lower-income households. By the end of 2021, almost all the estimated 3.2-million households with a high LSM — defined as those with a disposable income of R12,000 or more — will be covered with fibre-based internet, including those in small towns and peri-urban communities.

With up to 56% of SA workers estimated to be working from home since lockdowns were first mandated, the pandemic-forced acceleration into the digital world of work and changes in behaviour are likely to have lasting effects. This transition has, however, further exposed the fault lines of inequality that continue to undermine SA economic and social transformation.

The digital divide is no longer one of internet connectivity, as virtually all South Africans have access to a form of internet. Rather, the divide is along the lines of the quality and affordability of that connection in an age when internet speed and data consumption continue to accelerate exponentially.

This divide between those who can afford unlimited fibre in higher-income households and those whose access is limited to buying expensive data bundles means the vast majority of South Africans will continue to lag behind the digital revolution, worsening social and economic inequality.

To illustrate the point, we need to look at the technology, platform and data requirements of videoconferencing, a staple of the new hybrid office. Leading platform Zoom noted that it hosted 10-million meeting participants in December 2019, and 300-million by April 2020. Microsoft Teams hosted 200-million that month, up 70% on the month before.

To put the data required to facilitate this growth into perspective, high-resolution photos might use 1-2MB of data to share on a popular social media platform. In comparison, video conference calls use 2-2.5GB an hour, making it as bandwidth-intensive and expensive as streaming online content.

Out of the estimated 16-million households in SA, the initial focus on the high-disposable-income homes that will soon be blanketed in fibre internet was on offsetting exorbitant infrastructure building networks and amortising them against this commercially sustainable demographic.

Having achieved staggering fibre rollout to this higher LSM demographic, our attention now must be placed on closing the gap in affordable, quality internet. The challenge is to fund the rollout of high-speed, low-latency internet to the overall population. This next phase will be no easy feat due to cost and risk to the return, particularly in low-income markets given the exorbitant costs and high investment barrier into telecommunication infrastructure.

The opportunity presented by the need to offer fibre access to more than 10-million households also presents an opportunity to bring new black empowerment players into the ownership of telecom infrastructure. Given the scarcity of empowered equity capital available in SA historically, this investment will need innovative funding solutions to enable the transformation of ownership in SA.

Providing high-quality, unlimited internet to the masses will require the use of players who already have density in those networks, rather than trying to start up fresh. Existing players are better positioned to do that, bearing in mind the cost of capital expenditure on building new infrastructure.

The current models of open-access infrastructure as well as infrastructure sharing, such as the recent deal with MetroFibre Networx, is an important component to increase competition at the services and retail layer, which can drive affordability of end-user tariffs.

After an initial minority investment in December 2020, a consortium including AIIM and a broad-based BEE (B-BBEE) partner financed by Old Mutual Alternative Investments Hybrid Equity agreed to acquire an additional 25.8% stake in Metrofibre during June 2021. When completed, these transactions will see the BEE partner established as one of the top three shareholders of the business with a stake of about 22%.

Real empowerment and transformation can be achieved by delivering high-quality and low-cost connectivity to marginalised communities and empowering B-BBEE through ownership at the same time. Just as marginalised communities will continue to lag those with quality access to the internet, black investors and entrepreneurs require access to quality funding solutions.

Access to information will accelerate disadvantaged communities’ participation in the formal economy. Removing these traditional barriers to entry is important for achieving the UN’s sustainable development goals, such as decent jobs and reducing poverty. Such economic access stands to sizeably increase economic growth through new ideas and solutions to needs.

Finding the right engineering and investment solution to this challenge is receiving attention, but there is a long way to go before quality internet access can be demographically fair and equal.

Business Day