Big announcement about Vumatel and Herotel

The Competition Commission has greenlit Vumatel’s proposed acquisition of Herotel and recommended that the Competition Tribunal approve the deal with conditions.

To address competition concerns, Vumatel has agreed to remain an open-access network and continue to provide services on terms that are transparent and non-discriminatory.

This is relevant because Herotel is one of the few large closed-access fibre network operators in South Africa that does not offer wholesale services to third-party Internet service providers.

End-users buy their services directly from Herotel, with the company acting as network and service provider.

The Commission said that in addition to remaining open access, Vumatel has also made public interest commitments to roll out fibre-to-the-home (FTTH) in low-income areas.

“The proposed transaction does not raise significant public interest concerns,” it stated.

Vumatel and parent company Community Investment Ventures Holdings (CIVH) announced that the fibre operator had acquired a 45% non-controlling stake in Herotel in February 2022. It later increased its holding to 49.96%.

In August 2022, Vumatel announced that it wanted to increase its share in Herotel to 100% to help it expand its coverage of South Africa’s secondary cities.

Two years and seven months later, the Competition Commission has given the transaction its stamp of approval.

The Remgro-owned CIVH is pushing to provide cost-effective, high-speed fibre to lower-income communities across South Africa.

It believes Herotel’s footprint in secondary cities can help it achieve its goal. Vumatel has also started rolling out prepaid fibre services to more densely populated lower-income communities like Alexandra and Kayamandi.

This was after its rollouts in neighbourhoods like Mitchell’s Plain proved successful.

Remgro’s head of strategic investments, Pieter Uys, previously said Herotel’s network would help Vumatel offer more affordable, high-speed fibre to lower-income communities across South Africa.

Since announcing the proposed acquisition, Herotel has grown from South Africa’s twelfth to its third–largest fibre network operator, with most of the homes on its network in townships.

The company announced a major fibre push in 2021, targeting smaller towns all around South Africa.

By August 2021, Herotel had completed 53 separate rollout projects and added 100,000 homes to its footprint.

However, it was rapidly running out of capital and would have had to scale back its rollouts without a cash injection.

Fortunately, Herotel had been discussing a potential investment with Vumatel and its parent company since 2020.

Vumatel investment fuels Herotel expansion

“Following the successful execution of Herotel’s fibre strategy over the two years leading up to 2021, the only barrier we had to scaling our fibre rollout was access to capital,” Herotel previously told MyBroadband.

“Available debt facilities were saturated, and without any shareholder of reference it was not possible to raise further debt facilities.”

Herotel explained that none of the existing Herotel shareholders had the capacity to insert further growth capital.

“So the barrier between Herotel’s existing 200,000 stands at the time, and its pipeline of a further 400,000 stands was capital.”

Additional funding from Vumatel allowed Herotel to expand rapidly in the following months, reaching 345,000 homes in December 2022.

By May 2023, Herotel’s network included 500,000 stands.

Unfortunately, it once again reached the extent of its funding facilities.

While Herotel has continued rolling out consistently since then, it only added around another 83,000 homes by June 2024.

Most of these are in previously underserved areas. Herotel said it has 338,000 fibre stands in townships and 245,000 in traditional suburbs.

With the additional cash injection from Vumatel due to this latest transaction that has received Competition Commission approval, Herotel said it could expand its fibre pipeline to a possible further 400,000 stands in townships.

As of December 2024, Herotel’s network coverage stood at 574,976 homes passed and 213,883 homes connected.