Altech CEO Craig Venter was stumped. He needed a growth engine for the company. Sure, Altech was delivering steady growth in earnings and revenue, but at some point there would’ve no doubt been some flat-lining. He needed something to ensure that growth.
“As CEO you’ve got to find the next growth engine. In the next three to five years, what’s really going to take the group to the next level?” says Venter.
Last year, Altech bought a 51 percent stake in Kenya Data Networks (KDN) plus two other ISPs (Swift Global and Infocom Uganda) for $75 million from the Sameer Group. Both companies agreed to inject $20 million into the operations.
KDN has been around for a number of years, but with Altech’s initial involvement a year ago, it’s taken a jump.
Altech has since increased its stake to 60.8 percent by investing a further $39.5 million into the company.
It takes big money to build a network. And building a network in East Africa was the bet that Altech took last year. It had nearly R1.6 billion in cash on its balance sheet, so investing roughly half of that was by no means a small investment.
It’s an open secret that MTN wanted to buy the business. Dimension Data’s Internet Solutions was also very interested in buying KDN.
Venter admits that “it wasn’t an easy decision to invest R650 million into East Africa, where at that point in time there was the joint power-sharing scenario in Kenya”.
But, the company’s aim to crisscross five countries in the region with a terrestrial fibre and microwave network is starting to pay real dividends. “We’re really focused on those five countries: Kenya, Tanzania, Rwanda, Uganda, DRC,” says Venter. “It’s an investment at the top of the value chain because it’s one of the biggest data or infrastructure players in the region.”
The growth Altech is seeing from East Africa is, in one word, explosive. Venter says the company “fortuitously got in at the right time and put our money where our mouth is”.
In the most recent interim numbers to the end of September, 18 percent of the group’s R479 million profit came from East Africa.
Nice work if you can get it KDN generated R97 million in profit for Altech off revenue of R217 million in the past six months (compared to total group operating profit of R479 million off R4.7 billion in turnover). The margins in East Africa are seriously serious.
Venter says they are pretty well protected too. The only way margins could come down is if major competitors entered those countries. However, Venter ventures that it would take “three, four years for a competitor to build the same network that we already have”.
The company’s network in the region already comprises 4 000km of fibre, with microwave totaling 6 000km of coverage.
“How hard is that to replicate by a competitor? And how long will it take them to do that?” asks Venter. In terms of network rollout, “Kenya is done,” says Venter.
“We have redundancy loops in place, and we’ve now crossed the border into Tanzania with fibre; we’ve laid fibre to Kampala in Uganda. We’ve then taken our fibre to Kampala and are laying it to Kigali in Rwanda.
“In the DRC, we received our network operator licence four weeks ago, so we’ll be crossing into that country soon.”
The company is currently deploying 12km of fibre a day, a remarkable number. The key is linking up to the massive amounts of undersea international bandwidth being deployed along the east coast of the continent.
“We want to take that network and plug it into Seacom and Teams (The East African Marine System),” says Venter. He sees Altech being involved in both sides of the equation going forward. The region is seeing the benefits of the bandwidth explosion, not only from the undersea capacity, but also from the terrestrial fibre, and KDN is already doing most of the backhaul traffic for the mobile operators in the region.
“On top of that, we’ll look at the converged services offerings,” says Venter.
With East Africa being reliant on satellite, there’s a lot of scope to bring prices down. Venter gives some indication of what savings customers in the region will see as they migrate from satellite to fibre: internally, KDN is seeing a $6 million annualised saving. “We want to pass that onto the consumer,” he states. “Altech is the second largest bandwidth holder on the continent. We’re new in the game,” he laughs. “Telkom has been around, Neotel has been around.”
But, you buy lots of bandwidth, you get better pricing. And the pricing that Altech has negotiated with Seacom and Teams has given it 15Gbps.
The group has already sold 70 percent of the bandwidth it purchased from Seacom.
“We spent $69 million on that. In return, Seacom made a $20 million investment into capacity on our network,” adds Venter.
What about the rest of the continent?
“Everyone asks me about West Africa,” smiles Venter. “We have a very profitable business in Lagos, Nigeria [the NamITech SIM card manufacturer]. There are opportunities for us to further expand what we’re doing relatively well in the east. He admits the group is “making headway” in South Africa, but it’s going to take time.
“Everything that we’ve wanted in South Africa initially from a regulatory, licensing and frequency point of view, we’ve got in East Africa,” he says. “In every single one of those five countries, we have a full network operator licence, we have an international gateway to cross the border in terms of traffic and this enables us to build a five-country East African network.”
Obviously because there’s a pervasive terrestrial fibre network in the region, Venter says one will see a bigger impact there than in South Africa. “I’m not going to paint us into a corner, if frequencies and liberalisation start taking place, Altech has done it in East Africa – it’s not like it’s something new to us – we could replicate a lot of what we’ve done in East Africa in South Africa.” If...