Xalam Investor Report: The African FiberCo Big Three – January 2016

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Few companies outside of mobile network operators have done as much to transform the African Internet as Main One, Seacom, and Liquid Telecom. We refer them Africa’s Big Three Fibercos – the largest pan-African operators whose businesses were built upon, and have traditionally been rooted in the provision of fiber infrastructure. The three companies are the continent’s largest independent cross-country fiber plays. Together, they are largely responsible for upending African international capacity markets, driving sharp cuts in international wholesale prices by close to 80% over the past six years. This analysis examines where they go from here.

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Product Summary

Few companies outside of mobile network operators have done as much to transform the African Internet as Main One, Seacom, and Liquid Telecom. We refer them Africa’s Big Three Fibercos – the largest pan-African operators whose businesses were built upon, and have traditionally been rooted in the provision of fiber infrastructure.

The three companies are the continent’s largest independent cross-country fiber plays. Together, they are largely responsible for upending African international capacity markets, driving sharp cuts in international wholesale prices by close to 80% over the past six years. This analysis examines where they go from here.

The top line traffic projections that underpinned the development of African fiber models have largely come to fruition. The number of Internet connections in the markets covered by the Big Three Fibercos has Risen 5x – 10x over the past five years. Data traffic is exploding, and more than 75% of fixed broadband connections will be fiber-based over the long term in many markets.

But the Fibercos are facing a number of fundamental challenges. Traffic growth is increasingly decoupled from wholesale capacity sales growth. African demand for leased international capacity is structurally unbalanced, the international fiber segment is oversupplied and fiber asset utilization rates are suboptimal. In effect, we believe the African international capacity business is now somewhere between a cash cow and a dog, wand the economic value has moved to metro and enterprise markets. In turn the Big Three Fibercos have to act.

The report examine the strategic options available to each of the three companies, based on international experience (from Level 3 and euNetworks), the dynamics of their core geographies and the state of their current network infrastructure and service portfolio.

The report also examines the consolidation potential of each of the Fibercos, either as acquirers or as acquisition targets. We argue that there is potentially more value in domestic market consolidation than in a combination of the Big Three Fibercos; we also note that each of the three companies would be a great fit for a number of players such as Etisalat or Vodacom Business.