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Pay-as-you-go fibre could just be the vital informal economy kickstart we need

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Cobus Venter is an economist at the Bureau for Economic Research (BER) but writes in his personal capacity. In no way does this opinion piece reflect the views of the BER or those of Stellenbosch University.

There is a fast-moving, systemic shift taking place across many sectors as pre- or post-paid services are rapidly being replaced by pay-as-you-go services. Entire new markets are being enabled and opened.

Disclaimer: Cobus Venter is a consulting economist to Vulacoin and fibretime™️ group but writes in his personal capacity.

There is no doubt that technology allows for leapfrogging and has amazing potential for Africa’s development. When the distribution of easily spoilable blood plasma was required in Rwanda, the legacy road network created a potentially insurmountable barrier. But using highly advanced drone technology, coupled with precise geolocation data, the country largely bypassed the problem (the lack of a suitable road network).

Advanced technology allowed roads, a pre-21st century product, to be leapfrogged and a cutting-edge, efficient solution became available.

But Rwanda had another “ace” up its sleeve. The required finances (assistance from donors) to enable the leapfrogging technology were available.

This brings me to the topic at hand. There is a fast-moving, systemic shift taking place across many sectors as pre- or post-paid services are rapidly being replaced by pay-as-you-go services. These software-based changes are enabled by various fintech solutions and are specifically useful in our township economies. Entire new markets are being enabled and opened, with all the potential benefits that trade brings.

Without trying to delve into the specific solutions, one can use a real-world example, currently operating in Kayamandi, Stellenbosch, to showcase the principle.

Ubiquitous, high-quality, uncapped and fast broadband in poor areas allows consumers who previously had to rely on expensive capped mobile internet to take part in the modern digital economy. These consumers can leapfrog all the legacy systems. But that is not the unique point I am trying to make.

Rather, the game changer is that innovative payment solutions are also allowing the owners of capital to leapfrog traditional financing requirements for what is a very significant investment. A whole new market segment can suddenly be accessed and served. The benefits of this new market impact much wider than simply the narrow providers and consumers.

Poor forgotten by default

Provisioning a fibre connection to a house was traditionally preceded by contracting the neighbourhood to achieve a pre-sales take-up commitment. We all know the corner stands of fibre companies when they enter a new area. Nice bright umbrellas and teams of salespeople, eager to get you to sign for a 12 to 24-month fibre-to-the-home service. R699/month for a 40Mb line anyone?

When they reach a certain threshold, short-term financing is made available to these companies to trench or put up aerial fibre to those customers who have signed up. The debit orders safely serve as security of income. This has happened in many of our suburbs already.

But this works for the leafy middle-class suburbs that have credit cards and are willing to commit to term contracts. But what about the townships, where it is not possible to contract in a similar fashion? The townships are where most South Africans live. These same people mostly dislike monthly debit orders and often they do not have debit or credit cards.

If there is no critical take-up threshold achieved, financing cannot be extended, and the investment never occurs. There is absolutely nothing strange about this, and no financial institution is being cynical or red-lining areas. Banks need security that they will get their money back, a rational business practice.

But the result is the same, the area gets bypassed and the people living there do not get connected. Very unfortunate, let’s move on and ignore the problem while looking for another leafy suburb. The poor are forgotten by default.

Pay-as-you-go alternative

Fortunately, not anymore. By switching to a pay-as-you-go model, this very same area suddenly becomes viable from an investment point of view. During the extended full-coverage, proof-of-concept project in Kayamandi, fibretime™️ utilises an innovative payment and validation system called Vulacoin to overcome the lack of pre-payment options.

Vulacoin doubles both as wallet/payment gateway, as well as an operating system for the internet service provider and owner of the network. Vulacoin can be used on any network. This allows for instantaneous, real-time validation, activation and management of pay-as-you-go services on the network.

Read more in Daily Maverick: Disruptive project brings fibre to homes in Kayamandi, Stellenbosch

fibretime™️ installed routers (and small UPSs) into all dwellings across Kayamandi and did not require ANY pre-sales or commitments from residents. Traditional financing was not an option and fibretime™️ had to self-fund the entire capital amount required upfront. Break-even required that at least 60% of dwellings use the fibretime™️ services daily. Pay-as-you-go internet is available from one minute to one day/week/month, but the vast majority of people buy the daily R5 bundle.

To say that the initiative was a success is like saying that jet fuel is a partially combustible substance. Daily usage is significantly above the break-even threshold. The business model is robust and confirmed.

A small market tweak and pay-as-you-go, using better technology, has created a broad market where previously there was none. Much like Rwanda’s blood distribution service, there is no need for legacy systems. The improvements made are highly positive for the community involved and will be reported on in future.

Inclusive innovation

Could this way of doing business change the South African economic landscape for the better? There are clear benefits to being able to partake in the digital economy and the topic is receiving much attention.

A recent presentation by Prof Haroon Bhorat from UCT, one of our most respected developmental economists, pointed out an interesting fact regarding our sticky unemployment problem. When measured against our middle-income peers globally, South Africa has the highest unemployment — by some margin — at well above 30% against a mean (average) of under 10%.

Again, we know this. But what is more interesting, is measuring this same middle-income group, and comparing the percentage of people employed in the informal economy as a percentage of the total employment. Here South Africa is on the very opposite side of the dispersion with a paltry 16%, compared to the mean (average) of almost 45%. The only five countries with lower informal employment percentages include places like Belarus, Russia and Ukraine, so hardly comparable.

There are many reasons why our informal economy employment is so much smaller — the continued effect of spatial apartheid is probably the leading culprit so not easy to change either.

What is clear is that there is a huge opportunity to increase employment in this often-neglected sector. Given the challenges posed by the legacy of spatial apartheid, any activity that can add economic value in our informal township spaces must be welcomed.

In an upcoming report by the team led by Prof Bhorat, access to internet and better pricing will be highlighted as a supply-side stimulus measure to improve infrastructure that should be considered. But our fiscal space is extremely limited so do not expect the government to do this.

Back to the pay-as-you-go wave. Crucially, traditional banks are now able to assess the risks of take-up, with real-world data and results. Financing models are being adjusted and private funding is becoming available to extend significant, self-sustaining fibre internet infrastructure investment into our townships. fibretime™️ is but one such example, hopefully their success will lead to many others following the same path.

It is only a question of time when the pay-as-you-go model will be applied to other services like pay television. Consumers prefer the convenience and affordability of only paying for a service when they use it.

Pay-as-you-go is the latest innovation in an ever-evolving world. But it is proving to be perfect for the high-density township market. It’s simply a better mousetrap and adds a bit of much-needed optimism to the SA economic outlook. DM

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Comments - Please in order to comment.

  • Bruce Danckwerts says:

    EXCELLENT article. It is ideas/innovations like this that are going to fix South Africa’s future – indeed the future of the whole planet. As a consumer (of data bundles) I would like to understand why we cannot have a simpler system, whereby any data I buy can be used for either data or voice, and any data I buy is valid until I have used it? I appreciate that, just as Coleman’s profits were built on the mustard that was left on the side of people’s plates, the current model of IT providers is that their profits are made by the data that was unused when that particular bundle expired. I do believe that a more equitable (and therefore more sustainable system) could be built around a simple system where your purchased data lasts until you have exhausted it, whether by data or voice use. I don’t know what it is like in South Africa, but here in Zambia we are bombarded by daily offers of different deals by all the network providers (MTN is the worst) and the choice is both confusing and restrictive. I certainly believe this pay-as-you-go fibre-optic model has more to offer Africa than Starlink and I will be watching progress with interest. Bruce Danckwerts, CHOMA, Zambia

    • Bruce Danckwerts says:

      Another idea that I believe is long overdue in the IT data space is that Data should be more expensive according to when you are using it. It is within the capability of technology to include in the network Apps a colour code so that, during periods when the network is over-loaded (too many fans watching the world-cup finals) the App has a red indicator, warning users that data (at that moment in time) will be charged at the most expensive rate. Amber for average conditions, and green for moments (in the wee small hours) when the network is being under-utilized and so rates are the cheapest. This would benefit the users (because people who really have to watch their cents, can choose to wait for periods of green) but also help the network providers because their infrastructure would be used more fully during the week. Electrical (grid) engineers are aware of this problem – they call it Load Factor – but, so far, have only a very crude way (and largely ineffective) of smoothing out the demand. Network providers have an easier task ahead of them. Bruce Danckwerts, CHOMA, Zambia

  • Rae Earl says:

    The ANC will no doubt throw a spanner in the works by demanding a share of the money channeled to the service provider. Either that or they’ll find some way to stall it to protect any possible vested internet interests which Chancellor House has its claws in. The ANC is anything but charitable when it comes to looking after poor black communities, their ridiculous demands on Starling a case in point.

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