JOHANNESBURG — Former FNB CEO Michael Jordaan made a name for himself for pushing technological disruption in South Africa’s banking sector. That bank has been the recipient of numerous innovation awards with Jordaan seen as a maverick in the industry. But now Jordaan is setting his sights on disrupting the local telecommunications industry by backing a company that has been rebranded as ‘Rain’ and which seeks to provide South Africa’s first data-only mobile network. Jordaan touches on how the company, upon its future official launch, plans to provide a mobile competitive equivalent to terrestrial fibre networks. Interestingly, I spoke to him on a day when much-needed rain was lashing the southern tip of Africa as a strong cold front hit Cape Town and surrounds on Wednesday. – Gareth van Zyl
I’m speaking to former FNB CEO and now investor, Michael Jordaan, who is chatting to me today from the Cape of Storms as a massive cold front lashes that part of the world. Michael, I’m hoping that you’re keeping safe and warm indoors today. It’s a pleasure chatting to you.
Thank you for having me. Yes, it’s indeed been quite a stormy night where we are on a farm just outside Stellenbosch. We had more than 100 millimetres (of rain) expected for the 24 hours, so we’re halfway into it, but quite a bit of rain still to come.
It’s much-needed rain for that part of the world. I’ll get into your involvement with a new national LTE network in a minute, but for our listeners and readers out there, what is keeping you busy nowadays there in Stellenbosch? It seems like you’re involved in a lot.
Yes, I’ve loved my life since the big corporate world and I like to get involved in startups or scale-ups and this latest venture (a national LTE network called Rain) is a very exciting one. It’s also one of my biggest investments and we are simply trying to see what the big macro trends of the world are, and where the puck is going and one of them is the explosion of data. Worldwide data consumption is up annually by 60% on a compound basis. The exciting thing for South Africa, particularly as we have a recession now, is that the more data our people consume, the better is for the economy, the more people who have access to the internet, the better it is for the economy. So, we’re trying to play a constructive role in the economy and hopefully build a really good business in the process.
Back in 2015, a company that you and Paul Harris back called Multisource acquired Wireless Business Solutions or WBS. Obviously, that company, WBS, was the holding company of iBurst and Broadlink. News this week is that you’ve rebranded as Rain. Why the rebrand?
Well, first of all, there were some old brands there. iBurst itself is obsolete technology, it doesn’t exist anymore. WBS is a bit of a long name, that is ‘Wireless Business Solutions’, and what we ideally want to do is create a new category of mobile network, one that is specifically just focused on data. But we didn’t want to make it Telkom-sounding. We want to ultimately create something that other businesses grow the idea of Rain. And how symbolic is this Gareth, you know, today as we have these rainstorms, that this is also the name with which we rebranded the business.
What’s interesting here is that you’re building a national LTE network with Rain.
Yes, that’s right. One of the advantages we have of course is that we can choose the very latest of technology and that’s what we’ve done. So it’s LTE Advanced Pro. Some call it 4.5G, others call it 4.9G, there’s 4G Plus. But what it really means in layman’s terms is more data, faster data, better quality data and obviously we also want to go to market, make it more affordable. We don’t have any legacy revenue streams. From our perspective we think voice should be free, SMS or messaging should be free and it’s becoming like that, just look at the WhatsApps of the world. We just want to be a data first and data only network because that’s what the future entails.
How many LTE sites have you rolled out so far and in which parts of South Africa?
We have some 770 sites that are up and running right now and we’re adding somewhere between five and ten of these sites every single day. We’ve obviously focused on the metros first because that’s where the biggest data demand is. But we hope to have some 2 000 by year-end, so it will cover not just the big metros, but some of the smaller urban areas as well and we’ve set ourselves a target of having 5 000 of them in three years’ time. So, that will be really good coverage of South Africa and we won’t stop at 5 000. Our goal, as I said, is 10 000, but that will take a little bit longer.
How would that compare to some of the bigger mobile networks out there like Vodacom and MTN? I guess that they have thousands of sites across the country?
They would have in excess of 10 000 sites. Although, not all of them are data or LTE enabled. You see, part of their advantage, but also disadvantage, is that they support a whole lot of phones that are 2G and 3G and they have to use some of the spectrum that they have for voice and SMS, whereas we are able to maximise the spectrum or bandwidth that we have licensed to us, all only for data. So the amount of towers that they have that supports data would be less. I can’t tell what their specific number is, but clearly, Gareth, we’re up against very significant competition and we’re not taking this lightly. But having said that, we do think that we’ve come with something new, with this “data first and data only”. More particularly, our pricing practices will be very competitive because we have to make it affordable for as many South Africans as possible.
Michael, just the rationale behind going data only. Does this cut costs if you’re not offering a voice service or is voice basically just becoming obsolete?
Well Gareth, first of all, the world is heading towards data only. As I said, voice and SMS are all value-adds that the best operators make a lot of money out of. But those services essentially will become free and they’ll just become data services. Voice will become an app, SMS will become an app, and that’s why I’m saying WhatsApp or Facebook Messenger already does for you. So, instead of building a business that tries to make money out of revenue streams that will disappear over time, we would rather go towards the future where everything is data.
Voice will become data, whether it’s voice over LTE or voice over internet protocol and this data demand, as you say, is exploding provided that you can provide good connectivity and you can make it affordable enough. I have kids in my household and it’s not uncommon for us to have a night when my wife and I watch different programmes on Netflix and each of the three kids watch their own programme as well. So, it’s tremendous data consumption, but that is what happens when you make it available for affordable prices and it’s on an uncapped basis.
When do you think that Rain will officially launch, when can consumers buy some of your bundles and packages?
It will take some time until we launch a fully-fledged mobile network, so you can expect more announcements about that later in the year. But within the next week or so we will make another announcement about our fixed-mobile launch. Now what fixed-mobile really means is that we can cover suburbs or business areas on a mobile basis. So, you put a little router or a hotspot in your house or in your business, and then you can connect to it via Wi-Fi and all this has in it is a SIM card. Now, the interesting thing is that this means that we are getting this between 20 and 100 megabits per second, which is very high and definitely comparable with fibre (broadband) and we do think the cost will also be very competitive because there’s no need to, let’s say, dig up pavements and streets. All you do, is you put a little router or this hotspot in your office and wala: You have the network access that you require, so more about that in the next few weeks.
Very interesting, so is that your ‘Rain to the Home’ product offering that you guys are planning?
That’s exactly right, so you can call it “Fibre in the Sky” and we want to compete with fibre where the rollout just takes significantly longer and as I said, this has administrative issues such as digging up pavements or laying a furrow to your home or your business. It’s just much easier if all you have to do is switch on a box.
Could ‘Rain to the Home’ ultimately cost less than fibre? I know that I recently just obtained a fibre line here in Johannesburg and had to jump through quite a few hoops to get it. Fibre is currently quite competitively priced compared to Telkom.
Yes, most certainly the idea is that it’ll be competitive, but I unfortunately, cannot reveal too much yet because the announcement will come soon.
What’s interesting is that Vodacom may tap the Rain network as well. Can you tell me more about that?
Yes, what we’ve done, which is actually standard practice in the industry, we have completed a deal with Vodacom where we can put our kit, our broadcasting equipment on their towers which is a big benefit to us because we don’t have to go and rent space for towers and do the backhaul. We pay them for that, but at the same time they have done a roaming agreement on our network, which is also standard in the industry. Telkom has one with MTN and Cell C has one with Vodacom as well. So they are roaming on our network and, you know, we hope to provide good customer service to them in a wholesale perspective and we can see that we could also do similar deals with some of the other operators while we build out our retail customer base, which will obviously take some time.
Over 25 000 mails entered into our coverage map in 24 hours. Wow. People really want Rain. https://t.co/D1yV94LMk8
— Michael Jordaan (@MichaelJordaan) June 7, 2017
Obviously, the reason why Vodacom would look to an arrangement like this is because they’re strangled with spectrum, isn’t it? Government hasn’t really been too active on allowing auctions on spectrum while digital migration’s also been quite slow. What is your take on that?
Yes, certainly spectrum has become scarce and a very valuable asset and I think all operators in South Africa hope that we can make faster progress with making more spectrum available in South Africa, because of this incredible move towards data and towards digitalisation in the entire world. So, it is in fact, the basis for what some call the Fourth Industrial Revolution. Having said that; though, there are also sound economic principles why operators should do things like share infrastructure, which is the deal that we’ve done and roam on each other’s networks. So, it is also a more efficient use of the existing infrastructure and is in line with what both Icasa and the Minister of Telecommunications has suggested that operators do. Therefore, while spectrum is slow in being made available, we are business people who are trying to make a plan so that South Africa can also benefit from the digital dividend.
As Rain, obviously you guys have a certain level of spectrum under your belt already. Would you need more going forward, considering your big plans for this national rollout?
We are in the fortunate position in that we have a 1800 megahertz and 2.6 megahertz allocation. What that allows us to do, without being too technical, is something called carrier aggregation. So you can use both of those and for your typical smartphone that his now coming out to the market, but in time we do believe that this data demand will just grow and grow and spectrum is finite. Ourselves, as well as the other operators, will certainly be in the market to acquire more spectrum should that become available. Right now, I said the growth in data worldwide is about 60% annually.
In India for example, last year when a new operator launched – and they were free at first – the demand for data there grew 400% and we just don’t know where that is going to stop. I used the example earlier of my kids all watching a separate show on their iPads. They say the average American is probably going to top out at 25GB per month. Now that is many, many factors more than the average South African uses right now. The point I’m just making is that the demand for data is nearly infinite. We’re not sure where it’s going to end, but it’s going to be much, much more than what the South Africans currently use.
Is data and spectrum the digital gold of the 21st Century?
I think data and spectrum, as I say is, and ultimately just going to be foundational for many more businesses that are going to be built on top of this data network. If you believe in autonomous or self-driving cars, those cars need to be connected to a data network and they need to have very high reliance and reliability on this network. The download speeds need to be very high and that’s just one industry, but of course, it’s a massive industry. You can add to it trucks, on top of it you get security applications, weather applications etc. We’re still going to see fantastic businesses that are built upon this network of data which is plentiful, abundant, and not expensive.
Also, putting your former banking hat on, South Africa has entered a technical recession. We’ve been downgraded to junk earlier this year as well by two ratings agencies. What is your take on all of this?
Gareth, in one sense I’m very depressed by it all and I’m depressed because we could be growing by 5%. The South African economy has the basic characteristics that we could grow at 5% if we make the right decisions. I firmly believe that growth is a decision. Sometimes, some of those decisions are hard, but if you decided that growth is the ultimate goal, you can grow it 5%, so I find that frustrating because if we were growing at 5%, we would be creating millions of jobs and that’s what South Africa so urgently needs.
Rain's aim is "open access" to the internet, with the best possible quality and speeds at affordable rates for all https://t.co/wiAqLy6niA
— Michael Jordaan (@MichaelJordaan) June 6, 2017
I suppose rather than just pointing fingers, we would like to be in the group that makes a positive contribution that does invest in businesses. We will invest many billions into the capital expenditure for this new network, Rain, and we do think that it will have a positive impact on economy and make the economy grow. So yes, critical of policies, the macro policies: We could be doing much better but trying to play a constructive role ourselves because South Africa, after all, is still a country with many possibilities.
So you don’t think that the slowdown in growth and the recession will impact data growth or the line of business that you’re going into?
You see, macro slowdown obviously impacts the economy as a whole, but there are certain subsectors of the economy that are still growing very, very fast and data consumption is just one of them. Clearly, if the economy grew even faster, you would think that there would be more job creation, more disposable income and it could grow even faster, but I think we are very far away from that having South Africa, where we can bemoan the state of the economy as holding back data growth. There really is unlimited demand for data. Our challenge is to make data affordable enough for South Africans and we are ready to do that.