The end is nigh for Telkom’s Cash Cow

Openserve has informed clients it will no longer sell Diginet services after 1 January 2018, and that support will end in December 2019. We’ve known that this was coming for some time – but weren’t sure exactly when it would happen. Where does this announcement leave us, and what does it mean for the telecommunications sector?

A little history lesson

Telkom’s digital point-to-point data network, branded Diginet, was piloted in Johannesburg in 1985 and a countrywide backbone was soon established[1]. These were sub-64kbps services and offered a fixed circuit alternative to analogue dial-up and ISDN connections. The service was expanded to Cape Town, Durban and Pietermaritzburg in 1986, and by 1989 the service was available in 273 exchange areas. By January 1994, 50,000 NTUs (network terminating unit) had been installed. Diginet Plus services were introduced in the early 2000s, offering speeds from 64kbps to 2Mbps in increments of 64kpbs. Domestic and international services were added to the portfolio.

Diginet services are monitored 24x7 and are available from more than 1,000 points of presence across South Africa[2], offering a predictable and near ubiquitous solution for fixed rate digital communications, technically at ‘broadband’ speeds (when we used to call anything over 256kbps broadband). As such, they became the mainstay of wide area communications for the private sector and public sector alike. Hundreds of organisations with branches distributed across the region or country, or even globally, use these services, often in a hub-and-spoke arrangement. Overall Diginet services have created the fabric of enterprise communications as we know it today.

Fast forward to the mid-2000s, and the launch of Neotel who soon sought to capitalise on the business market, and invested heavily in fibre in the main business districts of Johannesburg, Pretoria, Durban and Cape Town. Vodacom and MTN made some initial investments in fibre, primarily to interconnect their switches and also for their nascent business divisions as they too saw value in corporate connectivity. Dark Fibre Africa was launched in 2009, and with their open access model, sowed the seeds for many other companies to enter the FTTB (fibre to the business) market — most offering Layer 2 Metro Ethernet services. Around this time, others saw the opportunity to compete wirelessly, and in January 2009 Broadlink boldly stated that they were taking on Diginet, offering services from 512kbps upwards using licensed spectrum[3]. Internet Solutions responded with the WiNet service, initially using unlicensed 5GHz spectrum[4]. Other contenders included a few offering WiMAX solutions, and does anyone remember Sentech’s BizNet Xpress?

Back in 2010 Telkom hinted that the Etherlink service over SHDSL[5] would be a replacement for Diginet. The Etherlink service was launched in 2011 [6] but was quietly withdrawn from service a few years later. The Ethernet Express service was also mooted in 2010, and in 2013 we heard that Telkom was planning to move its current Diginet clients to a fibre-based MetroClear service, or to SHDSL[7]. MSANs have been rolled out across the country, and in 2014, Telkom CTO Alphonzo Samuels stated that an Ethernet-based replacement for legacy Diginet was being developed[8]. Ethernet Express appears to be this service and is available over fibre, microwave, VDSL and GPON with speeds from 1Mbps to 1Gbps. Telkom’s fibre footprint continues to grow, and Ethernet Express is available from 361 points of presence[9].

What’s next, and what does it matter?

So after some years of being silent on the topic, Telkom — well actually Openserve — has finally said that they are ‘sunsetting’ Diginet services. Openserve says that Diginet services will be migrated to alternatives by December 2019.

Today, businesses in the main metro areas are generally spoiled for choice of service over fibre or wireless. The story is however different elsewhere in the country. The WISPs have made good business in providing wireless alternatives to Diginet and ADSL, and will continue to fill a vital gap in the market. Frankly, the worry is for the public sector: SITA recently showed that nearly 90% of their 4,500-odd public service connections are still provided on Diginet, and that approaching 98% of all connections are less than 2Mbps[10]. Yes SITA have launched — and we hear awarded — the tender for broadband in eight District Municipalities, but the rest of the country has not yet been considered (see Out of the blue - the SITA Broadband Connectivity tender).

As seen above, the replacement Ethernet Express services are available at just over a third of the number of PoPs where Diginet is available. This raises some important questions:

• What technical plans does Telkom, and others, have in place to replace this service and ensure that businesses and the public sector can continue to function?
• How can the promised eGovernment services be rolled out nationally without Diginet, and with the paucity of fibre outside the main metros and second tier towns?
• What will the revenue impact be to Telkom with the cessation of Diginet?

Daisy the Diginet cow

Diginet can certainly be described as a ‘cash cow’ – she has produced milk, arguably expensive milk, for many years with little investment required. There have been stays of execution, but her fate now seems certain. So the real question is: has Telkom got a heifer in the waiting to be the star to replace Daisy Diginet?

Sources

[1] Comments in this paragraph are derived from the author's experience and statements on the Telkom History website. http://www.telkom.co.za/history/TelkomHistory/

[2] See [3] MyBroadband, Wireless taking on Diginet, 25 January 2009

[4] MyBroadband, Internet Solutions’ fibre plans, 20 April 2009

[5] MyBroadband, Telkom Etherlink/SHDSL service, 2 February 2010

[6] MyBroadband, Telkom SDSL Etherlink arrives, 6 February 2011

[7] MyBroadband, Telkom’s big fibre plans, 2 April 2013

[8] Telkom Investor Day presentation, Alphonzo Samuels: Wholesale and Networks, 2014

[9] Openserve, Ethernet Express product information available at http://www.openserve.co.za/open/media/downloads/1701_Openserve_EEv7.1.web.pdf sourced 14 October 2016

[10] SITA, Integrated Presentation to Parliamentary Portfolio Committee, 13 September 2016.