Frogfoot raises billions to expand township fibre roll-out

Frogfoot Networks, internet service provider Vox and prepaid fibre brand Hypa have raised new equity and are expanding their debt facilities in a transaction that values the businesses at R14.4-billion and is meant to more than quadruple the rate at which Frogfoot connects South African homes.

The target is 360 000 connections a year within 12 months, up from about 80 000, aimed at townships and lower-income areas, with more than 5 000 direct jobs claimed. The transaction implies an equity value of R8.4-billion after roughly R6-billion of debt.

“This transaction is an equity transaction, but it does allow us to expand our debt facilities as well, and that was negotiated as part of this transaction,” said Abraham van der Merwe, who will lead the companies, with Gert Koen as chief financial officer.

The subscriptions are for new shares in Frogfoot and in Vox, which wholly owns Hypa, and not in Vivica Group . Van der Merwe said the group was split into four separate silos around 2023: Frogfoot; Vox with Hypa; renewable energy business Stage Zero; and Vivica itself, which retains four technology businesses along with a head-office function handling governance, treasury and fundraising across all four.

The largest incoming grouping is the DNI consortium, comprising DNI 4PL Contracts, JSE-listed Sabvest Capital, Masimong Group Holdings and Draper Gain International.

Two partnerships managed by the general partners of Metier Capital Growth Fund III are reinvesting after more than 20 years in the business, and EM-Three, businessman Simphiwe Mehlomakulu’s investment vehicle, comes in as the third-largest direct shareholder.

Selling down are RMB Ventures and the Mineworkers Investment Company. MIC is itself invested in DNI. No shareholder controls the businesses before or after implementation. RMB was adviser and funder.

The investment case rests on a reversal of the industry’s long-held view of where fixed-line infrastructure makes money.

Van der Merwe said South Africa’s affluent suburbs amount to roughly 4.5 million households, took the better part of a decade to fibre up and are now largely done. The townships hold between 12 and 15 million homes on census data, he said, and fewer than two million have fibre. Frogfoot routinely finds more homes on the ground than the census records.

Fibre economics are driven by density, and townships are denser than the suburbs. That cuts the cost of building per home passed, which in turn allows a lower retail price. Van der Merwe said the township business case now stacks up on economics comparable to those of the affluent suburbs, despite charging less for the same service.

Where the economics break down is in rural areas. Sparse populations mean covering long distances per customer, and that is where wireless technologies including low-Earth orbit satellite and 5G fixed-wireless make more sense, he said.

The model differs from the suburbs in one respect.