Michael Jordaan has had one experience in the telecoms sector he’d rather forget.
A few years ago he was chair of MXit, which aimed to be a domestic competitor of messaging services such as WhatsApp. The problem was that while MXit was popular in the feature phone market, it failed to recognise the transition to smartphones. "The messaging market was winner takes all, so it was clear after two board meetings it was time to pull the plug," he says.
Jordaan has made a more serious foray into telecoms through Rain, this time investing his own money. He became an investor and director of the business in 2014. Rain was started when the family trust of former FirstRand CEO Paul Harris bought spectrum which had been allocated to Wireless Business Solutions (WBS) — the only significant spectrum not held by the cellphone network operators. WBS owned the iBurst and Broadlink offerings.
Harris says nobody else saw the value of this spectrum five years ago, and nobody was talking yet about a 5G network, which will increase the speed of data delivery significantly.
Willem Roos, then CEO of Outsurance, was one of the original investors and he was brought in last year as Rain’s CEO, to spearhead the move into the retail market. Rain has built its own network of more than 2,000 towers in the main urban centres, using Nokia and Huawei technology. "We are focusing on data as a voice network needs complete national coverage; you can’t expect calls to stop when clients hit black spots. And voice is in decline as over-the-top services such as Skype and WhatsApp grow," he says.
As more and more phones are introduced that accommodate dual SIM cards, Roos hopes that customers will use one for their voice calls and the other for their data. Rain’s prices are highly competitive: it charges 5c per megabyte and R50 per gigabyte. It has no contractual lock-in periods, and there is unlimited data usage in off-peak hours (from 11pm to 6pm the next day) for R250 a month.
With 5G, Rain hopes to appeal to the uncapped world of gamers and video streamers. The business will need much more capital, though, as it plans to roll out 3,000 more towers to make its footprint competitive. It would like to raise capital without bringing in any large institutional shareholders, perhaps by taking out loans. In Jordaan’s case, his holding would be diluted if a new shareholder was brought in.
Roos has no plans to follow Outsurance’s expensive television-based advertising strategy at Rain. Instead, Rain has just used some low-key radio and social media promotions.
Nor does Rain plan to package its own content, along the lines of Cell C Black. Instead, it aims to provide a competitive way to access entertainment compared with methods such as fibre and satellite.
As part of a regulated industry, Rain has a privileged position in telecoms. Spectrum cannot be sold or transferred and it could be years before there is another comprehensive auction of spectrum. But Roos says Rain has a significant fixed cost base, even though take-up of the product is uncertain. Still, he is confident Rain can provide high-quality, fast connection to the internet, with simple products and, ideally, good service.
As a new product, though, it isn’t burdened with legacy systems. Much like the established banks, Vodacom and MTN are finding it difficult to make big changes in the way they operate, because of their existing systems. For example, they both have a much larger staff contingent than Rain, which has fewer than 200 people in its head office in Bryanston, Johannesburg.
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