Neotel’s slow but steady start

South African consumers are asking if we are going to see intense competition between Neotel and Telkom. Will we?

Neotel:  “Certainly not in the immediate future. You can’t just go straight into a price war with a player like Telkom. It’s going to take us at least 12-18 months to just set up our network … The real price impact of competition in the telecommunications market in South Africa is a longer term outcome.”

It has taken 5 years longer to launch a second network operator than was first mooted. Have the delays disadvantaged the new operator?
Neotel:  “The answer, I’m afraid, is both yes and no. Any delays have costs which can be quantified in terms of money, time to marketplace and so on. But at the same time, new technology has become available. This allows for a leapfrog effect and lower costs, which will make us more competitive. We are now better positioned to make use of wireless and digital technology … We don’t face the challenge of an outdated infrastructure legacy that will be one of its competition’s big hurdles for the next few years.”

Do you have immediate offerings that are better than Telkom’s?
Neotel:  “At the outset we are going to be offering reduced rates and special incentives on international calls. On outgoing international calls, users will experience call completion in fewer attempts, even to remote countries. Furthermore, subscribers will experience greater connectivity reliability and higher quality of international internet bandwidth.”

We hear this figure of 15 percent market share (for Neotel) being bandied around. What’s that all about?
Neotel:  “That’s the portion of the market Telkom has effectively conceded to us. You’re only going to be seeing real competition once we have filled that portion. This means that only once Neotel captures that proportion of the market will competition really begin. Our first challenge was to make sure the train left the station. Right now it’s a matter of building up momentum and speed. Essentially the challenge is to operationalise the company.”

What types of business are we talking about? Who makes up this 15 percent and what are you’re competitive advantages in serving these sectors?
Neotel:  “The first target market that has been captured are the wholesaler buyers of bandwidth, companies like MTN, Cell-C, arivia.com, Internet solutions, M-Web and Telkom Lesotho. As this is a regulated price, Neotel cannot offer it more cheaply than anyone else. But our edge is that wholesale users can negotiate with people in Johannesburg rather than having to go via London as was the case previously. The second target segment is the corporate data market which consists of a few hundred potential customers. This is on track as we speak.”

And the third segment – retail? That’s what most people are really interested in.
Neotel:  “Retail, which includes private customers and small businesses, is where the game starts to get interesting. We hope to make it retail offering available in the first quarter of 2007. Everything is going to revolve around the idea of the ‘empowered’ customer. We want to remove the need for customers to wait for a service provider to install hardware. I’d like to see our product sold at outlets like Pick ‘n Pay and Woolworths. You’d go and buy the telephone and install it yourself. That means you could decide what you wanted, when you wanted it and where … you could decide to set up your internet access in your lounge for example. The metropolitan areas of the country will be launched first. That’s where your user density is at the moment. We anticipate eventually covering 80 percent of the population.”

Do you expect your experience in the liberalisation of Indian telecommunications to be useful in South Africa? About the impact of liberalisation on costs for example?
Neotel:  “You’ve got to remember these are very different markets. The only real parallel is the impact of increased teledensities over time. When telecoms privatisation started in India, some 10 years back, the country’s teledensity — the number of phones per hundred people — was just over 1. Now its over 10. I’m not saying there’s a direct lesson for South Africa here. But — and this is probably the important point — prices in India did come down to one-sixteenth of where they were in less than 10 years.”

Do any other parts of the Indian experience contain useful lessons?
Neotel:  “A key lesson is that the role of the regulator is crucial in telecommunications. In India we started with the sort of situation you don’t want. Essentially we had one person playing the role of judge, jury and advocate. But over time regulators develop along with the industry. In India, after 5 years, we had a superb regulator, hailed by everybody and making a real contribution to that increase in teledensities in the country.”

… And the regulator in South Africa?
Neotel:  “The South African regulator — the Independent Communications Authority of South Africa (ICASA) — will have a critical role to play in opening up especially the country’s retail markets. ICASA needs to make a number of decisions. Everyone knows what the issues are. We’re talking about mobile termination rates, interconnection costs and Internet bandwidth-linked rates and charges. There’s no mystery here. The man in the street knows what the problems are.”

But what exactly should ICASA be doing?
Neotel:  “What I can say from experience is that the regulator needs to focus on a few priority issues rather than a wide range. Quality, not quantity. Of course the regulator must take a holistic, not piecemeal, view. But within that it is necessary to be very specific about who is to do what, what the dispute resolution mechanism will be and what to charge. I can’t tell them their job. Fortunately there are now enough examples globally available to show how to deregulate markets. There’s no need to reinvent the wheel.”

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Neotel’s slow but steady start