Spoiling for a fight
A host of industry players – including UUNet, Gijima AST, Dimension Data, MTN Network Solutions and telecoms industry body CUASA (the Communication Users Association of South Africa) – have told Moneyweb they will either oppose the deal at the Competition Commission, or ask that certain conditions be imposed on the deal to decrease Telkom’s monopolistic position in the market.
The main concern is the possibility that Telkom could cross-subsidise its value-added services with the basic telecoms facilities.
Edwin Thompson, legal, regulatory and operations executive of UUNet, says unless there is a separation of accounting, the deal must be prevented. Otherwise, Telkom will be able to engage in anti-competitive practices with regard to its value added services.
Derek Wilcocks executive for strategy and technology of Dimension Data South Africa, says his group would “fundamentally oppose the deal in its current form”. Second prize would be to insist on certain concessions, such as wholesale pricing from Telkom, to level the playing fields.
Didata, with its subsidiary, Internet Solutions, is heading down a similar business model path to Telkom, particularly if the latter buys Business Connexion. The difference is that Internet Solutions will be less able to compete on pricing of the telecoms component of any outsourcing deal because it is still dependant on Telkom’s infrastructure.
Most industry players cite the recent South African Revenue Service (Sars) tender as an example of the way outsourcing is going; it requested a full-scale solution ranging from the telephony, to the desktop hardware to the networking. Bidding parties had to partner to be able to offer the full-range solution. Naturally, Didata’s bid included Internet Solutions, while MTN Network Solutions partnered with IBM and Telkom with Business Connexion.
Wilcocks says in future outsourcing deals, Telkom with Business Connexion, will be able to undercut competitors on the telecoms element of the deal, by cross-subsidising the basic infrastructure portion. Of course Didata and IS “won’t roll over”, says Wilcocks. The group’s global business model also helps to offer clients the same service in other countries.
But, he’s concerned this could have a detrimental affect on the local IT business by forcing players to spend more of their time in the courts and before the competition authorities defending individual matters, rather than spending it on innovating.
The result could be a local IT industry consisting only of Telkom and the multinationals, the latter which tend to do much of their development elsewhere.
GijimaAst CEO John Miller says it would also be likely to oppose the deal, or at least hope for reassurances that it would not be prejudiced. Miller says the deal would create a “very formidable company. I’m just not sure that the country needs a formidable company like that”. He says the deal would not be a problem if Telkom were not in the monopolistic position that it is. Although the second national operator (SNO) will change this to some extent, few expect it will have a significant impact in at least the short to medium term.
Mike Brierly, CEO of MTN Network Solutions says he fully understands Telkom’s rationale for wanting to do the Business Connexion deal. The strategy is similar to that of British Telecom in the UK. Telkom would have two options for expansion, says Brierly; either the MTN route of making acquisitions in other markets (and Telkom is trying to do the same through Nitel in Nigeria, but this has its risks) or it can increase its value added offerings in a bid to take market share.
The deal “doesn’t make us happy”, says Brierly, but “its a smart move for Telkom” and will create a “formidable competitor”, he says. He says MTN Network Solutions will simply continue with the partnering model to compete in other full-range tenders like the recent Sars one.
Brierly says Telkom’s possible cross-subsidisation is an issue, but this should diminish as other players can start to self-provide their own infrastructure and as the SNO starts to operate.
He says its stance on the Telkom, BCX deal at the Competition Commission would depend on how the deal is structured, and “we should perhaps ask for greater transparency”. But the one area it will oppose is the Bidvest Network Solutions (Bidnet) component. Business Connexion recently bought Bidnet, a corporate internet service provider (ISP) in order to be able to offer its clients a full range solution, but Brierly says it would insist this be sold if Telkom buys Business Connexion given Telkom’s already dominant role in the data market.
Cuasa spokesperson Ray Webber says the industry body does plan to complain about the Telkom, BCX deal if this goes ahead, but although there has been some correspondence between members, it has yet to formalise its detailed stance. The biggest concern, says Webber, is that Telkom is believed to cross subsidise services to help keep prices down and cut other players out.
DataPro, the AltX-listed connectivity company, is unconcerned about the potential Telkom, BCX deal. CEO Doug Reed says it won’t oppose the deal on any grounds. The deal would take Business Connexion, which was going into its space, out of the market, so DataPro is more than happy to see a competitor being taken out.
Once it received expressions of interest, Business Connexion engaged a merchant bank, believed to be Investec, to formally deal with the bidding process. Telkom officially declared it was a bidder, while Bytes Technology Holdings is also believed to be in the running.
Other contenders, it has been speculated, could be international players such as T-Systems. But speaking on Moneyweb Radio last week, Desmond Seeley the general manager for telecoms at T-Systems said although it had spoken to Business Connexion a few times in the past, “we are not considering anything directly”. It was watching this quite closely, however, he added.
Source: http://www.moneyweb.co.za
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