Time to shake up the telecoms sector
THE official launch in 2006 of Neotel, SA’s second fixed-line phone operator, was hailed as a landmark event because Telkom’s firm grip on the fixed line market would at last be challenged.
It also raised hopes that some sort of competition would at last bring to an end the era of high telecoms charges in SA and lead to higher economic growth.
Tata Group, one of India’s successful corporate exports, has a 51% stake in Sepcom, a holding company that has a majority share in Neotel. But Tata could soon hold 51% of Neotel by buying out other shareholders in Sepcom.
However, it has been a hard road for Neotel since it was awarded the licence in 2005 to operate SA’s second fixed-line network. Three years on, CEO Ajay Pandey says significant progress has been made in laying the foundation for the company’s future growth to position it to take on Telkom. Most of the work so far has been establishing Neotel’s own infrastructure.
“Creating a network infrastructure for a telecoms company is like building a factory, and unless you have that production cannot happen. Our initial focus was to build the infrastructure and get the people in place. So there has been progress.
“On the business side we started off with wholesale services. MTN, Cell C and Vodacom have begun taking services from us. We are diverting the top 50 of SA’s corporate customers. So in a very humble way, there has been good progress so far.”
Pandey says the company has grown from 400 employees in 2006 to 900 this year, and R1bn has since been invested on mostly laying down the 11000km national backbone optic fibre. In Durban, Johannesburg and Cape Town 2500km of fibre have been laid.
Neotel has committed R11bn into its networks over the next decade, with the bulk of the spending taking place in the next three or four years, more than 50% for infrastructure.
The company is already offering a wide range of services to a number of corporate and consumer customers.
Pandey says the next big step for Neotel will be to grow corporate business and a consumer base. The company is targeting 40000 to 50000 subscribers by July next year.
He says by 2011 the company should have captured at least 15% of the local market from Telkom in revenue terms.
Pandey says prices in the enterprise market have gone down about 30% to 40% since its entry. It has also been able to get bandwidth, the key ingredient for internet connectivity.
“We have also been able to get submarine cable Seacom signed up for the country, which should be the only cable ready before the 2010 Soccer World Cup. It will be operational in June next year and should have an impact on prices, currently controlled by one player.”
Seacom will run from Europe, along east Africa and land north of Durban. The cable will give 10% times of current international bandwidth. There will be a huge downward pressure on pricing, he says.
While most foreigners in SA would see crime as a hindrance to doing business here, Pandey cites skills shortage and a rigid regulatory environment as major obstacles to doing business in SA. To address the skills problem Neotel has embarked on a massive training programme by opening an ICT school. “We have tried to be part of a solution rather than being a problem," Pandey says.
On regulation, he says SA is trying to reinvent the wheel rather than take best practices and successful models from around the world, which would speed up telecoms reform in SA.
“Anything new that SA wants to do has been done more than four or five times in other parts of the world.
“What SA should do is to pick up the best practice and implement that. Telecom pricing in SA is very high, at least four times more expensive compared to global prices. Intent from the government is there, but when it comes to action SA is lagging.”
Despite the challenges SA faces Pandey says there are still more opportunities for growth.
“Firstly, some of the newer technologies can be deployed easily and acceptability will be there, especially with the enterprise business. Secondly, international bandwidth connectivity — SA can be a very good BPO destination because it is in the same time-zone as Europe and you have people speaking many languages.
“Third, growth is not happening in developed markets, and this will happen in emerging markets. Within emerging markets the focus is on Africa, and with Africa SA is one of the key epicentres of economic activity.”
Building a company from scratch is nothing new to Pandey, who was sent to SA from Tata’s headquarters in Delhi to start up Neotel.
Pandey’s bullish outlook for Neotel is not misplaced, considering that he has already been CEO of three other start-up operations in the ICT sector.
“This is the fourth time I have started a company from scratch. It has been a challenge to lead a multiracial, multicultural workforce here. It has also been a challenge to bring Neotel up from scratch. It’s been a long journey, but a personally satisfying one.
“Three years on I have no reason to complain. I have been with Tata’s ICT telecoms business for the past 12 years, which has given me wide experience.
“In five years we will be a very, very strong force to reckon with. We will be serving customers in both enterprise and the consumer space. We will be a significant telecoms player in sub-Saharan Africa as we will be crossing the boundaries in the rest of the continent.
“In true sense and spirit we hope to contribute to the development of society.
“I’m confident that when the history of telecoms revolution in SA is written there will be a nice chapter on Neotel and for me the satisfaction will be in that I was part of that.
“The underlying message is that we will not compromise at all on the side of customer service. I think this is one area that’s been neglected by other companies. It’s about time South Africans see a different level of customer service. There is lot that needs to be done about customer services in SA. It is one of the key things we want to focus on,” he says.
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