SA’s second national operator has landed
Neotel, which will operate a fixed-line telephone network, went live on Thursday with international wholesale internet and voice services. It sweetened its launch by signing up about a dozen clients, including competitor Telkom, 50 percent stake subsidiary Vodacom, MTN, Cell C, Internet Solutions, MWeb and arivia.kom. Neotel is using the network of one of its shareholders, Vinesh Sanchar Nigam International (VSNL), to connect its customers directly to 200 countries.
Neotel is also gearing itself for competition with an investment of R11 billion for its network and other services over the next 10 years. But the residential market will wait until March for the group’s services.
Analysts say companies might have been attracted to Neotel because through VSNL it is able to route its data and voice directly to the intended destination, unlike Telkom, which uses the middle man and that resulted in high tariffs.
Neotel’s chief executive, Ajay Pandey, would not reveal how much the company charged for its wholesale services.
Dobek Pater, an analyst at Africa Analysis, said it remained to be seen whether the service providers would pass on the savings that they received from Neotel to customers.
Pandey said the group was also using some bandwidth capacity from Telkom.
This is because Telkom has the exclusive landing rights of the undersea cable SAT-3 on international calls from Portugal to Cape Town. VSNL and Teleglobe, Tata’s subsidiaries, have a large stake in SAT-3 but did not have the landing rights in Cape Town.
Arthur Goldstuck, the managing director of research firm World Wide Worx, said until April next year when Telkom’s exclusivity on SAT-3’s landing rights expires, Neotel would have to buy bandwidth capacity to enable its clients to route calls to Cape Town.
Goldstuck expected international calls and data costs to come down by 75 percent when Telkom’s exclusivity expired. VSNL can only bring prices down by about 25 percent through its rights to calls made from Portugal to any other landing point excluding Cape Town.
Neotel will roll out international and national bandwidth directly to the corporate market. It has 8 000km access to Eskom’s national network and 1 300km inner-city network of Transtel. The R11 billion, which will be partly financed by loans from banks and equity, will help expand Transnet and Eskom’s network.
Goldstuck expected stiff competition in the corporate market but the biggest hurdle is access to Telkom’s last mile or the consumer line.
The government has since promised to issue policy directives that will force Telkom to allow operators such as Neotel access to its lines that connect residential areas and offices. It would not be in the consumers’ interest if Neotel decided to lease that infrastructure because it would not result in lower tariffs, said Goldstuck.
Neotel’s answer to aggressively roll out services to the residential market lies on the allocation of the 800 megahertz spectrum, which will enable it to offer wireless services and overcome the last mile hurdle.
Rudolf Muller of consumer group MyADSL said: "I think we will only see the real effect of a true Telkom competitor after March 2007. This is when Neotel will fire at all cylinders, and this will give an indication as to their pricing and marketing strategies."
Muller expected Telkom to offer clients incentives to sign long-term contracts to remain competitive.
Goldstuck said Neotel’s niche would be the internet services market where it could allow customers to carry over unused bandwidth.
Neotel could be the "gift" to South Africa considering the many years that the country waited for its arrival.
The road has not been easy for Neotel, which is 19 percent owned by empowerment partner Nexus Connexion, 30 percent by Transtel and Eskom, 26 percent by Tata’s VSNL and 12.5 percent each by Two Consortium and Communitel.
The minister of communications, Ivy Matsepe-Casaburri, said this week that the process had left her "greyer" than she thought she would ever be.
Neotel’s launch, which Matsepe-Casaburri had set for 2002, was delayed by legal wrangles among some shareholders over the government’s decision to warehouse the 25 percent stake and the procedure that was followed to award the stake to Two Consortium and Communitel, which were the rejected bidders, and also regulatory amendments.
After the dust had settled, the shareholders’ disagreed among themselves on the terms and conditions of the business plan and also the formation of the new entity before the licence was finally issued in December.
INet-Bridge
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