Don’t underestimate Neotel
On the surface, Neotel’s arrival in the country hasn’t heralded too much in terms of change. Sure, the mere presence of a competitor in the market has provided some pressure to drive prices down (especially in the enterprise space).
Also, its consumer offering hasn’t taken off quite according to plan. Industry insiders say only a few thousand subscribers are using its NeoConnect Prime and pure voice offerings.
But executives from majority shareholder Tata Communications Limited (TCL) are in the country this week. Briefing a small group of journalists on Wednesday, MD and CEO of global telecoms giant TCL Srinath Narasimhan described the operation here as “almost like a second home market for us”. TCL, through Tata Africa, owns an effective 56% of Neotel.
He emphasised that Tata “brings the capability and knowledge from other markets”. TCL is no small operation either. Once one gets the idea of how big an operation Tata Communications is, you realise that there’s no way (especially with a majority stake), it will let Neotel idle along for years.
Only six years ago, TCL (previously VSNL) was effectively the state-owned telecoms monopoly in India. It was privatised in 2002 and the Tata Group bought management control of the business. Six weeks after this transaction, the “long-distance market was thrown open”, says Narasimhan. “So you had privatisation and deregulation at the same time.”
Today, TCL is the leader in the enterprise market in India. Narasimhan said that all along the intention was to “reinvent the business model”, with a focus on managed services. It’s expanded overseas and is the number one player worldwide in terms of wholesale voice (voice minutes carried for carriers on undersea cables between countries). TCL I now focused on retail broadband in India. “We’re building a business model around broadband,” said Narasimhan. Surely if it can get it right in India and other emerging markets where it has operations, TCL can make sure Neotel is a serious player.
On an operational level, Narasimhan provided some insight as to how TCL aimed to leverage its experience into its local operation. Narasimhan calls it an “engagement model” where TCL and Neotel business units are aligned. This means, for example, the enterprise division here can draw on the relevant expertise and experience from TCL’s enterprise divisions across the globe. Obviously because Neotel has largely been in start-up mode for the past few years, this has not necessarily been possible till now.
“Senior management of business units at Tata Communications” will be in the country so that they can be “actively involved” in getting the relevant Neotel units talking to the right people at TCL.
The executives maintained that TCL would only get involved in one or two projects at a time. The team said that often people underestimate how management intensive it is to build businesses in new markets. It’s currently focused on Neotel and is kicking off a JV in China in the next few months.
Beyond South Africa, Narasimhan said TCL is looking at the rest of Africa. “There are greenfields licences and acquisition opportunities available.” Its strategy worldwide is to look at “where cable capacity typically touches”.
Currently it sees two markets to improve undersea connectivity: the east coast and west coast of Africa. The Seacom cable is landing in South Africa using Neotel’s licence, and it is involved in the project. “What we’d like to see is a similar project on the west coast,” he added.
Since he started coming to South Africa to visit Neotel a few years ago, Narasimhan has met with entities involved in “at least three different undersea cable projects.” “at least three different undersea cable projects”.
“We’re very keen to participate on the west coast.”
Will we see a major undersea cable initiative on the west coast announced this year? With this much murmuring, we may just.
Moneyweb
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