Game on
For some time there has been a joke going around in telecom circles of the “rarely spotted second network operator”.
Such has been Neotel’s silence since it was awarded its licence in late 2005 that it was almost forgotten by the public. In fact the only sign that Neotel was active was the digging up of the roads where fibre was being laid.
The lack of fan fare with which Neotel has gone about setting up its network is in contrast to the amount of expectations put on it when its licence was granted. There were hopes that it would rapidly install a network and become a competitor to the incumbent fixed-line operator, Telkom.
Instead the group made no real promises on pricing and said it would be some time before it became a real rival to the incumbent operator.
“I underestimated the expectations people have of Neotel,” says its MD Ajay Pandey. In those early days he was constantly being questioned about when it would start offering services.
Pandey says the strategy of keeping a low profile has been a deliberate one. He says the last thing the group wanted was to overpromise and underdeliver and have consumers disappointed with the group’s service.
Pandey points out that given its background – Neotel is a start up company and it is the first foreign greenfield project of its parent company, India’s Tata Communications of India – it should be understandable why Neotel has been so cautious.
Because it has taken so long for Neotel to be set up – the Telecommunications Amendment Act of 2001 provided for a new fixed-line operator – it is understandable why so much was expected of the group. Back then state-owned enterprises Transnet and Eskom, were identified in the Amendment Act as shareholders in the new second network operator.
Soon after the legislation was enacted a team of experts in Transtel – the telecom division of Transnet – and Eskom Telecommunications began working on a joint national network. At the time, Transnet and Eskom each held 15% in the group, with shareholding set aside for potential future shareholders in the new company.
This early work gave Neotel the framework for its national network along the country’s railways and power lines.
In 2002 a public bidding process led to Nexus Connexion, a broad-based empowerment consortium winning a 19% stake. This was followed by CommuniTel and Two Consortium each being awarded 12,5% holdings in the group.
In January 2005, Tata Africa made a binding offer on behalf of Tata Communications to take a 26% holding in what was then just called the second network operator.
The entry of Tata marked an important step for the Indian-based company, confirming it as a serious player in the SA economy. Besides its involvement in telecoms, it has started selling cars locally and is looking at building a R650m ferrochrome smelter in Richards Bay.
The confidence Tata has in SA is shown in a proposal to increase its holding in Neotel from 26% to 56% and to take over Transnet’s and Eskom’s respective 15% each in the group (the deal is not finalised yet).
It has clearly been a long road for Neotel but getting Pandey to head the fledgling business is a strong sign that Tata Communications sees Neotel as a priority investment.
The mechanical engineer is a heavyweight in the company. Prior to heading Neotel he was president of Tata Teleservices, president of Tata Indicom Enterprise Business Unit and CEO of Tata Internet Services. He is also a published author, an alumnus of London Business School, a fellow of the Telecommunications Executive Management Institute of Canada and is currently doing his PhD on leadership styles.
Pandey is half apologetic about his company disrupting the lives of many South Africans by digging up the country’s roads. He points out that, like the building of the rapid rail train network in Gauteng, it is a sign of progress. “Sometimes you have to go through pain to gain. People will change their minds when they see it making a difference in their lives,” he says.
This year Pandey’s hard work has finally paid off and he has begun to lead Neotel into a new growth phase. The group has started providing its first services directly to the public in Cape Town, Durban, Johannesburg, Pretoria and Ekurhuleni.
But Neotel is not just offering a telephone voice connection; it is also providing Internet access and SMSes with the same package. The group is able to offer this because it is building what it calls a “next generation network”. This means it is not designed for voice only but for data – of which voice is just another offering. “The entire network is Internet Protocol (IP) ready,” says Pandey. This means it can easily deal with voice, data (Internet) and video over it.
As the network is IP-based, it does not matter how it connects to the final consumer. Even if consumers choose to connect via CDMA (a mobile phone-based technology), WiMax (high-speed wireless broadband) and fibre, they will still be connecting over a single network, not three different ones. “You will never hear that our copper cables have been stolen,” quips Pandey.
Besides being free of copper, an IP-based network means there are few exchanges, which reduces cost and gives it more flexibility.
So, is Neotel trying to take on Telkom and mobile players Vodacom, MTN and Cell C? Pandey says Telkom expects it to take 15% of its business over the next five years. “We will be happy if we reach that particular milestone,” he says.
However, the group is not going into the mobile space. It may be using mobile phone-based technology but it does not have mobile phone licences.
One area that it is looking at moving into is IT-managed services. This is the managing of another company’s IT services in the same way that IT groups Business Connexion and Dimension Data already do.
Pandey says telecom companies can either evolve into media companies like Telkom has with Telkom Media or move into managed services, but he is keener on moving into the latter. “We are willing to play a role there,” Pandey says.
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