The new Telkom
Freedom to compete. Those three words appeared in large letters on Telkom CEO Reuben September’s slides at the company’s interim results presentation on Monday. With its divorce from Vodacom imminent, Telkom is on a mission to reinvent itself.
It’s worth pausing to reflect on the enormous changes that have swept through SA’s telecommunications industry in the past 36 months. Three years ago, SA had one fixed-line operator, three mobile operators (one of them struggling to keep its head above water), and the promise of competition (maybe) from a second national network operator.
Three years later, the two big mobile operators, Vodacom and MTN, are building their own fixed-line networks to serve their own needs and the needs of the business market and are aggressively pursuing the market for converged data, voice and IT services.
Second network operator Neotel, though still tiny next to Telkom, has introduced several innovative products that are starting to keep the incumbent on its toes.
And, thanks to Altech, Internet service providers and other companies with value-added network service licences will soon be able to build their own networks. The effects of this could be profound.
Even telecom tyke Cell C has turned the corner financially and is taking the fight to its bigger, better-funded rivals.
The changes sweeping SA’s telecom industry have, however, only just begun. The imminent disposal by Telkom of its 50% stake in Vodacom — 15% to the UK’s Vodafone and the rest to be unbundled to shareholders — will have a profound impact on the sector.
The deal will free Telkom to build a mobile network. It will also give it a huge cash pile — R10,5bn before taxes — which it can use to build the network (and make acquisitions in fast-growing markets in Africa).
Telkom has already begun building a fixed-wireless network based on the same 3G technology used by MTN and Vodacom. But under an agreement with Vodafone, it has been prohibited from offering full mobility — involving the hand-off of calls between base stations. The moment that agreement falls away, some time in the first half of 2009, Telkom will switch on a full mobile network.
The company is not yet saying how much it will spend on its mobile network but September says it will be “orders of magnitude” more than the R1,7bn it had planned to spend over three years on its fixed-wireless network.
It won’t build a network on the same scale as Vodacom’s and MTN’s, preferring instead to roam on another cellular operator’s network in areas where it doesn’t make financial sense to build infrastructure, but it is already talking aggressively about reducing prices.
The company hasn’t yet announced tariff plans for voice calls on its wireless network but September has hinted strongly that prices for calls between its own mobile and fixed-line networks will be quite a bit cheaper than calls between its fixed-line network and other mobile network operators. This is because it won’t have to pay the high interconnect fees imposed by MTN and Vodacom.
It’s in the corporate market where Telkom could take most market share from its cellular rivals. The company counts SA’s biggest corporate companies as clients. By offering bundles of fixed-line and mobile services, it could make life very difficult for MTN and Vodacom.
The lure of cheap calls between mobiles and land lines could be enough to entice many business customers to sign up to a broader range of Telkom services.
Its rivals will have to respond by cutting prices, too — exactly the sort of price competition that SA has been crying out for.
My bet is that the changes of the past three years in telecoms are going to be eclipsed by what happens in the next three.
The new Telkom – give your views
First published as the column Technology & You in the Financial Mail of November 21 2008
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