Corporate crusaders
SA business has good reason to cheer the changes sweeping SA telecoms. Thanks to significant investments by the big operators and liberalisation of the sector, they can soon expect prices to fall sharply and for the range and quality of services to improve dramatically.
Vodacom Business, a new division of the cellular operator, has invested more than R100m in a new data centre in Midrand, Johannesburg, as it gears up to compete head-on with rivals Telkom, MTN and Dimension Data’s Internet Solutions. It is also taking on IT groups such as Business Connexion and IBM, which are in the market for corporate data and managed IT services.
Vodacom is building 11 fibre rings in SA cities to connect business customers to its network. And it has signed an agreement with MTN and Neotel to construct a national, 5 000 km fibre network to lessen its reliance on its soon-to-be former 50% shareholder, Telkom.
Vodacom’s aim is to reduce the cost of transmission and its dependence on Telkom to provide back-haul connections to its 3G base stations. It also wants to ensure it has the capacity both on its mobile network and for providing connectivity to businesses, as demand for bandwidth surges in the next few years.
All this new capacity, coupled with investments that Vodacom is making in new undersea cables — the West African Cable System (Wacs) and East Africa Submarine System (Eassy) — will drive down prices, says Vodacom Business head Wally Beelders.
Seacom, the first new cable system to hit SA shores, will go live in June. Wacs and Eassy are expected to follow in early 2011. “The looming price war won’t consist of a single event, but when Seacom lands, Telkom will have to follow with significant reductions [in its international and national bandwidth prices],” says Beelders.
Vodacom Group CEO Pieter Uys says competition concerns have precluded the operator from acquiring an Internet service provider — it had been interested in Verizon Business which was recently sold to MTN for about R1,4bn. But once it is free of Telkom as a shareholder, it may look at deals. “If there are more Verizons out there, we will look at them,” says Uys.
Kristoff Puelinckx, managing partner at Dubai-based telecom consultancy Delta Partners, says the sort of managed services that Vodacom Business and MTN hope to offer is a space that should, by rights, be dominated by Telkom.
He says the market could quickly become overtraded and eventually lead to consolidation. “If you add all the business plans of these companies, there will be twice the capacity of the market, so there will be winners and losers,” he says. “But all the players have not invested enough in this space, and corporate customers have been underserved, so this can only be good for the country.”
Telkom also has designs on the market. Under a planned restructuring, it will create a large new division focused on data centres. Its large corporate customer base could make it a serious player. But its failure to buy Business Connexion — it was blocked by the competition authorities — has set it back.
Puelinckx says Vodacom’s decision to build Vodacom Business from scratch has both advantages and disadvantages. “Doing it in-house you can more easily integrate your existing sales teams and infrastructure,” he says. “Doing an acquisition buys you market share straight away, but the challenge then is integrating that with your business.”
It’s a challenge MTN will face with Verizon Business, he says.
Starting from scratch, though, means Vodacom has to poach the skills it needs from other operators. This will drive up the costs of hiring already scarce skills.
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