SEACOM biting the hand that feeds it?

SEACOM has unveiled a new suite of products, focusing heavily on Internet Protocol (IP) type products like IP VPN, Internet, IP transit, ethernet and IPL (International Private Line) offerings.

SEACOM’s latest products move the company firmly into the wholesale IP services market, competing directly against players like Telkom Business, Internet Solutions, MTN Business, Vox Telecom, MWEB Business and Vodacom Business.

This move was partly necessitated by the influx of international bandwidth into the country which has driven down prices and is starting to squeeze margins on the traditional International Private Leased Circuit (IPLC) market.

SEACOM is under pressure to differentiate itself and ensure future income and sustainability, and with its new IP products they extend their relevance in the South African market. But at what cost?

SEACOM’s Suveer Ramdhani conceded that they have to manage their relationships with their current wholesale customers (who purchased point-to-point STM 1 – 64 services from SEACOM) very carefully to avoid unhappiness.

Ramdhani highlighted that they have not lost any customers because of their IP transit and related services, but not everyone is convinced SEACOM is doing the right thing.

Roelf Diedericks

Neology CTO Roelf Diedericks (picture above), a SEACOM client through KDN, feels that SEACOM’s IP services would be in direct competition with many of SEACOM’s own IRU and larger customers.

“It is my belief that SEACOM is cutting its own throat and that of its larger carrier customers with the offering of direct IP transit on the SEACOM cable,” said Diedericks.

“Essentially with this offering SEACOM has morphed from a Layer 2 undersea cable owner to a global IP transit provider. If they wanted to do this correctly, the division offering Layer3/IP services should have been incubated as a new entity that is effectively a customer of SEACOM and is bound by the same terms and conditions as its wholesale customers.”

Diedericks added that SEACOM’s decision to offer IP transit services opens the door for anti-competitive behavior as has been seen in similar situations locally. “I’m not saying this will be the case but it does create the opportunity,” said Diedericks.

Wayne de Nobrega

Altech Technology Concepts (ATC) CEO Wayne De Nobrega, agrees with Diedericks that it is not desirable for SEACOM to compete against its own wholesale customers.

De Nobrega is skeptical as to whether SEACOM will actually attract customers from providers like ATC as they are looking for a full IT solution rather than standalone international connectivity, but the risk is there that SEACOM’s pricing may simply be used as a negotiation tool by customers to reduce costs.

De Nobrega and Diedericks concur that SEACOM should not have offered IP services directly to the market. “SEACOM should have formed a new legal entity that is a customer of SEACOM (and even other cable systems), and hence bound by the same terms and conditions as SEACOM’s other wholesale customers – leveling the playing field,” said De Nobrega.

Douglas Reed

Vox Telecom CEO Douglas Reed says that SEACOM will have to do a clever balancing act not to alienate their existing customers, but feels that it is possible.

“A lot of companies in this country are forced to hunt with the hounds and run with the hares so it is possible,” says Reed.

Reed agrees with Diedericks and De Nobrega that SEACOM may not find it easy to gain new customers with their new product portfolio.

“The biggest mistakes I have seen in the telecoms market are made by the new entrants with a ‘build it and they will come’ strategy.  What is grossly under estimated is the cost of acquiring customers and when they resort to ‘buying’ customers which ends up exasperating the situation and delays the time to break even,” said Reed.

Derek Hershaw

MWEB ISP MD Derek Hershaw (picture above) is less concerned about SEACOM’s new IP products. “From our perspective we were aware that they were extending their product offering, they have been transparent about it and we don’t have any problem with it.”

Hershaw is also not worried that SEACOM will squeeze their wholesale customers on pricing instead arguing that their wholesale customers are simply too important to them to try this.

Hershaw further welcomes more competition in the market. “If it brings in more competition, which will ultimately continue to drive down pricing and stimulate growth, then it has to be a good thing for the market as a whole”.

Diedericks is more skeptical and did not feel that SEACOM’s new products would have any significant effect on the local market. “I don’t foresee any specific effects in the South African market other than SEACOM potentially damaging relationships with their wholesale customers.”

One of SEACOM’s biggest customers, Internet Solutions, said that they “are unfortunately not in a position to comment on this at this stage”.

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SEACOM biting the hand that feeds it?