What’s keeping Neotel’s CEO awake at night?

Moneyweb’s Hilton Tarrant talks to Neotel CEO Sunil Joshi about the company, its plans and its financial performance.

HILTON TARRANT: Upper Echelon is brought to you by Deloitte – for innovative thinking and thorough strategic planning turn to Deloitte. Our guest in Upper Echelon this week, Sunil Joshi, is MD and CEO of Neotel. Sunil, a very interesting life, you’ve lived almost all over the planet, born in Egypt?

SUNIL JOSHI: Yes and I would say that’s probably by design [laughing]. Yes, I was born in Egypt and from then on…from an Indian descent, parents are Indian origin and my father was in diplomatic corps, so by virtue of that we had the opportunity to see many parts of the world with my elder sibling, my brother was born in China. So we kind of almost were born and live in different parts of the world right now.

HILTON TARRANT: Your career in telecoms started in New Zealand, Australia?

SUNIL JOSHI: Yes, New Zealand.

HILTON TARRANT: New Zealand, through IBM, thereafter to Australia and then back again to New Zealand where you ran a company called TelstraClear, which is, I guess, in many ways almost a carbon copy of what you’re running now?

SUNIL JOSHI: It’s quite similar, I ran the business market segment for TelstraClear at that point in time and the market we operated in at that time was New Zealand, deregulation was still happening, local loop unbundling was talked about. The difference between the New Zealand element and this one is we won the local loop unbundling battle in New Zealand and TelstraClear was therefore enabled to use existing infrastructure that enabled them to provide services on top of that infrastructure. In South Africa we’re still fighting that battle.

HILTON TARRANT: We’ll get to that…

SUNIL JOSHI: [Laughing]

HILTON TARRANT: …in time. You then moved to Singapore and joined Tata Communications, went and worked in India and then came across to South Africa to take up the reins at Neotel, taking over from Ajay Pandey. In a multinational as complicated as Tata Communications would be or IBM would be, how did you get the job? Did you apply for the job? Did someone phone you for the job?

SUNIL JOSHI: My association with the Tata Group goes back almost two decades ago, prior to the IBM role I used to work for IBM in India, when IBM came back in India in ‘92 as then with a local JV partner with the Tata Group, at that point it was Tata IBM. But prior to that I was with [UNCLEAR 2:25] in its inception days but then it became [UNCLEAR 2:28] as the JV partner. So at that point I worked for Tata IBM for about five years before we moved on to New Zealand. My boss at that point in time, who’s still in the Tata Group, and he was the MD for Tata Communications and we caught up in one of the home visits I would do and the opportunity came about and it was a challenging one so [I] thought at that time, why not. At that time Tata Communications was built on the back of an acquisition of the incumbent in India, which was called VSNL, which was at that point a single product business of voice leaving India and they carried voice across the world. Tata Communications from then has quite evolved due to various acquisitions and transformed itself, so as well as the name from VSNL to Tata Communications. Within the Tata Communications tenure my role prior to coming to South Africa was being responsible for the global enterprise business unit and now in South Africa moving from the [UNCLEAR 3:35] into South Africa was around seeing how we can build the Neotel that we started our journey on about six years ago, as we were awarded the SNO licence at that point in time. I think if you look back a little over six and a half years of Neotel’s journey from inception where really we started off as a two-man and one spreadsheet and one laptop idea, which I wasn’t part of it then but for the last two years I am fortunate to be part of it, moving to become a 1000-people business, giving livelihood to 1000 people, of which 99.7% of our staff are South Africans. So really creating a business that’s being built and run by South Africans for South Africa.

HILTON TARRANT: Speaking of South Africa, I assume you hadn’t been here before you got the Neotel job?

SUNIL JOSHI: I came here once, that that was not…it was largely for pleasure [laughing] but it wasn’t for work related stuff.

HILTON TARRANT: When you did arrive here and relocated to take up this job, what was your impression, what was your impression of Johannesburg, of being in South Africa?

SUNIL JOSHI: Well, coming from New Zealand, which is home for me, it’s quite similar, the southern hemisphere geographies often have similarities, for example New Zealanders love their sport, they love their outdoors, South Africans do the same. The weather patterns are quite similar, you still get the four seasons in a day in Cape Town as you do in Wellington. The difference being the demographics, the social demographics of South Africa, which are unique but also the wildlife, which obviously is very different to a New Zealand or an Australian context. But you have the braai versus the barbeque and you have the weekends and you have lugging the kids around for sport all weekend long, I think those similarities exist. But my impressions of South Africa, it’s a great country, it’s got great weather – except for when you have the thunderstorms and the lightning strikes – but otherwise great weather, great food, the fruit is brilliant, even if you’re a vegetarian you can survive in South Africa. The thing that worried us a little bit as exploring South Africa was crime and the impact of the crime environment but like every other geography that we’ve been into there are good parts of it and there’s the bad and there’s crime everywhere. One just has to be a little bit cautious and here maybe a little bit more cautious than usual.

HILTON TARRANT: You have travelled a lot across the world, you’ve worked in very, very many places, what’s your favourite place in the world?

SUNIL JOSHI: Well, I’d say that New Zealand is home, right, so it will always be my favourite from that context because that’s where we’ll end up going and hopefully retiring. But New Zealand aside, we quite enjoy Singapore, Singapore is functional, it’s safe and it’s a smallish country but it gives you everything relative to what an environment that’s conducive for education, for living, for businesses. I think there’s a lot to learn from small geographies like that but again, every geography has its nuances, the good ones and the bad ones. I don’t think you can say that some geography is really bad and some is good, there are always preferences. The weather in Singapore isn’t good, you only have one weather pattern throughout the year and between 26 to 30 degrees, you don’t have different climates coming up and that could be seen as a downside but they’re all interesting though.

HILTON TARRANT: Sunil, the company, Neotel, the market that it operates in, obviously you are chief executive, operating in the telecoms space, telecommunications, converged telecommunications, as you mentioned you got the SNO licence six years ago, the perception out there is that this is not a competitive market. It depends where you sit I guess, knowing a bit more about the market one could argue that the market is very competitive, how competitive is the market?

SUNIL JOSHI: Well, as we were awarded a licence more than six years ago but we started our first year of business operations about six and a half years ago, the biggest challenge has been infrastructure and as we were awarded the licence we were limited by lack of infrastructure to deliver services to our customers. While the expectations were very high as the SNO and then Neotel got formed, yet the time it takes to build the infrastructure is what got us to a point where we couldn’t serve the customer day one. So as I fast forward these six years we now have access to over 12 000 kilometres of fibre and strategically we made a choice to invest in fibre optic infrastructure because that’s the basis on which IP and convergence and solutions and services can be provided. But laying fibre in the ground takes a while and certain approvals from government for water use otherwise took a lot longer than we actually thought. But we’re at a point now where our 12 000 kilometres of fibre spread broadly across the top 40 cities, towns, villages of South Africa our access, as a consortium, member to the five submarine cable systems that connect South Africa to the world and Neotel is the only service provider that has access to all five as a consortium member. Connecting that in the last couple of years, integrating that into the Tata Communications global infrastructure gives us a unique capability but to come back to is it competitive or not, well, there are about 450 [UNCLEAR 2:00] licences that have been awarded and one can argue that there are potentially 450 competitors but you’ll have the tier one competitors, you’ll have tier two and tier three, and the niche players as well, and both in voice and data. So it is a reasonably competitive market, it makes it a little bit more interesting when you have a couple of incumbents that have the volume and the scale to…where pricing and margins can actually be marginalised for a player like our size depending on the plays they come up with and the prices. So one has to compete on service and one has to compete on value, not ignoring the fact that prices are quite important for the customer. We have to compete on all areas.

HILTON TARRANT: You spoke about the fibre there, 12 000 kilometres of fibre, you’ve got the national long distance network that’s starting to take shape in the country, linking Johannesburg, Durban, you’ve also linked down from Johannesburg to Bloemfontein and still certain portions of that to go all the way down to Cape Town and along the coast. You also have the metropolitan layer in cities like Johannesburg where you have trenched a significant amount of fibre, I think back to when we were based in Rosebank the trenching machines came along and dug up the pavements and got the fibre in the ground. How do you get that fibre, that access to this high speed broadband to customers?

SUNIL JOSHI: Well, and that was the whole proliferation of fibre infrastructure because copper does have its limitation on how much you can pump through, ADSL type services and, therefore, fibre gives you the ability of scale in small increments. So as we’ve expanded our metro fibre footprint we now have over 6500 kilometres of metro fibre. We’ve measured that by how far are we typically away from a customer that we need to serve and if you asked us two years ago we were probably about half a kilometre away and right now we’re about 200 to 300 metres away, so we’re getting closer and closer. But as we have access to a building and we can serve our customers, we’ve launched a product about nine months ago, which is Neo One, what it gives is it’s a fibre last mile, which allows customers to have multi-services within the same infrastructure. So you could run a voice service, an MPLS VPN, as well as your internet over one fibre, albeit having a redundant path and then your ability to upgrade or upscale it is now a matter of days or a week rather than the one and a half to two months one would need to upgrade fibre by virtue of limitation. So we’re able to serve the expansion needs of our customer a lot better but one product we just launched just before Christmas was called Broadband Booster. So a normal business has their normal internet use during the course of a month, they have month-end batch jobs like SAP and other things that they need incremental bandwidth for, so often what happens is the IT team buy capacity for the total requirement, whereas now we’ve come back and saying you can actually buy a 2MB, if that’s what you use during the course of the month, internet connection, and if you need another 4MB for one hour you can actually go to our portal and it’s self-provision now and we’ll only bill you for the two hours. Now that’s possible only through fibre. Now extending that capability into a wireless capability as well, albeit it will have a little bit more complexity of being able to boost up when you need it. Now it means you can optimise your costs, rather than pay for stuff that you don’t use.

HILTON TARRANT: This very much focused on the business and enterprise side, given where you have installed the metro fibre, what about consumers, what about someone living in Fourways, what about someone living in Midrand? We know South Africa is a big country, we know that the sprawl here in Johannesburg just goes on forever and ever and ever, on the consumer side of things?

SUNIL JOSHI: Well, consumers are equally important for us. While we deployed fibre infrastructure for the business, for the consumers we looked at the market three years ago and at that time the market penetration for mobile was about 85% and a highly penetrated market. We found that the home and the access to the home with a fixed wireless solution, ie a replacement, an alternative for copper, which does get stolen off and on, was an opportunity for us to pursue. So we consciously chose not to launch another mobile service but launch, through CDMA infrastructure, launch a fixed wireless solution for the home. So we can actually provide voice to the home, as well as the small office/home office and the small enterprise through this infrastructure as well as data. CDMA has got a better data packet delivery than GSM does but we’d been serving households. It took us three years to get to our first 50 000 subscribers by the end of March 2011. Last year we grew another 50 000 in about 11 months, so we ended in March 2012 with 100 000 subscribers, call it households or small businesses. Our aim this year is to actually better that 50 000 run rate and so far we think we’re on track to March.

HILTON TARRANT: In terms of the access to the local loop, that last mile that already exists there, if it hasn’t been stolen…

SUNIL JOSHI: [Laughing]

HILTON TARRANT: …we need to add that, in certain areas the problem is rife, access to that last mile still very critical for Neotel?

SUNIL JOSHI: It is but we’re addressing that problem because the decisions are yet not forthcoming on how we can leverage existing infrastructure we also have wireless technologies that we have deployed. So WiMAX on the 3.5GHz spectrum to deploy 2MB, 4MB, 6MB type capacities, which is near line of sight and microwave. Both technologies we use to try to deploy the service on our fibre infrastructure, if not WiMAX, if not microwave and typically our hit rate is about 80%, 70% to 80% we can get to but there is still, just like you said, the topology of Gauteng is such that there are areas we just can’t reach and unfortunately we won’t be able to serve them but the areas that we have coverage for we’re able to serve them.

HILTON TARRANT: On the business front there is some detail that came out last week in your parent, Tata Communications, results for the third quarter, growth is accelerating in the business, you are EBITDA positive and you have been since the second quarter of last year. You’re on track to be EBITDA positive for this year, you’re growing market share.

SUNIL JOSHI: Yes, we are, we would think so because our overall revenue growth for our year to date, nine months, has been about 11% on an industry that’s growing 1.5%. So by sheer virtue of that we’re about seven to eight times the industry growth rate, so therefore we are acquiring share. We’re acquiring share in the enterprise segment as well as the mid-market and small enterprise. We find that our services because of the macroeconomic situation where the GDP of South Africa is expected to grow by 2.5% to maybe 3%, inflation rate still about 6%, unemployment is high but what people are looking for is value and how do I manage my cost and optimse my cost for the communication infrastructure I need. The small enterprise segment we find that our CDMA service where landline calling is still cost effective but landline calling amongst each other as well as to [UNCLEAR 3:34] on other mobile providers is something that’s helping…our service is helping small enterprise optimise their cost and that’s working really well. But also on the data side we have one of the lowest data…the best priced data packages of 24GB for R799 now which still enables people to use internet. The out of bundle rate is still the lowest in the industry, about 8c a MB. So that’s starting to work in the favour of the small enterprise. The medium businesses and the large businesses obviously they look for a lot more complex solutions. To certain financial institutions here in South Africa we provide them telepresence, for example in addition to the [UNCLEAR 4:15] MPLS or Ethernet services we provide and their six or seven rooms of MPLS enables them to collaborate cross geography. Linked to that Neotel was the only service provider, still is, to have launched a public telepresence from here in Midrand and now in November we launched one in Cape Town. So the two telepresence rooms will enable high definition collaboration over high definition video to occur between Cape Town and Johannesburg, soon to come will be Durban and Pretoria.

HILTON TARRANT: Sunil, what are the top challenges for you at Neotel, what keeps you awake at night?

SUNIL JOSHI: Oh, the way I look at my role is I’m responsible for 1000 lives and their livelihood in the company. Neotel has provided employment to 1000 people and we feel proud about it but equally important it’s a responsibility. That doesn’t mean I don’t look to provide the return to the shareholders, as an infrastructure business we do have to tend to build and the revenues follow through. Over the last, as you rightly pointed out, since second quarter of last fiscal we have been EBITDA positive and we’re holding the same trend. So we have an earmarked path to profitability and the revenue growth that we have to drive and, therefore, also see the overall business growing. So the thing that keeps me awake at night is are we able to continue to be ahead of the curve in serving our customers because their needs are changing and they’re getting a lot more complex yet they seek simplicity in services and how do you take that challenge and deliver a simple service with the complexity behind that is managed by our business. But equally important then developing the skills to enable our staff to be ready for the next phase as we go for growth in the years ahead.

HILTON TARRANT: Sunil, final question and I ask all of our guests in the Upper Echelon this question, what motivates you as a person?

SUNIL JOSHI: To look back in a few years ahead and see the change I was able to bring about, one in the lives of the people that I work with but secondly in creating a business that’s sustainable, vibrant and viable, and leave behind a legacy that hopefully people will acknowledge the contribution made and even in my own eyes to say I made a difference. That’s what keeps me motivated.

HILTON TARRANT: Sunil Joshi is managing director and chief executive officer of Neotel. Upper Echelon was brought to you by Deloitte – for innovative thinking and thorough strategic planning turn to Deloitte.

Source: Moneyweb

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What’s keeping Neotel’s CEO awake at night?