{"id":548522,"date":"2006-04-12T19:41:48","date_gmt":"2006-04-12T19:41:48","guid":{"rendered":"http:\/\/localhost:8888\/wordpress\/technology\/548522-we-are-not-a-utility.html"},"modified":"2006-04-12T19:41:48","modified_gmt":"2006-04-12T19:41:48","slug":"we-are-not-a-utility","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/technology\/548522-we-are-not-a-utility.html","title":{"rendered":"‘WE ARE NOT A UTILITY’"},"content":{"rendered":"

When Telkom announced last week that it would invest R30bn in new network infrastructure over the next five years, investors dumped the company’s shares, wiping more than R6bn off its market value. But the investment is necessary – overdue, even.<\/font> <\/p>\n

The share fell on fears that Telkom’s dividends might be less generous than they have been and that margins would come under pressure.<\/font> <\/p>\n

There was never any doubt that former Transnet director Papi Molotsane, installed last year as Telkom’s CEO, would have a tougher time than predecessor Sizwe Nxasana. Molotsane has to deal not only with a second network operator – SNO Telecommunications will launch its first services to residential consumers in the first quarter of 2007 – but he also has to contend with accelerating liberalisation of the sector.<\/font> <\/p>\n

Government, frustrated with SA’s sky-high telecom prices, especially in fixed lines, plans to open the sector to greater competition. It has identified high telephone tariffs as a deterrent to attracting outsourcing work, such as offshore call centres.<\/font> <\/p>\n

Communications minister Ivy Matsepe-Casaburri will probably announce in the next few weeks that SNO Telecom will be given access to Telkom’s "local loop" – the copper cable infrastructure that connects consumers into Telkom’s network. This will enable Telkom’s new rival to serve consumers directly without first having to build its own access network. In spite of this, SNO Telecom also wants to build a national wireless access network to rival Telkom’s local-loop infrastructure.<\/font> <\/p>\n

At the same time, government has agreed to grant Sentech, the state-owned broadcast signal distributor, hundreds of millions of rand to build a competitor wireless network that can carry broadband data and voice telephony. Big investments in high-speed data networks by MTN, Vodacom and relative newcomer iBurst are also adding to the pressure on Telkom.<\/font> <\/p>\n

It was clear from presentations to analysts last week that Telkom’s management team knows what’s coming and what needs to be done.<\/font> <\/p>\n

"I’m pleasantly surprised about the planned capex," says analyst Irnest Kaplan of Kaplan Equity Management. "It means Telkom will take an aggressive stance in protecting market share. It will make it hard for anyone to compete."<\/font> <\/p>\n

Molotsane told analysts of the need to lessen Telkom’s dependence on voice telephony and to bolster the company’s broadband initiatives. It’s an obvious move and Telkom will be playing catch-up with operators in markets that already have competitive telecom industries. Because Telkom has been protected for so long, it has not been subjected to the same pressures as its peers in Europe, the US and Asia. That’s changing.<\/font> <\/p>\n

Telkom’s planned R30bn investment will be used mainly to expand its "next-generation network", which is built on the same communication protocol, IP, that underpins the Internet. It will be engineered to carry data traffic rather than switch voice calls. Voice becomes simply another application.<\/font> <\/p>\n

"If we don’t get into the IP network environment, we will not be able to sustain the kind of profits you guys are used to," Molotsane told the analysts .<\/font> <\/p>\n

SNO Telecom has the advantage that it will be building a new network. Unlike Telkom, it will have no legacy infrastructure to contend with.<\/font> <\/p>\n

Telkom hopes it will lose no more than 15% market share to SNO Telecom over the next five years. That compares favourably with Germany’s Deutsche Telekom, which lost 25% of its market share to rivals when competition was introduced. Lessons from other countries show that competition should also expand the size of the market for all.<\/font> <\/p>\n

Still, Telkom’s challenges are growing:<\/font> <\/p>\n

* Customers are becoming more demanding. "[They are] getting more informed about what their rights are and what they should be getting from an organisation such as Telkom," Molotsane says. "It’s right that customers demand their pound of flesh."<\/font> <\/p>\n

* The Independent Communications Authority of SA (Icasa) is implementing stricter regulations governing Telkom’s tariffs. The authority is also threatening to impose onerous regulations on Telkom’s broadband products. <\/font><\/p>\n

* The Electronic Communications Bill, when it is signed into law in the next few weeks, could open the market to more competitors at the network infrastructure level. The existing Telecommunications Act is skewed in favour of Telkom. The new law is not.<\/font> <\/p>\n

* Subscriber growth at Vodacom, in which Telkom holds a 50% equity stake, is likely to slow dramatically in the next few years. At the same time, Vodacom’s average revenue per user, a key measure for telecom companies, is likely to keep falling. Because of an agreement with the UK’s Vodafone, which holds the other 50% in the cellular operator, the company is also precluded from expanding in Africa north of the Sahara. Vodacom hopes this restriction will be lifted, given that Vodafone has increased its stake in the company. <\/font><\/p>\n

Molotsane wants Telkom to work more closely with Vodacom in future. Relations between the two companies have historically been poor but have improved since Molotsane took the reins at Telkom. Telkom, he says, is "very happy" with its investment in Vodacom, despite the fact that its stake is noncontrolling. "We have agreed with Vodafone that we will work together to grow Vodacom [and] Vodacom’s management is excited about working together and exploiting opportunities."<\/font> <\/p>\n

But Telkom cannot rely on synergies with Vodacom to drive its growth. The company’s strategy is multi pronged:<\/font> <\/p>\n

* It wants to reinvent itself as an all-encompassing information and communications technology (ICT) supplier. Its controversial R2,4bn bid for IT services company Business Connexion forms part of this strategy. "We are not a utility," says Molotsane. "We are a leading ICT solutions provider."<\/font> <\/p>\n

* Invest billions in data services. The plan is to introduce next-generation access networks based on technologies such as metro Ethernet. Telkom wants 20%, or 1m, of its customers to have broadband lines by 2010. To do this, it will reduce prices to make broadband more affordable. "Pricing on broadband is quite high," Molotsane admits. <\/font><\/p>\n

Telkom will also improve access speeds by laying fibre-optic cables closer to consumers’ homes, enabling it to offer higher-speed products. It wants to be able to deliver average access speeds of about 2 Mbit\/s. It will then be able to deliver triple-play services – voice, data and IP television – to consumers, thereby increasing average revenue per user.<\/font> <\/p>\n

* It will try to push up customer service levels and wants to improve relations with employees and external stakeholders, including government and Icasa. Relations with Icasa, in particular, have been poor. <\/font><\/p>\n

* There will be a strong focus on cost management. Noncore services will be streamlined or outsourced; the intention is to ensure satisfactory returns on planned capital expenditure; and supply chain costs will be reduced by lowering inventory and identifying opportunities for procurement savings.<\/font> <\/p>\n

* The company will make offshore acquisitions. Telkom wants to be a "leading ICT provider" in three countries outside SA by 2010. Deals in Kenya (Telkom Kenya) and Nigeria (Nitel) are possible. Molotsane promises that Telkom will "brutally analyse" all opportunities.<\/font> <\/p>\n

Despite the chal
\nlenges, Molotsane is confident Telkom can continue to meet the expectations of investors. "We still believe we can grow this business. We have performed well in the past few years and we will look at ways of ensuring that continues."<\/font> <\/p>\n

Discuss this article<\/font><\/a> <\/font><\/p>\n

(c) Financial Mail 2006
Reproduced with permission<\/font> <\/p>\n

\n","protected":false},"excerpt":{"rendered":"

Fixed-line operator to invest billions in broadband infrastructure as competitive pressures mount.<\/p>\n","protected":false},"author":23,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"idle","_sma_x_autopost_error":"","_sma_x_post_id":"","_sma_facebook_post_id":"","_sma_instagram_post_id":"","_sma_threads_post_id":"","_sma_x_attempts":0,"footnotes":""},"categories":[17],"tags":[],"class_list":["post-548522","post","type-post","status-publish","format-standard","hentry","category-technology"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/548522"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=548522"}],"version-history":[{"count":0,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/548522\/revisions"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=548522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=548522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=548522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}