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.<\/p>\n
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\u2019s 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.<\/p>\n
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.<\/p>\n
Vodacom\u2019s 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.<\/p>\n
All this new capacity, coupled with investments that Vodacom is making in new undersea cables \u2014 the West African Cable System (Wacs) and East Africa Submarine System (Eassy) \u2014 will drive down prices, says Vodacom Business head Wally Beelders.<\/p>\n
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. \u201cThe looming price war won\u2019t consist of a single event, but when Seacom lands, Telkom will have to follow with significant reductions [in its international and national bandwidth prices],\u201d says Beelders.<\/p>\n
Vodacom Group CEO Pieter Uys says competition concerns have precluded the operator from acquiring an Internet service provider \u2014 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. \u201cIf there are more Verizons out there, we will look at them,\u201d says Uys.<\/p>\n
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.<\/p>\n
He says the market could quickly become overtraded and eventually lead to consolidation. \u201cIf 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,\u201d he says. \u201cBut 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.\u201d<\/p>\n
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 \u2014 it was blocked by the competition authorities \u2014 has set it back.<\/p>\n
Puelinckx says Vodacom\u2019s decision to build Vodacom Business from scratch has both advantages and disadvantages. \u201cDoing it in-house you can more easily integrate your existing sales teams and infrastructure,\u201d he says. \u201cDoing an acquisition buys you market share straight away, but the challenge then is integrating that with your business.\u201d<\/p>\n
It\u2019s a challenge MTN will face with Verizon Business, he says.<\/p>\n
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.<\/p>\n