Things seem to be going very well at South African converged communications network operator Neotel and the company’s executive leadership gives little credence to ongoing speculation surrounding the sale of the company. Its latest financial results – and the fact that it has turned EBIT from negative to positive, suggests the business has successfully managed revenue growth, cost management and the need to increase both business and retail/ consumer market.
According to results for the fiscal year ending March 31 2013 Neotel achieved a 12% year-on-year growth on revenue and grew its business customers by 29% and consumer base by 52% year-on-year.
It has taken seven years to go from a what MD & CEO Sunil Joshi describes as “a two-man, laptop and spreadsheet business” to a business with over 1000 people (most of whom are South African) generating revenues in excess of R3 billion annually.
He believes the Company has now achieved its original purpose, a two-fold strategy to bring to South Africa optimising the cost of communications for local businesses and consumers, and bringing innovation into the country by leveraging global technologies and best practices and avoiding common pitfalls.
“If we start looking at how the market is starting to see Neotel, I think it’s much more positively than before,” says Joshi.
A unique shareholding structure
Analysts have, in the past, publicly stated that scale would be an issue for the business and not acquiring the necessary scale could seriously impact operations.
Speaking from the Company’s head office in Midrand, Johannesburg, Joshi attributes much of this growth to the traction and global scale offered from its unique shareholding structure.
The majority shareholder in Neotel is TATA Communications, along with TATA Africa, that have 68% equity in the business. “Through Tata Communications we are able to leverage the global scale in terms of wholesale voice, them being the largest wholesaler of voice, and having interconnects with all major telecom operators around the world, mobile and fixed, for voice. But also, being the worlds largest owner and operators of submarine cable systems,” he says.
The global footprint aside, this arrangement also means Neotel has access to international best practices and processes, and can tap into technical expertise if and when required.
To safeguard its domestic business, Neotel has partnered with local BBBEE shareholder Nexus Connection and also combined with CommuniTel Group to strengthen presence within the SADC region.
It is this shareholding structure that assures Neotel of global, regional and local presence says Joshi.
Some time ago the Company realised that fibre optic infrastructure is necessary as a strategic foundation to the successful establishment of an IP and convergence-based communications business.
“We now have access to over 15 000 km of national long distance fibre optic network and over 8000km of metro fibre. That positions us quite strongly, in South Africa, to provide a ubiquitous physical network… along with that we have also invested, as a consortium member, in all five submarine cable systems that connect South Africa to the rest of the world. Neotel is the only service provider to be a consortium member of all five submarine cable systems…we are therefore able to reroute traffic across multiple cable systems.”
Joshi emphasises the importance of submarine cable assets and infrastructure in meeting the connectivity needs of customers, with consideration of those areas where its fibre does not extend.
The availability of VSAT capability enables the Company to support businesses in landlocked areas in South Africa and across the Sub-Saharan African footprint.
“In addition to these elements… we are also able to provide, where we don’t have physical access, wireless technologies like Wimax and microwave as two alternate mechanisms to provide connectivity via either a near-line of site or microwave option to businesses,” says Joshi.
He is confident of Neotel’s global network infrastructure, connected into Tata Communications infrastructure, and the value proposition to businesses wanting to expand into the continent.
“Our value proposition to businesses is that we can give you a range of voice, internet and data services in SA, but also for your expansion into the region, continent or globally, we can connect the business to any one of the 300 cities across 200 countries in six continents around the world as a single point service provider,” Joshi adds.
Neotel is straightforward about its expectation that the services it has in place, its value proposition and the unique high-tech tele-presence service will generate more corporate business.
Regulation and other challenges
According to research conducted by Neotel, the average South African customer is happy with a 2mb -to– 5mb type service, which serves about 80 to 90 percent of the population and their requirements.
“There is a portion of the population that is really hungry for bigger, faster bandwidth speeds – upwards of five, ten, fifteen, twenty, thirty megabytes… but that is a lesser number than the majority who need the two-to-five megabytes capacity,” says Joshi. “And there is also a price point that they are happy to be paying.”
His view is that the services deployed two-to-five megabytes within the price point of R600 to R800 is what the local market can afford. “So building and delivering services that meets the affordability matrix is really important.”
Joshi believes the current capabilities available from various businesses can provide that support. “Often what happens is that some organisations tend to put a very high level of contention ratios, which then reduces the customer experience… that is the balance that telecommunication companies need to have, in terms of the right contention rations to the customer experience.”
Neotel’s leadership is aware of the seismic activity within the ICT industry and the convergence that Sunil says is taking place on three fronts: fixed and mobile convergence, IP and convergence of voice/data and video over the same infrastructure, as well as ICT convergence.
“These three tectonic plates are driving an interesting alignment where the customers are demanding ubiquitous services across these various converging lines. It is important for service providers like us to look at core strengths and capabilities, but also looking at partnerships,” says Joshi.
He acknowledges that partnerships is in the Company’s DNA and will play a key role in its evolving growth strategy.
Chris Tredger – Online Editor