Third operator undermines Neotel

Johannesburg, 25 Oct 2006

While some commentators have welcomed additional competition in the market, a US-based analyst says government`s plans to offer broadband belittles its awarding of a licence to the second operator.

William Hahn, principal analyst of carrier operations and strategies at Gartner, says SA`s second operator - Neotel - could have played the role Infraco seems intent on taking over.

"And what will the original second national operator (SNO) be able to do now that their potential to play as a facilities-based wholesaler has been cut from under them?"

Hahn says the SNO has "been around for three years in some form", and has had a licence for almost half-a-year, yet is in danger of being sidelined. "Already the TNO [third national operator] seems to be pulling even, if not ahead of them.

"Perhaps the first entity to win a client should get the SNO title. Which means if Neotel becomes Infraco`s first customer, they lose the race. But that`s nothing compared to what South Africans will lose."

Hahn says government should instead look at capping prices, ensuring sufficient bandwidth and encouraging investors into SA.

"Gartner advises the government to first create a powerful, balanced and viable competitor to Telkom, and cut it free from state ownership, before worrying about a third."

He says a similar situation in the US or European Union could result in litigation that Neotel would be unlikely to lose. "But as the powerhouse investor, Tata seems content, according to rumours, to invest in Infraco, the original leadership of the SNO might not have a financial leg to stand on in conjunction with their legal one."

Competition welcome

Chairman of the local chapter of the Internet Society, Alan Levin, says the organisation welcomes competition in the local market. "It appears this project will start addressing the problem of the duopoly on national connectivity."

However, he raises concerns about government`s apparent conflict of interest. "At the same time, we are concerned that government owns significant shareholding in both of the current suppliers in this market and the announcement relates to yet another government-owned organisation.

"This conflict of interest may influence the decision-makers and result in a lower propensity for ICASA [Independent Communications Authority of SA] to approve new licensing for more national data carriers," Levin says.

Dave Gale, Storm`s business development director, is both encouraged and dismayed. He says additional competition in national and international bandwidth is needed. "If Infraco succeeds in driving down costs, it can only benefit the economy."

However, Gale is "dismayed" because the end result is another telecoms entity in SA that is government-controlled.

"I have no idea how any entity with vested financial interests in a market can hope to create fair and effective policies to stimulate and nurture a competitive free market economy."

He also raises the question of whether a third operator - however necessary - will erase market share for Neotel.