Plot thickens at Telkom, BCX hearings

By Nicola Mawson for Telkom
Johannesburg, 30 Mar 2007

Telkom and Business Connexion (BCX) have been accused of conspiring to the detriment of BCX's newest division, BCX Communications.

The Competition Commission's advocate Owen Rogers argued before the Competition Tribunal this week that BCX Communications lost out on business opportunities when its parent company elected to partner with Telkom, rather than its own division, when tendering.

Rogers cross-examined Michael Sewell, group executive for outsourcing at BCX, during the hearings into whether Telkom's proposed R2.4 billion takeover of the IT services firm should be allowed to go ahead.

Rogers argued the fledgling division suffered revenue loss as a result of the impending deal, with IBM luring staff away and Telkom cutting BCX out of the loop when bidding on deals.

Sewell denied there was a conspiracy between the parent company and Telkom to disadvantage the communications division. It was, he said, a business decision to partner with Telkom on certain bids.

In 2006, a tender for the South African Revenue Services was up for grabs. This was shortly after BCX Communications had been acquired. "The whole industry went running after this like a bunch of five-year-olds playing soccer," said Sewell.

He noted BCX made the decision to not bid for the tender with its fledgling company, for which it had paid R35 million. Instead, it bid with Telkom for the virtual private network aspect, worth R100 million. Sewell conceded that, while it looked like a "bit of a slap in the face" for the new company, BCX was still in the process of consolidating its latest acquisition.

Incorrect impression

Rogers queried BCX's motives for acquiring the company, saying that before it was bought, the board was under the impression it would attract many more clients.

He read from internal documents and proposed BCX would be "perfectly positioned" in the telecoms space. Sewell argued this did not automatically mean the company would be successful in gathering clients.

Rogers said the company anticipated 25% growth year-on-year from the division. He noted revenue was, according to BCX's documents, expected to grow from R147 million in 2007 to R700 million by 2012. He also said BCX's documents anticipated a pipeline of sales. Sewell countered that a pipeline meant there were opportunities, not that these were done deals.

Sewell commented that local companies faced competition from international players entering the local outsourcing market. He said the firm had not been successful in pitching the communications company to existing clients. BCX had only made one sale to an existing client.

The company is expected to spend slightly over R80 million on upgrading its network - acquired as part of the takeover of Bidvest Network Solutions to form BCX Communications - to a next-generation network. So far, R26 million of the phased expenditure has been spent.

Sewell pointed out the aim was to "bring the network up to today's standards and be in a good position to find new clients". However, he contended the company was not successful in selling an end-to-end solution as customers "cherry-picked" the offerings they wanted, going for a "best-of-breed" approach.