Telecoms price cuts en route?

By Damaria Senne, ITWeb senior journalist

Johannesburg, 12 Apr 2007

South African consumers can look forward to major price cuts once Neotel begins offering residential services, says the company.

Neotel MD Ajay Pandey says there is no reason why pricing for telecommunications services should not come down to around a third of their current levels "over a period of time".

However, a company spokesman says pricing is only one of the benefits Neotel's customers can expect.

Availability of innovative products, better suited to customers' requirements, and world-class customer service are some of the other value propositions, he says.

Pandey states Neotel will not provide mobile phone services, even though CDMA technology would allow the second national operator to do so. CDMA, which is used on the 800MHz spectrum, enables operators to offer fixed-line, mobile and data services.

He says Neotel will undertake a pilot for residential services, using CDMA2000 technology, around the middle of the year. The pilot is expected to last a few weeks, and - if it goes smoothly - will be followed by a commercial launch.

Cost savings

William Hearmon, chairman of the African CDMA Forum, says international experience has shown CDMA technology is eight times more efficient than GSM technology, and provides considerable cost savings for operators. Vodacom, MTN and Cell C use GSM technology to provide mobile services.

The fact that CDMA will be used in combination with an all-IP network will enable Neotel to keep local calls within the area by directing them to the nearest router. This would allow the operator to make huge savings on transmission costs, he says.

Frost and Sullivan analyst Fisher Kamanga says Telkom's financial statements show close to 60% of total traffic minutes were from local calls. This gives an indication of the potential savings that will accrue to Neotel, he says.

Long-term goal

BMI-TechKnowledge's head of research, Brian Neilson, cautions that any major price cuts Neotel could potentially offer would not be immediate, as Neotel still has to build and pay for its new infrastructure.

However, because Neotel has chosen a cost-effective technology - CDMA2000 at 850MHz - it will be able to compete on a more level playing field against the established players who have already paid for their networks, he says.