Neotel faces Vodacom battle

By Damaria Senne for Neotel
Johannesburg, 14 Jun 2007

Neotel will struggle to capture fixed-line market share as mobile operator Vodacom enters this arena, say observers.

Yesterday, Vodacom announced plans to roll-out its own fixed-line network.

Speaking at the company's annual results presentation yesterday, CEO Alan Knott-Craig said Vodacom would start by building six or seven pilot optic fibre rings in metropolitan areas to create additional capacity for data growth.

This will initially allow Vodacom to self-provide infrastructure, rather than sourcing from Telkom. The group will later sell additional services to customers by 2008, at the latest, he said.

Tough times

Market commentators agree Vodacom's fixed-line plans are good news for second-tier telecommunications operators and consumers, who will have more choice.

However, the move is bad news for second national operator Neotel, as Vodacom will eat into its market share. Earlier this year, Telkom said it expected to lose up to 10% of its market share in a five-year period to Neotel.

Vodacom's entry changes these estimates, they say. However, it is not yet clear how much market share Vodacom will take away from Neotel.

Frost & Sullivan research analyst Spiwe Chireka says Vodacom has the advantage of having an established distribution infrastructure.

"Vodacom's success over MTN in the South African market was largely due to their effective distribution channel and this is likely to be the case again," he notes.

Storm business development manager Dave Gale says Vodacom's fixed-line plans make Transtel even more of a strategic asset to Neotel, as its established footprint will help the second national operator roll-out services much faster. "I don't envy them the task ahead."

Imminent player?

Gale adds MTN is also entering the fixed-line fray. "It is no secret that MTN Network Solutions has been contracted to install fibre in metro areas, so expect them in the same market," he says.

"They are likely to bundle value-added services, such as virtual private networks, with the underlying layer two services in the time-honoured, anti-competitive Telkom tradition."

BMI-TechKnowledge senior analyst Richard Hurst says Vodacom's move highlights that mobile operators are well aware the South African mobile market is nearing market saturation.

Gale says Vodacom will also end up competing with Telkom's Diginet and Metro Ethernet offerings and those Neotel and Infraco aim to offer.