Neotel`s success questioned

The second national operator (SNO), which yesterday launched under the name Neotel, will not have an easy time taking market share away from Telkom, suggest market commentators - an opinion the operator has quashed.

Neotel`s long-delayed introduction was greeted with fanfare at a function in Kyalami yesterday. In unveiling the service, MD Ajay Pandey promised broadband as never seen before in SA. He also promised competitive pricing and increased levels of service.

The operator, which received its PSTS licence in December last year, was initially expected to start offering wholesale services in the second quarter of this year. This and other offerings have been pushed out and consumers cannot expect relief from Telkom until April next year, instead of the last quarter of this year.

The delay, which caused market commentators to question Neotel`s viability, was jokingly commented on at yesterday`s event by communications minister Ivy Matsepe-Casaburri: "It`s been a long journey and today, at last, a new South African baby is born. This has been a long road; it has left me much greyer."

Analysts say this delay could cost the operator. One analyst, who spoke on condition of anonymity, is taking a cautious view on the operator`s prospects. Neotel, he says, arrived at the party "late in the day".

Nonetheless, there is a market as "people will always want to change", he notes. In the short-term, he believes Neotel would benefit from offering backhaul capacity, which it could on-sell. This would require minimal investment, as Neotel would essentially act as a "middleman".

Telkom could lose as much as 15% of its market share in the next five years, he predicts, adding that some parts of its business would be under more pressure than others. Telkom has previously indicated it could lose as much as 15% of its market share.

Another analyst, who also asked not to be named, comments that since the South African telecommunications landscape had changed over the last two years, the operator has missed out because other providers, such as VANS, have beaten it in making services available.

He notes that some companies would take advantage of the wholesale services in conjunction with current Telkom services, as they would attempt to diversify risk. However, despite a difficult business case, government will not stand by and let Neotel fail, he adds.

He sees Neotel taking away about 7% of Telkom`s market within two years.

Pandey disagrees with this view, saying that because of the nature of the offerings to South Africans, timing is not an issue. He adds that the company has not set itself a target; instead it will concentrate first on meeting Telkom`s "target" for it.

He says global case studies indicate timing does not make a difference. Neotel will also operate in a different space in the market: "This market hasn`t seen true international bandwidth, this market hasn`t seen fixed-line through wireless, this market hasn`t seen Internet through fixed-line wireless.

"SA should be hopeful, if not confident," he says, commenting on the offerings Neotel would put on the table soon. Ajay adds that South Africans would no longer be held hostage to a six- or seven-month waiting period.

Denis Smit, MD of BMI-TechKnowledge, adds that the SNO has a weight of experience behind it, which bodes well for its entry into the local market. He explains that the shareholders have the benefit of 140 years of telecommunications provision in a competitive environment.

He also points out that its phased approach, delivering wholesale services first, then corporate service before tackling retail, is a sensible one. In addition, consumers will welcome an improvement in service levels from those offered by the incumbent operator.

Looking forward about three years, Smit says the SNO could even garner some of the mobile market as telecommunications converge expands further and calls are carried over either WiMax or a cellular network.

Smit is bullish on the SNO`s prospects, saying 15% of Telkom`s market is a realistic figure.

Neotel estimates the total telecommunications services market in SA - fixed, mobile and data - was worth about R94 billion last year. It sees this market growing to R126 billion in 2010.

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