Telkom digs in its heels

By Nicola Mawson for Telkom
Johannesburg, 09 Mar 2007

Fixed-line monopoly Telkom yesterday shrugged off Neotel as a serious competitor, saying the second national operator's slow start has effectively blown its chances of making a meaningful play for a piece of the local telecoms pie.

Telkom told analysts that it now expected to lose only 10% of its market share to Neotel in the next five years. Previously, the fixed-line operator expected to lose up to 15% of market share in the same period. The company attributes this to Neotel's slow start, which is partially the result of regulatory delays.

Neotel, however, has rubbished Telkom's statements, saying the company is "already competing aggressively in the wholesale telecoms market for international services, and has gained business from a number of the prominent telecom players in the market over the last few months".

Firming contract base

Meanwhile, Telkom managing executive for retail marketing Stephen Haywood says the company is sewing up a contract base of subscribers.

Between 40% and 45% of Telkom's corporate clients are now locked into long-term contracts and the company expects at least half of all its corporate customers to sign up for bundled packages in this financial year, he says.

By the end of October, Telkom had 200 000 subscribers signed up for its Telkom Closer plan, which is aimed at residential customers. The fixed-line operator also has 2 227 business accounts signed up for SupremeCall, the bundled voice package for small and medium enterprises. Telkom's strategy is to defend the old contracts and grow the new, Haywood says.

Outstanding regulatory issues that could negatively impact the company may also allow the it to strengthen its customer base, he says. "The more time Telkom has, the better chance it gets to grow [Telkom] Closer and other bundled packages," he says.

A Neotel spokesman says the company, which will launch national leased-line services for select wholesale and corporate customers in the next few weeks, is already in discussions with potential customers. "Overall, we are progressing well with our implementation plans and are confident of continuing to make competition even more active in ever-expanding portions of the telecoms market."

No price cuts

Haywood says Telkom will not implement any drastic cuts on its broadband prices. The fixed-line operator has already cut broadband prices "drastically", with overall prices going down by 24% in the past year, he says.

He adds SA now has reasonable broadband prices, and Telkom's focus will now be on differentiating itself on quality and speed. Further economies of scale will, however, result in gentle price drops, he says.

However, Neotel says its arrival is already having an effect on the market. "We are happy to observe that competitive players are taking note of the impending launch of Neotel's services and have initiated newer products and pricing corrections in the market already... We believe that even those players who have not started restructuring their product offerings thus far will have to do so very quickly."

A financial analyst says it would be "stupid" for Telkom to reduce prices too much now, as it needs to keep price cuts in reserve to see what Neotel does. He says Telkom will have a tough time, but they have prepared for it. "Telkom is doing the right things to position itself for competition."

The decision not to lower broadband prices has infuriated MyADSL founder Rudolph Muller. "What they are saying is that they are sitting on a cushy, monopolistic environment and can abuse their position and charge the high prices."

Muller adds Telkom is reneging on a previous promise to the broadband community. Price cuts, including those for broadband services, were the cornerstone of CEO Papi Molotsane's plan when he first came on board, he says. "Drastic cuts are what is needed to drive broadband penetration rates."

BMI-Techknowledge senior telecoms analyst Richard Hurst says it is a pity that Telkom is being reactive to the market, as opposed to being proactive. He adds Telkom's decision not to introduce drastic price cuts should spur on other providers to lower prices and gain market share. "The lack of a price reduction has actually given the other operators a greater opportunity."