Cover Story

Capturing corporate

Neotel celebrates its fourth anniversary in operation this year. The company has its own network and some serious backing, but is it really bringing the competition it was intended to?

1 November 2010
Photo by: Suzanne GellAjay Pandey, Neotel, believes having Indian telecommunications giant Tata on board affords the company a massive advantage.

For South Africans, Neotel was more than just a telecommunications operator. It encapsulated the hope that we would finally be free of incumbent network Telkom’s stranglehold on the market. At the time Neotel was licensed it was mandated to tackle said monopoly with full force and transform telecoms in South Africa.

This year marks Neotel’s fourth anniversary since the company changed its name from SNO Telecommunications – the original licensee that was given the paperwork needed to provision a network, seek investment and introduce competition for parastatal Telkom. Since then, the shareholding, direction and market have changed.

Rapid scale

...Telcos have forgotten that the intention of revitalising and transforming telecoms in this country was to change the consumer environment.
Arthur Goldstuck, World Wide Worx
The company was kickstarted with R7.4 billion in funding from the Development Bank of Southern Africa, Nedbank Capital, Investec Bank, the Industrial Development Corporation and the Infrastructure Finance Corporation – it’s the kind of punt that most new providers can only dream of.

Part of the capital was used to acquire Transtel from Transnet, to give Neotel scale, and it has been focusing on growth in the wholesale and corporate markets ever since.

Shareholding in Neotel, as it currently stands, is constituted of a 25 percent stake belonging to a SEPCo – a strategic equity partner – with BEE partner Nexus Connexion owning 19 percent and the remaining 56 percent belonging to Indian telecommunications giant Tata Communications.

So it started with a serious capital boost and is now backed by a giant in the Indian market. Having Tata behind Neotel is something Neotel head Ajay Pandey touts as a massive advantage.

For one, he says that lessons from Tata’s operations in India can be ‘cut and pasted’ into Neotel.

“We can also customise products and bring in global scale and partners to the local market,” he says.

To date, R3.5 billion has been spent on infrastructure and Pandey claims that Neotel is South Africa’s first “fully converged communications service provider” with its next-generation IP-based network.

Neotel’s (sensible) consumer moves

Words: Samantha Perry
There was something of a furore in the local market in August after Neotel came out and baldly stated its lack of interest in the consumer telecommunications market.  Those paying attention when it launched in August 2006 will recall that it said the same thing then.
Neotel is not mandated, or obliged in a legal or any other sense, to go after the consumer market. It is not obliged to be a fixed-line competitor to Telkom. It was awarded a licence that enabled it, when Telkom still had exclusivity in the provision of telecommunications infrastructure, to roll out infrastructure, while every other player in the market was still forced to obtain infrastructure from Telkom.
Thanks to the 2008 Altech High Court decision, anyone with an iECNS licence may self-provide, and many are now rolling out infrastructure as a result.
Neotel is doing the economically viable thing and staying out of the consumer market beyond the fixed wireless services it provides. If the company wanted to go out of business, it could go on a consumer targeting spree, but it’s doubtful its shareholders would like that much.
What of the consumer, you ask? The consumer can look forward to local loop unbundling (provided it ever happens).
Local loop unbundling is a policy intervention that came about in recognition of the fact that there is a need for competition in the consumer market, but that rolling out fixed- line infrastructure is not financially viable for new entrants.
In South Africa local loop unbundling, per a directive issued by then Minister of Communications Ivy Matsepe-Casaburri in May 2007, is scheduled to happen in 2011. Not much has happened since the directive was issued, however.
Local loop unbundling will enable any player that wishes to, to make use of Telkom’s copper and offer services over that infrastructure.
Further policy interventions, beyond the current drive to reduce call termination rates (CTRs), are planned, including carrier pre-selection. Carrier pre-selection hearings were held in early 2009, and Icasa has released draft regulations. Per Telkom, it is ready for carrier pre-selection but Neotel isn’t yet, and it is waiting for the other operator to get its interconnect and inter-operator processes and systems in a row before such can happen. Carrier pre-select is almost a precondition of local loop unbundling, as it enables the customer to select which carrier will route his call before the call is made.
In other words, it’s up to the regulator to make a move and get policy processes rolling. Neotel cannot and should not be blamed for acting like aresponsible corporate citizen. Blame for the delay in liberalising the consumer end of the fixed line market lies elsewhere.

Neotel announced its enterprise services in 2007. Pandey says that things really started happening last year when the Seacom undersea cable went live, bringing competition to the international bandwidth space for the first time, with Neotel in a prime position to benefit from it.

“We [Neotel] have a leading position in terms of international bandwidth,” he says. “We were the first operator to have access to the SAT3 cable after Telkom and now we have Seacom, and the West African Cable System [WACS] on the way.

“We are the only company that has a leg in each submarine cable coming to South Africa. This is a strategic position we have taken to provide services to enterprise customers,” he adds.

Cool on consumer

Pandey says the company has also invested heavily in data centres to leverage its planned managed services business and further provide for its customers. According to him, the Neotel data centre in Johannesburg is sold out and Cape Town recently went live too.

“The landscape has been changing and we have been playing the game,” Pandey says.

But the inroads Neotel has been making have been in the corporate and mostly enterprise market. Pandey says that 60 percent of Neotel’s revenue comes from enterprise customers, with 30 percent coming from its retail business.

Consumer services only represent ten percent of revenue and Neotel actively plays down its focus on this market segment.

“Our focus is on enterprise,” says Pandey. “This is where we leverage our strength and expertise. The consumer play is small for us.”

He describes Neotel’s consumer play as ‘young’, suggesting that it might grow in the future, but also says it’s a ‘small business consciously’.

Critics have slammed Neotel for being behind on its strategy of meeting the consumer market, but Pandey insists this isn’t true.

“It just isn’t a priority for us,” he says.

So then why do it at all?

According to MD of World Wide Worx, Arthur Goldstuck, the reason Neotel has consumer services in the first place is because it is morally compelled to.

“Neotel was given the SNO (second network operator) licence on the premise of competing with Telkom and that included rolling out consumer services,” he says.

“The only reason it has a semblance of consumer services is because that is what is expected. But it has a pittance of consumer services. If Neotel could, it would abandon them altogether. It’s clear from the haphazard and half-hearted way they’ve researched the needs of consumers and attempted to meet them that they don’t care,” he says.

Of course, the market has changed substantially since the introduction of the SNO licence and the 2008 court case between Altech and the Department of Communications, which led to hundreds of value-added network service providers gaining licences to self-provide their own infrastructure.

Goldstuck insists, however, that the SNO licence is more substantial than the iECNS version that other operators have.

“The way SNO licensing happened gave Neotel far greater resources than ISPs with VANS licences [which have since converted to iECNS],” explains Goldstuck.

“iECNS licences do not fully allow smaller players to compete directly with large telcos,” he adds. “But, that aside, the core intention of all licences offered in recent years was to benefit the people of South Africa. Instead, what we are seeing is a gold rush for the corporate wallet.”

Goldstuck laments this situation, saying that telecommunications providers are going for the lowest hanging fruit without realising the opportunities that exist in the consumer market.

In Kenya, for example, operators such as Wananchi have embraced the consumer market. In fact, said operator is rolling out the continent’s first affordable, triple-play fibre to the home solution with its Zuku offering.

In South Africa, however, consumer connectivity is falling behind even other developing African markets.

“Low-hanging fruit, that’s the bottom line for all the telcos in this country, and their contentment for that matter,” says Goldstuck. “There is a lucrative corporate market with no ownership outside of Telkom’s monopoly, but with that monopoly vanishing, it’s like a gold rush.

“And there are two major issues here,” he continues. “One is ‘profit for the sake of profit’, which has become a rising ethos for corporate SA; the other is that telcos have forgotten that the intention of revitalising and transforming telecoms in this country was to change the consumer environment,” insists Goldstuck.

“If you consider Neotel with its licensing and shareholding – it was basically handed a market on a plate. Instead of giving meat to consumers, it went for the easy pickings,” says Goldstuck, “… to the extent that it has done no better than Sentech did in terms of addressing consumer needs,” he adds.

Forging ahead

Irrespective of the criticism, Neotel continues to address the enterprise market and says that the middle market is next in its sights.

“The middle market is key this year,” says Pandey. “We have wired up 300 buildings already in metro areas. We will continue to focus on the specific needs of our customers,” he adds.

“In terms of the consumer market, we have 300 CDMA base stations up already and have added more in Port Elizabeth and Pietermaritzburg this year.”

These are used to provide Neotel’s NeoConnect and NeoFlex products – and the company added prepaid services this year in the form of NeoGo, with top-up vouchers available for purchase through existing sales points and Sasol forecourts in certain areas.

It might not be the abundance of consumer services and bandwidth that South Africans had hoped the Second Network Operator would bring to market and you won’t have to look far to find customers who have fallen prey to billing problems either, but, according to Pandey, it is enough and his company is on track in terms of its consumer strategy.

Neotel’s focus is on enterprise – and that’s the bottom line.

This just in

As Brainstorm was (literally) going to print with this issue, what should land in our inboxes, but a press release from Neotel, announcing a refocused consumer offering. We’ve printed it below, verbatim, for your interest and evaluation. - Samantha Perry

Press statement: Neotel unveils refocused consumer offering


Neotel, South Africa’s first converged telecommunications operator, today unveiled a refocused consumer offering that offers ordinary South Africans improved access to affordable voice and entry-level broadband data products. The company has also enhanced some of its existing packages and announced measures to improve customer service, while reaffirming its commitment to the consumer market.

Neotel’s revised offerings are based on customer feedback and market research and follow a comprehensive review of all the systems and processes that ultimately impact on retail customers.

“Neotel takes its commitments to the consumer market extremely seriously,” says Neotel MD and CEO Ajay Pandey. “We’ve been listening to what our customers and the market have been telling us and we’ve taken heed of the feedback. For the past several months we’ve been working hard to refocus our consumer business and enhance the customer’s service experience,” he says.

The salient features of the revised offer, several of which challenge industry conventions, include: Identical voice tariffs across all prepaid and post-paid packages – an industry first; Availability of prepaid options for both voice as well as high-speed data services; Free Neotel to Neotel calls between 18h00 to 07h00 daily, all day on weekends and public holidays; An affordable entry-level high-speed data service (R99 p/m; free 500MB data; free 500 SMS p/m); A new home phone at a reduced price of R399; Increase in bundled minutes and data allowance of additional 500MB on most existing packages, resulting in significant savings for consumers.

Following the launch of Neotel’s pre-paid offer in August, the company has also introduced smaller denomination recharge vouchers (R25, R50, R100 and R200) that will make it more affordable for customers. Recharge vouchers can be purchased at Sasol forecourt petrol stations as well as Neotel stores and will soon be available through additional retail outlets. Discussions are also underway with leading financial institutions to allow airtime to be purchased via them.

Customer service


Billing issues, a common source of frustration for customers, will soon be a thing of the past as a result of a new best-of-breed billing system that has dramatically improved billing accuracy and information. Customers have already begun experiencing quicker turnarounds in query and complaint resolution following a total overhaul of the systems and processes in the customer call centre. This has included an upgrade to the CRM system as well as the establishment of a dedicated complaints team to address escalations and identify root causes of service failures to prevent recurrences.

There is huge focus on training and upskilling call centre staff and this is already yielding positive results with a noticeable improvement in customer satisfaction ratings over the last three months.

“This is an ongoing process and we are confident we are moving in the right direction,” says Pandey.

Although Neotel has decided to discontinue some of its high-end CDMA packages (NeoConnect Prime 10G, 15G and Unlimited, as well as NeoFlex Data 10G and 15G), products such as NeoBroadband Wimax, which are targeted specifically at the larger fixed data user, provide compelling alternatives.

“While our CDMA network is appropriate for the majority of our customers, we have started moving high-end broadband users to Wimax, where they will be assured of high speed for both downloads and uploads. At the same time, this is alleviating the strain on the CDMA network, which has improved bandwidth speeds for our normal to moderate users,” says Pandey.

“There remains a significant portion of the population that needs entry-level products. We see a gap for differentiated, affordably priced voice and data offerings, and we believe we are best placed to satisfy this demand as we continue to grow our network,” he says.