Subscribe

Vodacom aims to eat Telkom's lunch

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 19 May 2015
Vodacom could quickly roll out a million lines if its bid for Neotel is successful.
Vodacom could quickly roll out a million lines if its bid for Neotel is successful.

In a classic case of the pupil becoming the master, Vodacom is taking Telkom head on in the fixed-line market, with or without Neotel by its side.

Vodacom CEO Shameel Joosub says SA's largest mobile operator will "take Telkom directly on" by rolling out fibre to businesses and consumers. This ambition, he says, will be fast-tracked if its bid to buy Neotel is approved, and result in the child taking on its parent.

The mobile operator anticipates feedback in the next few weeks from the Independent Communications Authority of SA and the Competition Commission on its proposed buyout of Neotel. After that stage, the issue needs to go through the Competition Tribunal, which could take three or four months, says Joosub.

Investing in fibre

Joosub notes, once Vodacom buys Neotel, it can capitalise it properly and start a mass rollout of fibre. He notes the company will target areas where there is no DSL, and then chase geographies where coverage is poor. "The biggest opportunity is to go where there isn't service."

Even if Vodacom does not succeed in buying out what was meant to be SA's second national operator, it will still take on Telkom, says Joosub. However, he notes, Vodacom's ambition would be set back three to four years without Neotel.

Joosub explains Neotel has an extensive fibre network - which spans about 16 000km - and has access to fibre that runs right up to gated communities. He notes Neotel has previously not been competitive as it was underfunded, but Vodacom aims to force Telkom to "up its game".

Telkom is rolling out 20Mbps, 40Mbps and 100Mbps fibre-to-the-home offers in selected areas in Gauteng, KwaZulu-Natal and the Western Cape, targeting about 20 suburbs initially.

Vodacom will offer communications services such as broadband and telephony, and will then look at adding aspects such as content, says Joosub. The company could roll out a million lines in a "very short period" and this aggressive competition will help bring fibre prices down.

Good chance

World Wide Worx MD Arthur Goldstuck notes Vodacom is taking advantage of a market that Telkom has traditionally neglected. Telkom's fibre assault only kicked off after resident associations started putting in the technology themselves.

Goldstuck says Neotel will give Vodacom "serious penetration" in the market, but without the addition of the second national operator it will have to build out curb-level infrastructure by itself. "Telkom will not quake in its boots, but five years from now that will be a different story."

Telkom has not been doing anything to make fixed-lines competitive, says Goldstuck. He notes this is evidenced by the number of fixed-lines declining by almost two million in the past 15 years. Yet, he says, there is still appetite for the technology, which offers a more stable broadband connection than mobile.

Goldstuck adds Telkom's neglect of the market "allows someone like Vodacom to come in and take the market in five to 10 years". Ovum analyst Richard Hurst adds Vodacom has been "nibbling" at the fixed market for some time.

Hurst says it is really good news for Vodacom that the pupil is becoming the master, and this move will spur competition and lower fibre prices. He notes fixed-line penetration is sorely lacking, and Vodacom can make a "real dent" in the market as it has enough cash to give Telkom a run for its money.

Tim Parle, telecoms specialist at BMI-TechKnowledge, adds Vodacom's plan is a "bold move" but it has to do something to increase revenue growth.

Share