Telkom's new business unit, Openserve, is focused on being the primary infrastructure provider for South Africa's telecoms sector.
"I think we are killing this country by having too much infrastructure competition," according to new Openserve MD Alphonzo Samuels.
He believes there needs to be a clear distinction between infrastructure and services competition, and says the new company, launched this week, can be SA's primary infrastructure provider.
Telkom on Tuesday announced the new-look wholesale and networks division, which will function as a distinct business unit within the Telkom Group.
"If you look at what the country wants to achieve through the national broadband plan and the objectives set in the National Development Plan of making sure all South Africans have access to broadband, we believe that somebody has to step up and take that role of being the infrastructure provider.
"You really want to get to a place where you push competition down to the services layer; you don't want to have infrastructure competition."
Samuels says it's time for one infrastructure provider to step forward for the country, and Openserve plans to be just that.
"South Africa's broadband penetration is low but it's because everybody is trying to do the same thing. In places like Sandton and Claremont, you have five guys building networks next to each other, and our point is, let's draw a line in the sand and be the best provider we can be."
He says Telkom has offered a wholesale service for a while but lacks traction because there is too much infrastructure competition.
"You don't need five providers to go dig up Parkhurst or Bryanston. We are saying let us be that provider and then let all other service providers and ISPs come onto our network and in so doing we can bring down the cost of communicating."
He likens the strategy to cars travelling on the N1: "Anyone can come ride on our freeway as long as you are prepared to pay the tolls."
Timing it right
Samuels believes this is the right time for the structural change at Telkom, with the separation showing parallels to how UK telco BT spun out its infrastructure division into Openreach in 2006.
"In most jurisdictions where functional separation has happened, it was something that was ordered by the regulator. We are doing this out of our own volition," he explains.
In the case of Openreach, it came from an agreement between BT and UK regulator Ofcom to ensure rival phone and Internet providers would have equal access to the operator's network. However, following Ofcom's 2015 strategic review, there has been talk that Openreach could be completely spun off from parent BT.
Samuels also believes the separation signals Telkom's commitment to a more competitive market and lower prices for consumers.
"Telkom has already begun reducing prices associated with wholesale network infrastructure access. With the launch of Openserve, we want to make a significant impact on the way we provide open access broadband to all South Africans."
The telco maintains broadband as a critical national resource that needs to be democratised.
"I personally envisage a South Africa where, like water and electricity, broadband should be within everyone's reach. It should be open to access," Telkom CEO Sipho Maseko said when launching the new unit this week.
The open path
Samuels says the company has a number of plans for the medium and long term but right now it is focusing on building the operating model for the new business and "bringing wholesale and networks together to operate in an integrated fashion".
It plans to move away from a strictly "out of the box" wholesale offering, and he says in future, Openserve is "prepared to do bespoke and customised solutions for wholesale customers".
As a standalone business unit within Telkom, Openserve will be autonomous and responsible for its own profit and loss account. But Samuels says there are no immediate plans for listing Openserve as a separate stock on the JSE.
"We will continue to do our reporting in an integrated fashion."
Focusing Telkom
The company says the creation of the new business is in line with Telkom's ongoing turnaround strategy, and will effectively separate its wholesale and retail divisions while keeping the retail and enterprise departments under the Telkom brand.
Maseko says by better organising the business into core business units, Telkom will be able to sharpen its focus on customers.
"Without customer satisfaction, growth is quite simply not possible," says Maseko.
The telco says this heralds a new era in the Telkom group and the functional separation will help create that environment for growth.
"It is the right thing to do for our business and it will also provide us with the scope to turn our broadband intentions and aspirations into our national reality."
Maseko says Telkom needs to evolve as the global and local telecommunications markets do.
"Competition in both the retail and wholesale segments will continue to increase in severity. And customers across all market segments will continue to demand cutting-edge solutions - as they should," he says.
"In such an environment, we can't sit back and let the winds of change wash over us. In our business, inaction spells irrelevance. We have to respond and we have to take responsibility for our future and carve our own path."
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