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Neotel turns its back on consumers


Johannesburg, 26 Aug 2010

Converged telecoms operator Neotel has conceded arguments that it has been failing the consumer market, saying this segment is just not a priority for its business.

Speaking at press conference on the fourth anniversary of Neotel's launch, CEO and MD Ajay Pandey explained that Neotel's ideal revenue mix would be divided as: 60% in the enterprise segment, 30% in the wholesale segment and 10% in the consumer market.

When Neotel was licensed as the country's second network operator, expectations were high that its arrival would open up the telecoms market and provide much-needed relief for local consumers. However, Neotel has failed to make any real impact on the consumer market and has been facing increasing criticism.

Pandey's statements are bound to disappoint consumers, who were expecting some real competition to Telkom, which has long held the monopoly in the fixed-line market, forcing South Africans to live with high telecoms costs.

Pandey argued that it has been a misconception that Neotel's consumer segment is a priority that should be better developed and is behind target. Instead, the reality is that Neotel's consumer segment is a young business and a small contributor, he maintains.

“It's a young business for us. It's a small business for us consciously,” he explained.

WWW Strategy MD Steven Ambrose maintains that he saw this coming. “Neotel have simply confirmed what we have said all along. Neotel is not in effect a second national operator; they have become competition for Internet Solutions, not Telkom.

“This is very disturbing, as their licence and all the protection and advantages they enjoyed were on the clear understanding that they would become an alternative telco to Telkom and offer consumers in SA a choice,” he continues.

Protea Hirschel, Frost and Sullivan industry analyst, agrees: “It is fair to say that there is an expectation from the South African public that Neotel will provide retail consumers with choice in their fixed-line and broadband service provider.

“That is clearly not the case, which is reinforced by the statements by Neotel yesterday,” she adds.

Easy business

Pandey noted that although Neotel has been positioned as a second national operator, upon its entry to market, the company has instead been focused on being SA's first converged communications solutions provider.

He argued that, until the local loop unbundling, the consumer experience will continue to be sub-optimal and, until that point, Neotel's focus will be to offer an easy, hassle-free alternative to Telkom.

“It is crucial to manage expectations, while improving service,” he explained. Pandey added that the company was on target to meet its regulatory requirements regarding its consumer segment. He noted that Neotel is focused on the consumer, but it is a medium-term plan.

“The key focus of the business will be in the enterprise play, we will continue to do what we are good at and deliver on our strengths,” he said. The consumer play is very small for us, Pandey added.

“Clearly, for an operator such as Neotel, the wholesale and corporate segment is much more lucrative than retail consumers. Those segments also require less effort per account than retail consumers,” argues Hirschel.

Ambrose concurs, but argues that the consumer is the victim of this model: “Fortunately, technology has almost rendered Neotel's special licence of little effect in practice and this will continue to accelerate.

“Neotel's stance may be good business practice for them, but it does leave a feeling that once again we, as South African consumers, have been taken serious advantage of.”

No mobile plans

Pandey stressed that Neotel had no plans to enter the mobile market. “We will not be in the mobile space and we will not be a mobile player.” He added that the company has no plans to advertise in an intensively competitive consumer market.

Analysts have previously criticised Neotel's lack of a mobile offering, arguing that it would cost the company the consumer market.

Pointing to Neotel's recent prepaid offering, Ambrose argues: “The call costs are high, the Internet access is far too slow, and the devices are archaic by today's standards. The overall cost structure is also not very attractive, with minimum charges of R100, one device at R599, and although the call charges appear low, the lack of mobility does not offset the savings.

“There is absolutely no reason to go with one of these offers in preference to a fully-mobile, easily accessible, and totally ubiquitous offering from any one of the mobile operators,” he adds.

He maintains that Neotel's unattractive prepaid offering and lack of mobile offering will cost the company the consumer market. “With Telkom also entering the mobile space shortly, Neotel appears to be fading into complete insignificance in the consumer market,” concludes Ambrose.

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