Telecoms newcomers fail to deliver

SA's recent entrants into the telecoms market - Neotel and 8ta - have failed to live up to their billing so far, as the incumbent players still have a tight grip on market share, according to analysts.

Spiwe Chireka, senior ICT analyst at Frost & Sullivan, is of the view that, while second national fixed-line operator Neotel has not offered significant competition to Telkom, the latter's mobile arm, 8ta, has also found the going tough in wooing customers away from Vodacom, MTN and Cell C.

According to Chireka, Neotel's major undoing was its failure to make inroads into the consumer market. She argues that when Neotel came onboard, expectations were high among consumers that the much-needed competition in the telecommunications industry had finally been opened up.

However, she maintains the Telkom monopoly is still being felt across the consumer market.

“In regards to its enterprise business, Neotel has brought an alternative to Telkom. However, it still has not captured a significant number of customers to challenge Telkom, which still dominates the sector, anyway,” says Chireka.

Concurring with Chireka, WWW Strategy MD Steven Ambrose says Neotel has had little or no effect on fixed-line quality or range of services in SA. “They focused on big corporates and left the consumer in the lurch.”

Ambrose, however, explains that the provision of Internet and other telecommunication services in the large corporate market and the introduction of competition have had a greater impact than Neotel itself.

“The fact that there was another source of some services that became available with Neotel did create competition for Telkom to bring down prices,” he explains.

Analyst and World Wide Worx MD Arthur Goldstuck shares this point of view, saying Neotel has been a boon for the enterprise customer, and forced Telkom to become far more competitive and commercial in its strategies and operations.

“Neotel has stirred up Telkom in the enterprise space, but made no impact among consumers. They have little understanding of the consumer market, and even the research they do conduct among consumers seems to be based on what they want to sell rather than on what consumers want.

“Neotel has completely let down the consumers and their expectations. It has not provided an effective service or effective competition to the incumbent in the consumer market,” Goldstuck points out.

IDC analyst Pieter Kok also believes Neotel has not made any significant traction on Telkom.

“I guess it depends on which side of the scale you look at it, but overall no. It has definitely had some success in the corporate market. However, I believe it hasn't been able to penetrate the consumer market yet. Essentially, they have not been aggressive enough.”

According to Kok, the likes of Vodacom currently offer more competition to Telkom than Neotel. “However, I do believe that with the right focus, Neotel could change that around rather quickly.”

Last year, Neotel CEO and MD Ajay Pandey revealed the company's ideal revenue mix would be divided as: 60% in the enterprise segment, 30% in the wholesale segment, and 10% in the consumer market.

Chireka says: “On a scale of one to five, I would give Neotel a three, because - according to the figures published last year - the company had garnered about 50 000 subscriptions, which is not significant in as far as market penetration is concerned.”

Highlighting the converged telecoms operator's latest woes, Chireka points out that recent reports state the company is planning to lay-off workers - an indication that all is not well at the organisation.

“I can only attribute that to two factors. Firstly, I have a strong feeling that they are under-performing; and, secondly, maybe the move is meant to just boost their margins,” she says.

In regard to the potential lay-offs, Kok, however, expresses a different view. “Considering the recent announcements around layoffs and restructuring, I believe Neotel is in the process of positioning itself to shake things up a bit in the local market.”

Commenting on SA's mobile industry, Chireka says the arrival of Telkom's mobile arm, 8ta, has been a tale of much ado about nothing.

She believes 8ta has not really disrupted the market as expected. “After two months of launch, 8ta reported it had attracted about 200 000 subscribers. This figure is not significant. We did not get the same excitement that we experienced when MTN and Cell C entered the market with the aggressiveness that everyone felt.”

However, Chireka notes that when 8ta surfaced late last year, major players like Vodacom were shaken and even reduced their rates. “But now the momentum has just died down and it seems we are back to normal again.”

She believes 8ta has failed to make a breakthrough in the market, partly because of poor distribution strategies. “Personally, I have gone to several garages and shops looking for an 8ta starter pack, but failed to get one. I think the company only has select retailers which it targets and this has rendered their product inaccessible to many,” she notes.

Like Chireka, Goldstuck also believes 8ta has not shaken the market according to expectations.

“8ta has not disrupted the market as such, but has certainly made an impact on the structure of the market. Whereas in the past only one small network, Cell C, was attempting to establish a lower price-point for the prepaid market, Telkom has entered the market with a similar strategy, which has forced the bigger networks to respond,” he says.

Goldstuck also points out that some of Vodacom and MTN's offerings are now, in fact, priced better than those of Cell C and 8ta, and that is unlikely to have happened without 8ta's entry into the market.

Ambrose agrees that 8ta has had a big impact on the mobile arena. “Having four operators has changed the dynamic of the industry completely and Telkom has great penetration in the commercial, domestic and government sectors. This in itself is a greater opportunity for Telkom and challenges for the other operators.”

For Telkom to turn around its fortunes, Ambrose says government has to set the telco free to operate in a competitive independent industry, or “face the risk that it will become an expensive and irrelevant dinosaur in a dynamic and changing industry”.

On the other hand, Kok is of the view that it's too early to tell, “but real disruption will probably only come once 8ta expands its offerings”.

“As a consumer, I have not felt a difference. However, that said, I remain hopeful for 2011,” he notes.

According to a recent report from Research and Markets, SA's telecoms sector boasts the continent's most advanced networks in terms of technology deployed and services provided.

The report says the end of Telkom's monopoly on international submarine fibre-optic cables, with the arrival of Seacom as the second submarine international cable in 2009, has brought down the cost of international bandwidth dramatically.

Nonetheless, it points out that key regulatory events shaping the market in 2011 will be the complete unbundling of the local loop, the staged reduction of interconnect charges, the auctioning of WiMax and LTE spectrum, and a deadline for mobile subscribers to register their personal details with service providers under new legislation, which could lead to a significant drop in mobile penetration.

Chireka agrees that for competition to blossom in the sector, the issue of unbundling the local loop should be dealt with once and for all.

“There is no need to keep on pushing the deadline. Also, delays on spectrum auctions are inhibiting competition in the industry. ICASA [Independent Communications Authority of SA] has to get its act together on this issue.”