2005: What a year!

Despite many negative predictions made concerning 2005, this year has proved to be one of the most active and progressive the industry has ever seen. Although growth has now returned to the ICT industry, it was the latter part of the year that saw most of it; but it was still not at levels seen in years prior to the downturn experienced earlier this decade.

The "new risk management grudge cycle" mentioned in my review last year has played a major role in 2005, and is again likely to be at the top of the to do lists of many executives for 2006. This is especially true since we have now seen harsh prison sentences being meted out in the US, as well as ones pending in both Europe and SA; and they all relate to governance and compliance issues.

On the international and local fronts, the year has been dominated by sector consolidations, and particularly so within the telecommunications market. Locally, the telecommunications liberalisation and the continuing BEE activity have contributed to the many changes that occurred within the South African and African ICT industries.

In the USA the technology-heavy Nasdaq is ending the year very close to the 2 250 level; about the highest levels yet achieved this decade and about 5% above the level this time last year, despite falling to lows of about 1 910 in April. Conversely, the JSE is running at all-time highs of over 17 000 with levels of about 17 500 being achieved during November. These numbers are more than 35% higher than this time last year and show no major signs of abating.

As has been the case since 1999, there have been very few new ICT listings on the JSE and/or AltX, but a large number of casualties through a combination of liquidations, consolidations, acquisitions and conventional de-listings. However, the key characteristics of 2005, apart from numerous consolidations, have been concerned with the continued move by listed and non-listed organisations alike, to embrace the principles of BEE, a situation fuelled by the spectre of the imminent publication of the ICT BEE charter; together with the results of the liberalisation of the telecommunications sector that occurred earlier this year.

I expect one of the new 2006 entrants into SA to be Tata.

Paul Booth, industry analyst, Global Research Partners

Additionally, as was the case last year, many local technology stocks share prices have grown with the favourable business climate. An analysis at the end of November suggested that of the approximately 48 technology shares still listed on the JSE and AltX, only two shares were trading below 10c (six in 2004); while 46% were now trading above R2, up from the 37% of last year.

On the empowerment front, the ICT BEE charter has still not been issued and is supposedly now awaiting the publication of the Department of Trade and Industry`s Code of Good Practice before being finalised. However, this has not slowed BEE activity and we have seen investments, for example, in Accenture by Akha Trust; AST by Gijima; EOH by Mthombo IT Services; Faritec by J&J Group; Fujitsu SA by Yard; MB Technologies by Royal Bafokeng Finance; Pinnacle by Amabubesi; Unisys SA by CyberKnowledge Systems and UUNet SA by J&J Group, to name but a few.

From a telecommunications perspective, the sector has just seen the awarding of the licence to the SNO; and publication of the revised version of the Electronic Communications Bill (Convergence Bill) is still expected later this year. Nevertheless, there has been a flurry of activity following the telecommunications liberalisation that was ushered in on 1 February, with many new players entering the VOIP market specifically, such as Itec Telecoms, talknetafrica and Viper Networks.

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There were only a handful of new listings this year and they included Alliance Data and ISA (ex-Y3K) on AltX and Metrofile (ex-MGX) on the main board of the JSE. In addition, Infowave transferred to the main board from the development capital sector.

Fortunately, unlike recent years, the attrition list was comparatively short and included Connection Group (acquired by JD Group); CS Holdings (acquired by BTG); EC-Hold (at long last); Global Technology, following its partial sell-off and the liquidation of its remnants; Grintek, following its acquisition by Saab; Siltek (at long last); and Uniserv following a privatisation buy-out.

The shares of FrontRange and VenFin are likely to disappear, following the buy-outs by a Californian private equity group and Vodafone respectively. The shares of CCG, Cyberhost, Elexir, OAI and Top-Tech are currently suspended and all these companies, except Cyberhost, are likely to be delisted in 2006 since nearly all have been liquidated and it looks like Elexir is going that way as well.

Net-1 UEPS Technologies, ex-Aplitec, successfully listed in New York.

Other major local mergers, acquisitions or investment activities included several purchases by Datatec particularly through its UK arm, Logicalis, maybe a precursor to a listing of that subsidiary in London; the purchase by Dimension Data of Nigerian-based Roe to create Dimension Data Nigeria; the buy-out of FrontRange by a California-based private equity group; the investments by MTN in Irancell, Mascom Wireless Botswana, Telecel Cote d`Ivoire and Telecel Zambia.

Others included the purchase by Sybase SA of the shareholding in that company held by Denel; the buy-out of Tiscali SA by M-Web; the acquisition of CEB by UCS; the purchase of VenFin by Vodafone and the subsequent sell-back to VenFin of its assets excluding its shareholding in Vodacom; the investments by Vodacom in several African telecommunications companies such as Zambia`s MTC Vodafone. There were also several acquisitions by Xantium Technologies, who are also in the process of changing their name to Simeka BSG. In addition, Sekunjalo made several investments in UK-based ICT companies associated with the retail industry.

In addition, Telkom SA is bidding for Nitel and a deal between Cell C and Virgin Mobile is very much in the offering.

Key appointments during the year included:
* New country managers/GMs at Check Point Software, Mincom SA, Nortel Networks, Oracle SA and T-Systems SA
* New CEOs/MDs at African Legend Technologies, ERP.com, Jasco, Ovations, RAH, Realyst, SITA and Telkom SA.

Resignations included those of Wolfgang Jakob, CEO of T-Systems SA, Sizwe Nxasana, CEO of Telkom SA, Mokati Ramphele, Cisco`s GM for Sub-Saharan Africa, and Kelvin Reynolds, MD of Oracle SA.

New South African offices were opened by ADIC, ITXC, Juniper Networks, Lenovo, Logitech and Sharp. Apple closed its local operations for a second time and Mercury Interactive also shut its local office.

On the ICT media front we saw the introduction of Computer Active by the Intelligence Group, Computer Business Review Africa by the Technews Group, iWeek by ITWeb; Tectonic Magazine; and of course, there was the usual flood of journalist job-swapping.

Other significant events or series of events included the setting-up of a SA development centre in Cape Town by Amazon.com; the divestment by Nedcor/Nedbank of the majority of its ICT interests with the reminder expected to be sold-off imminently.

From an awards viewpoint the key winners included Ntsundeni Madzunya, CIO of SA Post Office as IT Personality of the year 2005; Thoko Mokgosi-Mwantembe, CEO of HP SA as 2005 Overall Top ICT Individual at the African ICT Achievers Awards; Accenture as the Top ICT organisation in Africa and Robert Sussman as the Top ICT Private Sector CIO in Africa.

Although, as yet, there are no IT companies listed in the current Top 200 Companies in Africa list from outside SA and only a handful of telecommunications companies included (Maroc Telecoms, Medi Telecom, MTN Nigeria, Nitel, Orascom Telecom, Orascom Telecom Algerie and Tunisie Telecom), ICT activity on the continent has started to heat up with significant involvement starting to appear from the Middle East.

Key acquisitions/investments included that of Celtel, Africa`s third largest mobile company, by Kuwait MTC; Link Africa by Gateway Communications who, themselves were taken over by Batsalani Communications; and Atlantique Telecom and Sudatel who were acquired by Emirates-based Etisalat. In addition, Egypt Telecom listed in Egypt and London during December.

Internationally, this year has been characterised by a renewed flood of IPOs worldwide although well short of the dizzy days of the late 1990s; together with many consolidations within the enterprise software, IT services, networking, satellite communication, storage, telecommunications and wireless sectors in particular.

Notable IPOs included ones from Baidu.com; SSA Global Technologies; and SunPower, a subsidiary of Cypress Semiconductor.

In the enterprise software space, the year was dominated by Oracle who finally acquired PeopleSoft, took a major shareholding in India`s i-flex Solutions, but also managed to take-over Retek, a major player in the retail space, and Siebel Systems, the number one player in the CRM market, as well as a handful of smaller companies. In addition Lawson Software acquired Intentia; Mapics bought Infor; Marcam was purchased by SSA; and Scala Business Solutions was acquired by Epicor; thus leaving the European market devoid of any ERP players except for SAP. In addition, Geac Computer was taken-over by Golden Gate Capital.

From a networking perspective we have seen the rise of Juniper Networks who consumed a number of companies over the past few months including Perebit Networks and Redline Networks; Enterasys Networks being sold off to a private equity company and the usual flood of acquisitions from Cisco, including Scientific-Atlanta.

From an IT services perspective we saw significant consolidation amongst the top 20 players including the acquisitions of KPN`s consulting division and PinkRoccade by Getronics; Transiciel by Capgemini and Unilog SA by LogicaCMG. Additionally EDS sold off its AT Kearney entity to its partners.

From a satellite communications perspective, Intelsat was acquired by a four-party private equity consortium that includes both European and North American companies, and is now in the process of completing the acquisition of PanAmSat, who themselves listed earlier this year, thus becoming the world`s largest satellite company.

Additionally, Eutelsat is undergoing an IPO in France following its purchase by a group of private equity companies. In addition, New Skies satellite, which listed in New York earlier this year, is fending off bids from SES Global. In the mobile satellite space, Inmarsat listed on the LSE.

The storage space activity was dominated by Symantec, who swallowed BindView and Veritas Software, among others; and the acquisitions of Procom, SeeBeyond Technologies, Storage Technology and Tarantella by Sun Microsystems. Other deals included the acquisitions of Captiva Software, Documentum Maranti Networks and Rainfinity by EMC.

The telecommunications sector was particularly active with both the fixed line and mobile operators involved in some key acquisitions. These included:
* the $35 billion merger of Sprint and Nextel Communications, who also gobbled up US Unwired
* the $16 billion acquisition of AT&T by SBC Communications
* the take-over of MCI by Verizon Communications
* the acquisitions of Midwest Wireless and Western Wireless by Alltel, who in turn are spinning off their local lines business and merging it with Valor Communications

In addition we saw the merger of Cingular Wireless and AT&T Wireless; the buy-out of Amena Movil and Equant by France Telecom; the buy-out of TDC by a private equity consortium; the take-over of Telecom Italia Mobile by Telecom Italia; the Telefonica investments in or acquisitions of Cesky Telecom, China Telecom and O2; the investment in Turkcell by TeliaSonera; and the merger of NTL and Telewest, with the former now bidding for Virgin Mobile.

Apart from the above, other major acquisitions and mergers included that of Adelphia Communications by Time Warner and Comcast, Ascential Software by IBM, Feld Group by EDS, Macromedia by Adobe, Meta Group by Gartner, PalmSource by Access Company, Peregrine by HP, Siemens handset unit by BenQ, Skype by eBay, SunGard Data Systems by a consortium of private equity groups and Symbian by Nokia.

There were also numerous acquisitions, not specifically mentioned above, by a handful of the key IT players such as CA, HP, IBM, Microsoft and SAP.

Major international appointments included those of Mark Hurd as CEO of HP; Ted Nielsen as president and CEO of Borland; Bill Nuti as CEO of NCR; Sir Howard Stringer as chairman and CEO of Sony, John Swainson as CEO of CA; Bill Sullivan as president and CEO of Agilent Technologies, and Mike Zafirovski as president and CEO of Nortel Networks; while key resignations included those of Carly Fiorina, CEO of HP and Dale Kutnick, chairman of Meta Group.

Other major international activities included the settlements by Microsoft with several organisations and the withdrawal by Sony from the PDA market.

The conference/exhibition scene also continued to change with CeBIT remaining as the last major global exhibition; and even that one is now under threat.

According to Gartner, six trends have been identified that will have a significant impact on people, business and the IT industry. These are:
* 10% of companies will require employee-purchased notebooks by 2008
* 30% of US homes will use only cellular or Internet telephony by 2010
* The job market for IT specialists will shrink by 40% by 2010
* BPO services providers will capture $11 billion of insurance revenue by 2008
* A 50% growth in healthcare software investment could enable clinicians to cut the level of preventable deaths by 2013
* Investigation of new technologies will slow as discretionary budgets divert to regulatory compliance through 2008

IDC, in its annual look at the year ahead, predicts that moderate IT spending growth will force many information technology vendors to rethink their product and service offerings, merger and acquisition opportunities, innovation strategies, delivery models, and the competitive landscape. It seems that the IT and telecom industry convergence, consolidation, and realignment of the past two years will continue in full stride in 2006 but a critical new ingredient includes the acceleration of disruptive business models - open innovation in IT product and service development (the open source effect) and online delivery of IT as a service (the Google effect). These disruptive shifts will force most vendors to perform a strategic gut check as they enter the year.

Back here, more BEE initiatives should be seen emerging, particularly if the ICT charter is finalised; continuing activities associated with the latest grudge cycle and corporations planning their moves following the early 2005 telecommunications liberalisation and the issuing of the SNO licence. Hopefully, these moves will also encourage more international companies to use SA to host their call centre activities, as well as providing a possible destination for host outsourcing contracts. Overall, I predict a growth of between 8% and 10% for the year.

We should also see the outcome of the Vodacom/Venfin deal and the fate of the latter`s IT interests; as well as the identification of the acquisition target for BTG and the successful predator for BCX. Additionally, Sekunjalo may list its IT interests; and we should also see the effects of the various telecommunications activities under way across Africa.

In addition, I expect one of the new 2006 entrants into SA to be Tata. Tata is already the major shareholder in the SNO and definitely its driving force; they are already importing bodies via Faritec to work at ABSA and MTN for instance; and have identified Africa as one of their target markets and may thus be eying BCX or Dimension Data as one of the means to achieve this objective. It would not surprise me if the J&J Group will also be involved in this some way or another and that the latter`s investment in UUNet SA may be part of that equation.

On the international front we will not only see some growth in the IT sector, but also many new listings. However, I do believe there will be a continuation of the consolidation trends that started to manifest themselves back in 2003 and were also prevalent this year.

From a technology perspective, the mobile/wireless explosion will continue to dominate many activities, together with significant growth in the area of enterprise content management.

Although 2005 experienced a plethora of consolidation activities, 2006 is likely to be even more disruptive from this perspective and could mean difficult times ahead for end-users coping with the many changes caused by these events. Nevertheless, new opportunities will abound as new technologies burst into the market and many of these could revolutionise previous business practices positively. Maybe one of the key messages for 2006 should be: "Be bold".

* Paul Booth writes a weekly column, Booth`s Bites, for ITWeb, and runs an ICT consultancy, Global Research Partners.