Despite a grim financial situation and now a leadership overhaul, industry analysts believe converged telecoms provider Neotel is in no imminent danger of closing up shop.
The company's financial results spell a different story though, as a recent audit by independent firm Deloitte & Touche raised red flags about the company's ability to achieve future growth.
According to Neotel's annual report, the 2010 financial year saw a R1.1 billion loss. This was an almost 50% increase on its R739 million loss in 2009, which in itself was a 130% increase on its 2008 loss of R320 million.
In addition, the operator this week confirmed long-standing MD and CEO Ajay Pandey will leave the company, and the country, when his five-year contract expires in March.
Pandey is being replaced by Sunil Joshi, currently president of global enterprise solutions for Tata Communications.
Give it time
WWW Strategy MD Steven Ambrose argues that the so-called financial troubles have been overblown, misunderstood and misrepresented in the market.
“The creation of a major national telecommunications company takes time and lots of money. Once the infrastructure is established, it once again takes time to make money in order to recoup the investment,” he explains.
“Margins in telecommunications are slim and getting slimmer; the challenges that Neotel thus face are tough. Neotel is still in the growth and investment phase and will turn a profit, should it get its strategy right, in due course,” offers Ambrose.
Ovum senior research director Richard Hurst concurs, explaining that over the years, Neotel has ploughed a significant amount of money into its infrastructure, including a state-of-the-art network, data centres and national operating centre.
He explains that the financial situation is salvageable, as long as Neotel begins to hone in on its investment by taking a stronger foothold in the consumer market.
No consumer saviour
The company has yet to near its 2006 stated target of capturing 15% of Telkom's client base, within five years of entering the market. Last year, Pandey revealed the company expected to have around 50 000 subscribers at the cut-off of its 2011 financial year. This is 1.25% of Telkom's four million subscribers.
Ambrose previously criticised Neotel's consumer offerings, despite a recent overhaul of its consumer business segment. “While price reductions and a more rational approach to prepaid and bundles is good for the consumer, Neotel has not made any bold moves that would make its offerings much more compelling than before,” he argues.
Now Ambrose maintains his standpoint and notes that, while Neotel's strategy to date has focused on the enterprise, and while that market is big and offers large numbers for small effort, it has the major drawback of being extremely hotly-contested and being very small overall, in the South African context.
“The market that Neotel neglected was the so-called consumer and small business market, which is complex, diverse, and challenging, but - if handled correctly - can offer scale, diversity and ultimately profitability to Neotel,” he advises.
However, Neotel, under Pandey's leadership, has on more than one occasion stated that the consumer segment is not a key priority for the company and would ideally make up only 10% of its revenue mix.
But Hurst and Ambrose point out that under new leadership, the company strategy may be revised to prioritise Neotel's consumer offerings.
New leadership
Hurst explains that a change in leadership often brings about a change in culture, which may result in a different strategy for the company.
“I am positive that Neotel is fully aware of where it sits in the market, and may need to take a completely fresh look at its current market strategy. New brooms often sweep clean and changing the head of the organisation forces a fresh look at the strategy going forward,” maintains Ambrose.
He argues that the choice of another enterprise-focused leader may not bring the required focus to the group; however, time will tell.
“The main challenge is that the telecommunications market is extremely dynamic and mistakes made reflect very quickly in organisational performance. The danger is that unless Neotel comes back strong and fast, it will miss the opportunity to make a significant impact on the local market,” concludes Ambrose.
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