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Why Neotel is doing the right thing

Neotel's only doing what any sane commercial organisation should do - attempt to stay in business.

Samantha Perry
By Samantha Perry, co-founder of WomeninTechZA
Johannesburg, 09 Sept 2010

There's been something of a furore in the local market, after Neotel came out and baldly stated it's not interested in the consumer telecommunications market. Those who were paying attention when it launched in August 2006 will recall that it said the same thing then.

Neotel is not mandated, or obliged, in a legal or any other sense, to go after the consumer market. It is not obliged to be a fixed-line competitor to Telkom.

It was awarded a licence that enabled it, when Telkom still had exclusivity in the provision of telecommunications infrastructure, to roll out infrastructure, while every other player in the market was still forced to obtain infrastructure from Telkom.

Thanks to the 2008 Altech High Court decision, anyone with an iECNS licence may self-provide, and many are now rolling out infrastructure as a result.

Neotel is doing the economically viable thing and staying out of the consumer market beyond the fixed-wireless services it provides. If the company wanted to go out of business, it could go on a consumer targeting spree, but it's doubtful its shareholders would like that much.

What of the consumer, you ask? The consumer can look forward to local loop unbundling (provided it ever happens).

Local loop unbundling is a policy intervention that came about in recognition of the fact that there is a need for competition in the consumer market, but that rolling out fixed-line infrastructure is not financially viable for new entrants.

In SA, local loop unbundling, per a directive issued by then communications minister Ivy Matsepe-Casaburri, in May 2007, is scheduled to happen in 2011. Not much has happened since the directive was issued, however.

The consumer can look forward to local loop unbundling (provided it ever happens).

Samantha Perry, editor, Brainstorm

Local loop unbundling will enable any player that wishes to make use of Telkom's copper and offer services on that infrastructure.

SA has an estimated 4.6 million copper lines (Telkom, 2007), to a population of 49 million. This is not much, but if each of those was used for DSL, Internet access in the country would almost double.

Local Internet penetration remains low, with an estimated 5.3 million subscribers in 2010 (World Wide Worx survey, 2010). Telecommunications prices remain high, and there is a need for increased competition to drive down pricing. The landing of the Seacom cable has reduced wholesale prices, but the national leg is still expensive and more needs to be done.

Telkom has been offering broadband ADSL to its customers and other providers since 2002, and it is available on 93% of Telkom's network (Telkom, 2009). According to its 2009 annual report, Telkom has 548 015 ADSL subscribers.

SA currently has significantly more wireless broadband subscribers. According to a 2007 World Wide Worx report, there were 800 000 wireless broadband subscribers, and this figure is growing, with Vodacom reporting 1.138 million data bundle subscribers in its latest set of annual results (2010).

As a policy instrument to encourage competition, the introduction of mobile network operators has been hugely successful, as evinced by the high levels of cellular telephony penetration (68% per a World Wide Worx 2008 study) and the introduction of fixed-line competition hugely unsuccessful, with Neotel not having achieved significant market penetration.

Further policy interventions, beyond the current drive to reduce call termination rates, are planned, including carrier pre-selection. Carrier pre-selection hearings were held in early 2009. Per Telkom, it is ready for carrier pre-selection, but Neotel isn't yet, and it is waiting for the other operator to get its interconnect and inter-operator processes and systems in a row before such can happen (Telkom, 2010). Carrier pre-select is almost a precondition of local loop unbundling, as it enables the customer to select which carrier will route his call before the call is made.

In other words, it's up to the regulator to make a move and get both policy processes rolling. Neotel cannot and should not be blamed for acting like a responsible corporate citizen. Blame for the delay in liberalising the consumer end of the fixed-line market lies elsewhere.

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