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The euphoria and the fretting

The call centre business in SA is booming, and research suggests this will continue for another few years. However, we need to overcome some stumbling blocks before SA can become a preferred call centre destination.
By Brian Bakker, Contributor
Johannesburg, 29 Mar 2005

Reports from international call and contact centre research specialist Mitial indicate the size of the local market to be 535 call centres, including 125 "pocket" call centres (those with less than 20 seats), and 47 000 seats.

Whatever the exact size, it`s clear the call centre industry in SA is growing fairly rapidly. Much of the credit for this phenomenon should go to the Department of Trade and Industry (DTI), which in 2003 published a five-year target of 100 000 call centre seats.

Opinion is divided over how realistic this target is. Alain Schram, sub-Saharan Africa MD of Avaya, says: "This year, SA could do about 10 000 agents, which is phenomenal growth. If we have a really good year we`ll do that, otherwise we`ll be at about 5 000 to 7 000 additional seats."

If growth estimates are correct, then the industry could achieve the DTI target - or at least come close to it. Schram believes the department would be happy with that. "If you look at the DTI, they want it for job creation. If you`re looking at creating, say, 25 000 jobs in the next four years, each job feeds eight people, so you`re looking at feeding 200 000 people," he says.

The SA proposition

You`re looking at feeding 200 000 people.

Alain Schram, sub-Saharan Africa MD, Avaya

Rasheed Hargey, managing executive of Tellumat, observes: "If you take an installed base of say 400 to 500 call centres, the percentage that does offshore work is very small, exceptionally small...about 10%. The potential lies overseas. The existing business will continue - most of the larger local companies have call centres to serve their existing business base."

However, with its higher salaries and significantly higher telecommunications costs, SA is unlikely to be able to compete on cost with destinations such as India and Malaysia.

Yet Avaya`s Schram believes SA can compete on effectiveness. "In other words, our agents could be more expensive, but we get through more successful transactions per day than maybe a cheaper destination would," he says.

Anton Newbury, MD of Kathea Communications, is bullish, citing infrastructure reliability and European-South African cultural congruence as advantages.

Both Schram and Roz Boome, MD of local outsourcing call centre operation, e-Centric, echo his sentiments. "We understand British and American culture, which makes us more approachable and allows us to get things done faster," says Schram.

Broome notes this saves time for customers putting outbound campaigns into SA. "You don`t have to train the basics about an industry, which gives us a faster ramp-up time and less training time. Another factor is the ability of call centre agents to engage in conversation."

David Trepp, sales director of Hotline Call Centre Solutions, also believes in the opportunity for South African call centres in Europe, specifically in the UK. "The one sticky thing about the UK market is that British people like speaking to Brits," he says.

But don`t most companies choose to offshore for reasons of cost? In its white paper, The Cusp of a Revolution, Gartner Research says: "The reality for many companies is that while they relocate offshore for cost, they stay for quality."

Differentiation

Mark Walker, director of local research house, BMI-TechKnowledge, believes the key lies in balancing interaction and cost. He suggests using a quadrant reflecting interaction on one axis and cost on the other, to add value to the differentiator.

"It also used to be known in the old days as quality...it`s a quality attribute that you would attach to the delivery of a service. How do you value it? That`s the big problem," he says.

Newbury sees it differently: "It depends upon what sort of a call centre you`re running...if you`re running a rich service, you`ll look to SA; if you`re running a technical service you`ll look at India or Malaysia."

Business Connexion`s Noel Wait believes SA has a unique value proposition: "There is big demand to come to SA because of our intellect and our infrastructure - we`re the fourth-most secure and stable telecommunications network in the world, and the most under-utilised in the world, even though we`re a Third World country."

Old Mutual is another global company that has seen the benefits of the local market. John Deane, director of corporate development at Old Mutual, explains: "Where SA has a significant edge is in its understanding of the financial services industry. There is a lot of experience and [skill] available in SA and it`s those skills that enhance the call centre," he says.

Deane believes the cosmopolitan and multicultural nature of South African society is a positive factor, along with its prominence in the global consciousness.

However, the outlook is not all positive. David Gibbons, VP of business process outsourcing at US-based management consultancy, Driva Solutions, says: "Most of SA`s non-Indian competition comes from the Philippines and increasingly Eastern Europe, on the low cost end; on the high-cost end, Canada and Ireland."

Still, Gibbons is bullish about local prospects, pointing to a number of areas in which SA can improve its competitiveness.

"Many SA call centre and BPO operations are over-recruiting and under-utilising labour - there is more room for cost saving. You can see this in the fact that agent salaries have remained static despite huge growth, which is not the case in India," he says.

Hotline`s Trepp agrees, saying call centres should use infrastructures to the maximum, and invest in training, working environment and technology.

Deregulation

It is clear that many people expected positive outcomes from deregulation of the telecommunications sector. That was before the good minister let the other shoe drop - but more about that later.

Business Connexion`s Wait described deregulation as "the biggest thing that`s going to assist the country in taking off".

SAP`s Philip Swanepoel echoed these sentiments: "From a deregulation point of view we will become more cost-effective and will better be able to embrace the technology available to our counterparts in Europe and the US."

Others were more cautious. Mike Fairon, CTO of Dimension Data subsidiary, Customer Interactive Solutions, says: "Deregulation is not going to have a massive impact on our industry in February. The impact will be realised over time."

Tim Wyatt-Gunning, joint-CEO of Storm, attended a VOIP conference in Cape Town at the end of January and was relieved by the interpretation that Cliffe Dekker attorney, Janet MacKenzie, had of the deregulation. "One of the fears of call centres using VANS [value-added network services] has been that, because telephony is critical to their business, they`re very nervous about pushing legal boundaries," he says.

According to Wyatt-Gunning, MacKenzie said that even if Telkom takes the Independent Communications Authority of SA (ICASA) on review in respect of its interpretation of the ministerial determination, vis-`a-vis VANS offering voice services, and provided Telkom doesn`t obtain injunctive relief, then ICASA`s decision will stand until set aside on review. He interprets this to mean that as long as Telkom does not get an interdict against the decision it will not be able to prevent VANS providers from continuing to offer such services.

Paul Fick, MD of Spescom DataFusion, was cautiously optimistic about deregulation. "We will have to see how that announcement is going to pan out in practice and if it pans out the way everybody is predicting, it will be a huge, positive step forward in terms of telco costs."

It is worth noting that the portion of the deregulation announcement that most excited local industry was the self-provisioning clause. ICASA has seemed to interpret this to mean that VANS and Internet service providers would no longer have to use Telkom for the "last mile" to a customer`s premises.

Nipped in the bud

Deregulation is the biggest thing that`s going to assist the country in taking off.

Noel Wait, , Business Connexion

Fick`s words seemed almost prophetic when, on 31 January, the minister of communications, Ivy Matsepe-Casaburri, dropped her bombshell. She said: "The issue of self-provisioning was issued in the government`s policy determinations only in relation to mobile cellular operators in terms of fixed links, to give full meaning to the intention to reduce the costs of telecommunication services in SA, it is the intention that value-added network operators may obtain facilities from any licensed operator and as specified in the determinations.

"It is not the government`s intention to license every single activity that can be provided by a VANS operator. This would lead to an absurd result. I can assure the sector that the Convergence Bill, when tabled in Parliament, will bring much needed certainty to the sector in this regard."

To the uneducated eye, this appears to be a complete about-face.

Cliffe Dekker`s MacKenzie points out that ICASA, in its interpretation of the minister`s words, clarified the uncertainty about the removal of restrictions on self-provision.

According to MacKenzie, ICASA`s interpretation indicated "self-provision" to mean VANS providers could look to other telecommunications licensees or to approved suppliers in terms of section 56 of the Act for their infrastructure. "The minister has now indicated that self-provision will be limited to obtaining telecommunications facilities from other licensees, which in effect is Telkom," she says.

On a slightly more positive note, MacKenzie believes the minister`s announcement is not a complete reversal. "One of the things she mentioned in her statement was the Convergence Bill, which is to license infrastructure providers by invitation only. Hopefully, this will mean that other entities such as Sentech and the second national operator (SNO) will be licensed to provide the facilities," she says.

All is not lost

The dream of affordable telecommunications is not dead. MacKenzie urges VANS providers to investigate the Interconnection and Facilities Leasing Guidelines put out by ICASA for public comment. The guidelines are "extremely important", she says, as they determine the rates at which VANS could obtain facilities from Telkom.

"It seems to be that you will only pay the actual cost for that telecommunication facility and there will be mechanisms that will be put into place to make sure there`s competition on a purely wholesale basis. But that has to be carefully regulated and enforced...it has to be robustly regulated," she notes.

Those guidelines will take a long time to come into effect and MacKenzie believes these developments will unnecessarily prolong Telkom`s stranglehold on the industry. "It`s pity that VANS will be unable to go to ICASA for radio frequency allocations to self-provide if they experience difficulty with Telkom," she says.

However, Luke Mills, executive director of Calling the Cape, believes these developments are unlikely to affect the call centre industry. "International call centres will benefit from the ability to play off the different VANS suppliers against each other and from the legalisation of VOIP, all of which are unaffected by the minister`s clarification," he says.

"Call centres are now paying R100 000 to R120 000 per month for 2Mb lines with voice quality of service, versus nearly R300 000 prior to deregulation. The limitation on VANS`s abilities to self-provide will have no short-term effect. However, it does create the necessity for a strong regulatory environment around the wholesale prices Telkom can charge VANS...until the SNO comes into being," he concludes.

If what MacKenzie and Mills read into the minister`s comments and ICASA`s Interconnection and Facilities Leasing Guidelines is accurate, then call centre operators, VANS providers and, indeed, the entire country can breathe again. If they are wrong... well, that doesn`t bear thinking about.

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