Chinese threat forces Tellumat restructuring
Faced with increasing competition from Chinese vendors like ZTE and Huawei, local telecommunications solutions provider Tellumat has merged its ICT infrastructure assets into its Tellumat Integrated Solutions (TIS) business unit.
The company has also amalgamated its Tellumat Professional Services, the group's infrastructure consulting and services arm, with two newly acquired companies, CK Solutions and Structured Connectivity Solutions, which Ettiene Visser, MD of the TIS unit, says "has been a real boon for the group".
Visser says the merger was motivated by external market forces and the pursuit of internal efficiencies and synergies.
"To begin with, the growing local strength of mega Chinese vendors, including ZTE and Huawei, has dramatically changed the landscape in the communications network infrastructure market," Visser says.
"These and other original equipment manufacturers (OEMs), like Ericsson and Nokia, offer what local companies cannot in terms of funding, volume discounts and full turnkey capabilities."
Huawei and ZTE have been expanding rapidly in SA. Earlier this year, Huawei committed to increase investment in the South African market.
Huawei, which has been operating in the local market for more than a decade, says it sees SA as an important strategic market, and will be a long-term investor in the country, partnering with local companies from different industries.
ZTE has also upped its game in the South African market, inking a number of deals with local companies, including local telecommunications giant MTN.
Visser notes local telco operators are engaging directly with the likes of ZTE, Huawei, Nokia and Ericsson, procuring full turnkey solutions and managed services.
"Since the OEMs also have global agreements with commodity manufacturers of IT infrastructure (fibre-optic cabling, batteries, shelters, etc), this has posed a threat to the local supply of such products."
To combat the slipping position of local channel suppliers, CK - where Visser was MD before its acquisition by Tellumat - invested in becoming a group-approved supplier to "a leading multinational telco operator in SA".
This paid off when the operator embarked on a multibillion-rand network upgrade and compelled its OEMs to procure certain approved components from CK. "We read the signs while few other local suppliers were paying attention," says Visser.
Authorisation entrenched CK with the operator's OEM suppliers to such an extent that its subsequent approval with other operators went very smoothly as a result, Visser explains.
"If we hadn't raised our value proposition, we would have lost customers. As things stand though, we can look forward to taking an end-to-end ICT infrastructure capability into an expanded range of customer industries beyond telecoms - retail, industrial, mining, banks, ISPs, government and even defence are all potential target markets."
No beating them
According to BMI-TechKnowledge telecoms sector specialist, Tim Parle, SA does not really have many local players who design and manufacture their own telecom kit. There are specialised areas, including fibre-optic hardware (passive not active), microwave radios, antenna and free space optics plus management systems, he notes.
He adds that many of the local systems integrators have adopted the practice of "if you can't beat them, join them" and signed up as channel partners with international companies.
Huawei, in particular, has been growing in the enterprise space and is taking the established brands head on, he states.
"There is the old adage that you won't get fired for choosing IBM, Cisco, HP or Microsoft - but this is certainly no longer valid in today's market as there are real equivalent players."
For local operators to compete, Parle believes relationships with the operators remain key - offering in-country support at the highest level with no issues with language or culture.
"There is still evidence that Western players are doing reasonably well with the local telcos - this is increasingly in niche areas," he says.
Huawei and ZTE were hardly on the radars of the main players as little as 12 years ago, Parle points out.
"In a little over 12 years, they have become fearsome competitors. Their entry strategy was usually centred on offering very keen prices with creative financing, often long-term deals with payment once the network was generating revenue. The focus has changed to innovation and quality at a systems level, and that it why they are knocking on the top positions in the market."
Huawei and ZTE are able to muster huge resources in the form of highly qualified engineers and scientists at a scale their Western counterparts generally cannot afford, he concludes.