Telkom unit BCX fights legacy platforms, banks on R&D

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Telkom subsidiary BCX is looking to turn around its fortunes to become a profitable entity after being a problem child for its parent company over the years.

In an e-mail interview with ITWeb, Lucas Ndala, chief financial officer of BCX, says for the company to start making profit, it is putting more resources in research and development (R&D), as well as moving away from legacy infrastructure which has been a pain for some time.

Telkom’s results for the nine months ended 31 December 2020 published this month reflected an unflattering BCX performance.

BCX remained under pressure, which Telkom said was a result of the overall market environment being challenging, albeit with some economic recovery.

In the period, BCX’s revenue was down 9% to R11.8 billion from R13 billion during the previous corresponding period.

In October last year, BCX retrenched employees, saying it was implementing a new operating model.

Ndala says BCX undertook an operating model transformation as a way to relook at the overall costs and improve efficiencies, and “we believe this will position us to be a lot more competitive in the market”.

Targeting next-generation

BCX provides IT and telecommunication services to the market, and these two offerings behave differently, specifically with regards to market consumer trends and technology evolution, Ndala explains.

On telecommunications, he notes the market is rapidly moving away from legacy platforms regarding voice and data services.

“BCX is committed to migrating our clients from these legacy technologies to more cost-effective next-generation solutions. Migrating to new technologies is not a once-off. As technologies become more evolved, efficient and cost-effective, companies need to consider their migration strategies to ensure business operational efficiency.”

On the IT solutions front, he points out the traditional ICT market consumed services to support their “systems of records”.

In 2015, he says, the market started to see a change in the way organisations consume IT services in general.

“Organisations required services to focus on insights rather than purely supporting records. Unfortunately, the IT budget of companies has remained flat and roughly 90% of these budgets are going towards running the business, which leaves only a small portion for innovation and automation.”

According to Ndala, BCX is focusing on addressing this problem from two angles. “We are optimising our traditional ICT to reduce our cost to serve. We will continue to streamline, automate and optimise finance and supply chain management processes to serve our customers better. This will allow our customers to use a bigger portion of their IT budgets to invest in their systems of insights.”

He notes the second component of the approach will then be to deliver required systems of insights and customisation. “BCX will remain focused on our clients. We will provide greater support, customisation and specialised ICT and telecoms services.”

Flat budgets pain

Explaining how BCX has been finding it difficult to make profit, Ndala says due to lower economic growth, customers are continuously pursuing operational efficiencies and thus, corporate IT budgets have remained relatively flat over time.

However, he believes clients’ needs are ever-increasing and ever-evolving, resulting in them requesting more services, for the same budgets.

“We are, therefore, having to service increased customer demands, but for the same rand amount. BCX is in a unique position in that we have both an IT and a converged communications portfolio.”

Ndala adds that while the IT business has many new opportunities, the converged communications environment is experiencing a migration from high-margin legacy voice, to lower-margin next-generation products, affecting BCX’s profitability.

“In recent times, COVID-19 has also had an impact on the overall market environment, resulting in the slowing down of revenues, as our customers are battling financial pressures. In 2020, we saw enterprise customers reduce their IT spend and postpone most of their IT capital investments, which negatively impacted our top line.

“Driven by the increased number of people working from home, due to COVID-19, which requires faster and better quality connectivity, and supported by ICASA’s additional spectrum release, in the short-term, we are seeing opportunities in the work from home and business continuity areas.”

He believes there are opportunities in assisting customers with strengthening their remote productivity and scaling their contactless customer engagements.

The digital transformation rebalance is also topical, with critical digital transformation projects expected to continue and to be expedited within many businesses, says Ndala.

“There is also an increased demand for network and cloud. The public cloud is providing flexibility and a safe haven for enterprises that are struggling to maintain normal operations. There’s an increase in industry spend on cloud software-as-a-service and infrastructure-as-a-service.

“There are also opportunities for industry-specific solutions and to provide a full end-to-end suite of offerings tailored to a specific customer and industry, to potentially unlock higher margins.”

Ndala did not disclose how much BCX will be investing in R&D efforts. “We are unable to indicate the amount of investment we have made; however, research and development is a critical factor to the sustainability and growth of any organisation.

“As a leading ICT company in South Africa, we have invested in great partner ecosystems and in research and development.

“Our partner ecosystems enable us to access the technologies and solutions to benefit our clients. Also, BCX has launched the Innovation Hub in the previous financial year, through which we hosted the internal and external Innovation Awards and created a platform where we incubate creative ideas and solutions to challenges experienced by our customers.

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