IF Neotel was to become a formidable challenger against Telkom, Africa’s largest fixed-line provider, then it would be on the ability to service customers more efficiently than its competitors, analysts said.
Analysts have praised Neotel chief executive Sunil Joshi for a consistent strategy that trained on competing in the enterprise segment rather than having a large focus on retail customers.
“Neotel’s position has improved in the past 18 months or so,” Dobek Pater, a director at Africa Analysis, said.
BMI-TechKnowledge consulting director Brian Neilson said: “The results speak for themselves in that Neotel is still growing revenues in double digits in a fixed-line market that is relatively mature. Innovation has been part of this, but the other improvement in the most recent year has been the company’s ability to connect up enterprise customers more quickly after receiving an order.”
During the quarter to September, service delivery throughput improved 27 percent, quarter on quarter.
Neotel grew enterprise clients by 18 percent to 2 400, the company said last week. Consumer customers rose by 30 000 to 130 000.
Both segments led to an increase of 10 percent in revenue. The unlisted company does not reveal actual revenue and earnings figures.
In the six years of its existence, Neotel has battled startup costs, a strategy failure and tough competition. In November 2010, Deloitte & Touche, the auditors for Neotel, raised substantial doubt about the company’s ability to continue as a going concern. At the time, India-based Tata Communications, a global information and communications technology firm and Neotel’s parent company, affirmed its support for its South African subsidiary and in January last year it appointed Sunil Joshi to turn the business around.
Neilson said Neotel had improved its ability to “sell well” and its “product innovation, often related to price-per-unit-performance, is working as a means of winning customers”.
He added: “Ironically, Neotel does not really have many inherent advantages over Telkom.” However, an advantage Neotel has, is the fibre it has deployed into more than 2 000 buildings in metropolitan areas. In addition the company, like Telkom, used its own physical network to deliver its services. This advantage means the company can offer better service, control service quality and offered better price flexibility.
Neotel has also rolled out a national long distance network in partnership with MTN and Vodacom, which offers Neotel greater participation in the domestic wholesale market and cost savings due to self-provisioning on the long-haul network.
The move by local telecoms firms to self-provision is another factor expected to lower Telkom’s revenues in the longer term.
Pater said: “I don’t think Neotel has established itself as a proper alternative to Telkom yet. This also depends on the market segment, but among large corporates for instance, Internet Solutions is that contender.”
He said service improvement in the enterprise segment would lead to larger market share for Neotel.
“The market has changed significantly since 2005 and while Telkom is very strong in some market segments, it faces strong competition in many segments, and is a niche player in others, for example mobile.”
To strengthen its position, Neotel could consider consolidation. Last week, however, Neotel’s Joshi dismissed the possibility of acquisitions in the short term. He said the firm would focus on improving its financials first.
Pater said that a merger between Neotel and Cell C would help Neotel gain a critical cellphone element “to its operation which it currently lacks in order to be fully able to compete in the converged space with Telkom and the cellphone companies”.
“The question is, given the profile of the Cell C customer base (lower-end consumer mostly), the degree of uptake of converged type products from Neotel could be low,” Pater said.
He added: “From Cell C’s perspective, it would be able to access a range of fixed or fixed wireless services which it could market to the SME (small and medium enterprise) market, where it is trying to gain a foothold.”
Consumers account for only 10 percent of Neotel’s business strategy and could remain so for the medium term, Pater forecast.
Neilson said the synergy between Telkom Business Mobile and 8ta had yet to be fully unlocked. This suggested any synergies between Neotel and Cell C might take as long to be realised.
Gladys Mujuru, an analyst at Frost & Sullivan, said: “In line with its target of being the preferred converged and managed services provider, Neotel’s infrastructure projects are now focusing on providing fibre to the customer, a move they anticipate will improve service delivery and reduce time to deliver.”