13 February 2008

The rise of Neotel and Infraco will broaden the playing field- and competition - for the telco market says Innovation Group

Although the South African economy is facing a number of challenges - and a 'double whammy' due to the electricity crisis - the telecommunications industry is poised for additional buoyancy as Infraco and Neotel announce that their infrastructures are in place, paving the way for Telkom's monopoly on broadband to come to an end.

Pule Mokoena, Group Executive:Marketing at Innovation Group, the South African subsidiary of London-listed global business process outsourcing (BPO) operation, Innovation Group plc, said: "Neotel, SA's first converged communications network operator, and the government-launched Infraco - which has the strategic aim of lowering communication costs in the country - will pose a serious competition risk for Telkom. This is good news for business and consumers alike. Although some economic analysts - and labour unions - are suggesting that the country is heading for a recession, the telecommunications industry is well-positioned for some solid growth. If the telco industry grows, so, too, will the outsourcing industry - a market sector that can potentially employ thousands more workers.

"What is frightening is that the latest statistics reflect that the government needs to generate 50 000 jobs a month, not its current 9 000, if it is to seriously challenge unemployment. This is a daunting task for any government, and, given the challenges we are facing on a micro and a macro economic level, any market sector that is in a position to create jobs should be encouraged. The telco industry - and by natural consequence, the outsourcing industry - is an example of this. The fact, therefore, that Infraco has announced that its broadband network is ready for use, could not have come at a better time. Neotel, it has been announced, is also ready to introduce new choices and leading-edge technology to corporates and government. Cost is going to be a major focus point. The days of Telkom dominating are now a thing of the past. While still a major player, Telkom is going to have to bat far smarter if it is going to prosper and satisfy its shareholders. The new canvas that is currently being painted could end up being a very interesting landscape," said Mokoena.

Neotel has already built an advanced fibre optic network that links locations in metropolitan areas to provide “Next Generation Network’ services, thereby introducing more value – but at a lower cost.

Karen Geldenhuys, a director of Pretoria-based IT recruitment agency, Abacus Recruitment, said: "I don't think that Neotel and Infraco will make an immediate impact on the economy. But certainly we could see a ramp-up in hiring cycles here. Additionally, I think we will start to feel it on the ground by the fourth quarter of the year. If the two entities do start making a real, noticeable economic difference by then, that will be timeous as some economic analysts are predicting that interest rates and inflation should start coming down by then. The USA's biggest bank, Citibank, has also stated that it expects the economic climate in SA to improve by the end of the year, including a very real possibility of interest rate cuts.

New solutions will result in job creation

She said that although there are "no clear indications yet" of a "rush for employment in the telco industry", the fact that Infraco and Neotel are now ready to roll out solutions is going to "translate into job creation".

"Infraco has said that its fibre-optic infrastructure across the country is ready for launch. It has stated that as soon as it receives its license from the Independent Communications Authority of SA (ICASA), it will launch its services. So, barring some red tape fiasco, we should see things start happening soon. We could very well see an upturn in employment in this market sector during the latter part of the second quarter and into the third and fourth quarters of this year. As the economic climate becomes more benign - which many analysts predict will be the case - we will arguably see a bigger acceleration. We could see a telco boom during 2009 and beyond. Telkom is going to have to accept that it will be facing some serious pricing issues. Customers might just vote with their feet - and their Rands."

Infraco has signed a four-year exclusivity deal with Neotel to provide it with broadband services.

ICASA spokesman Sekgoela Sekgoela said earlier this month that while the regulator has the authority to license Infraco it is still "engaging shareholders to clarify matters".

"Let's hope ICASA doesn't spend too much time 'clarifying matters with shareholders'," quipped Geldenhuys. "Let's hope they roll down their sleeves and do their job. And do it efficiently. We don't want a time lag here due to red tape."