ON THE ASCENT - JSE MAGAZINE

ON THE ASCENT

Neotel’s journey from a start-up to a serious industry contender

Neotel, SA’s first converged telecoms network operator, is surging ahead with innovative communication services that are enabling businesses to reduce their costs of communications and helping them expand with the use of world-class technologies.

The foundation for Neotel was laid when government legislation paved the way for a second network operator. Neotel was established, and shareholders included Tata Communications as a strategic partner (bringing expertise and global best practice to the business), along with the Nexus Connexion as its BBBEE shareholder.

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The company, which celebrated its 8th birthday in August 2014, has grown in leaps and bounds.

‘Neotel started in 2006 with zero revenue, two people, a laptop, a spreadsheet and huge ambitions to make a difference to South African businesses and consumers. Neotel is now an approximately 1 000 people-strong business, and has access to about 16 500 km of national fibre and 9 000 km of fibre in the metro cities,’ says Sunil Joshi, MD and CEO of Neotel.

Neotel strategically chose IP convergence as its point of differentiation from other competitors, while offering state-of-the-art voice, data and internet services to its customers. Joshi says the company has stayed true to its original goals – to bring competition to the industry, (specifically the fixed-line sector), lower the cost of communications for customers and introduce innovative technology to SA.

For the financial year ending 31 March 2014, Neotel grew year-on-year by 23%, with revenue at approximately R3.9 billion. It also turned profit before tax positive for the first time in its history. According to analysts, the industry is growing at roughly 1.4% per annum. In terms of its financial results, Neotel is growing 15 times the industry growth rate. Joshi credits Neotel’s dedicated staff and customers for this.

Neotel has invested over R6 billion in building infrastructure across SA as well as two world-class Tier 3 data centres.

Neotel is a level 3 BBBEE contributor business, with South Africans comprising 99.7% of its staff. ‘Being a good corporate citizen and having a focus on compliance to government policy is important,’ says Joshi. The company is also the only service provider in SA to have a presence in all five submarine cables that connect SA to the rest of the world.

Neotel’s name is increasingly becoming synonymous with innovation, and has added many firsts to its credit since its inception. Some of the more recent innovations are usage-based demand, broadband-on-demand (Booster) and its public telepresence room that connects Johannesburg or Cape Town to 45 cities around the world.

According to Joshi: ‘Unlike business conferencing, which relies on an IT specialist to make sure the call is made, the telepresence room has a 24/7 concierge that automatically activates the room. The audio and video is high-definition and the experience is as though you are seated in front of the other person, even though he or she may be thousands of miles away.’

Neotel is a level 3 BBBEE contributor business, with South Africans comprising 99.7% of its staff

Joshi also explains how Neotel recently launched Jamvee – a multi-platform video bridge that enables business leaders to hold a telepresence meeting while, for example, allowing someone to dial in from Durban via video conferencing, and another to dial into the same bridge using their tablet on a public WiFi from OR Tambo airport. ‘It makes collaboration between businesses so much easier,’ says Joshi.

A study by the World Bank has shown the direct correlation between broadband penetration and GDP growth, with a 10% increase in broadband penetration. This translates into a 1.38% effect on GDP.

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In line with this, Neotel entered into an agreement with the Western Cape government and the State Information Technology Agency (SITA) earlier this year to provide broadband services to 2 000 buildings across the province over a 10-year period.

These include connecting schools, community centres, government departments and hospitals with cutting-edge broadband services, with initial speeds of 10 Mbps and then moving to 100 Mbps, and some with 1 Gbps speeds. In addition to broadband services, along with the Department of Economic Development and Tourism, Neotel will deploy 384 WiFi hot spots across every ward in the province, offering free albeit limited internet.

Neotel is also a proud partner of Project Isizwe, which helps drive free WiFi connectivity in the City of Tshwane.

‘We’re looking towards sharing this model with other provinces and working with government partners through a public/private partnership,’ says Joshi.

This begs the question: what of the future? ‘Innovation will be the key driver for new business models,’ says Joshi. ‘We’ll also continue to work with the Regulator to drive policy change within South Africa, enabling more competition and improving the way that services are delivered to customers.’

In May this year, Vodacom and Neotel concluded an agreement to acquire 100% of the equity of Neotel at an enterprise value of R7 billion.

‘We believe a combined Neotel and Vodacom entity will bring increased competition and a broader set of products and services into the market.’ Neotel has submitted its application to the Regulator and Competition Commission, and is engaged in the required approval processes.

For its mere eight-year journey, Neotel has come a long way and made impressive strides.

‘We’ve been privileged to have been on such a growth path. Having Vodacom as a potential new shareholder will help the business add more value to South Africa and to South Africans,’ says Joshi.

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Neotel
Neo Moabelo
Tel: +27 (0)11 585 0612
[email protected]
www.neotel.co.za