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Once a Cape Town startup

Friday, 02 May 2003 00:00

WorldCom`s woes have had very little impact on wholly owned subsidiary UUNet, and the local operation is looking at 30 to 40 percent growth in Internet operations – to which African operations will contribute a great deal. UUNet in South Africa is ten years old this year. It might not seem that old but then it has changed names more often than the singer formerly known as Prince. It wasn`t always an international company either.

UUNet traces its roots right back to The Internet Company of South Africa. Despite its 19th century-sounding name, it was established in Cape Town in 1993 as the first commercial ISP in the country. It soon changed its name to Internet Africa, and became a tracer for the rapid and aggressive Internet expansion and consolidation phase that started both here and globally. wanted a slice of the action, and bought Internet Africa to merge with its own ISP, Pipex.

When UUNet of the US bought the operations of Pipex, Pipex Internet Africa became UUNet Internet Africa, of which Datatec still held 76 percent.

November 1998 marked a turning point in the company`s strategic positioning, when it swapped its dial-up user base for M-Web`s corporate business. Henceforth, M-Web wanted to focus on the consumer market (though it has wisely revisited that decision) and UUNet was to provide business data services.

By the time the Internet bubble reached its peak, WorldCom was – as everyone now knows – aggressively on the prowl. It bought Internet operations wherever it could find them, and paid with extraordinarily valuable stock. One of the dozens of companies it acquired during this time was UUNet. In a rare piece of inspired timing (or luck), Datatec sold the remaining 76 percent it held in the South African business to WorldCom in February 2000 – at the top of the market – for $138 million.

Capitalising on WorldCom

UUNet is an unusual case, in that it has always been a fairly self-contained local operation. It operates independently of WorldCom`s European operations, under which it structurally falls, and has never had to integrate the “people side” of the business.

As a result, says , the company`s MD, the problems WorldCom faces have had little impact, “beyond managing image and sentiment”.

“Our culture has mostly been determined by local people: technically minded, passionate people, that over time have matured into business-minded people,” he says. “Before WorldCom went into Chapter 11, our cultures were very similar, however: technical, willing to accept risk of failure and innovative. We`re still passionate, proudly African and customer-focused.”

The relationship with a global giant has made things a lot easier for UUNet, however. Besides access to a global data network that remains perhaps WorldCom`s biggest single asset, it has helped UUNet avoid much of the currency volatility other tech companies have been subjected to.

“We manage it best by minimising foreign exposure, and managing exposure we have to incur through forward contracts. Much of the exposure we would have had is through WorldCom, which reduces the problem to an internal accounting matter.”

He cites logistics as an example: “We work with , which manages logistics. We have a dedicated Cisco team in the US that works directly with WorldCom, so that`s a benefit. We can use WorldCom`s global purchasing power, which improves our competitiveness, and also benefits the South Africa economy because of less forex outflow.”

About two thirds of UUNet`s revenue is derived from Internet operations. These operations are in South Africa, which is reaching a level of maturity that decreases growth opportunities, as well as in Botswana, Namibia, Kenya and Zambia.

This year, it aims to increase its overall revenue from R650 million to R940 million, and much of this growth will come from Africa.

“Our two-year outlook is to be in 15 African countries, with different regulatory environments. Our focus is Internet Protocol (IP), so we`ll offer products allowed by regulation over IP,” says Meintjes.

The South African business differs in this respect from its US parent, in that it is prohibited by law from competing with by offering voice services – one of the reasons why its contribution to global revenue remains at a modest 0.3 percent.

“We want to be the biggest regional player in Africa. We are in size, but not in geography. We also want to be in more countries to spread our risk.”

SNO brings hope

In South Africa, the long-awaited and much-delayed second national operator should offer some opportunities. Unlike Telkom, which has traditionally been a supplier by law and a hostile competitor, Meintjes expects the SNO to offer “new opportunities for co-operative work”.

He adds that `s licence to offer international bandwidth will give it even more choice in suppliers. Interviewed before the two SNO bidders were rejected by the government, Meintjes already didn`t see it offering much by way of services before the end of 2003.

When it does, however, “Telkom will have to seriously consider its existing footprint in corporate Internet services. So both we and offer a good channel to market for the SNO. It is likely that the SNO will take a channel approach to the market. Only time will tell, but their channel strategy could be a swing factor in their success.”

Meintjes believes that with a healthy revenue to capital ratio, the SNO could turn 15 to 20 percent of the market into a sustainable business over a two or three-year period.