SNO Telecoms battles to get through The SNO`s urgency to get cracking is understandable, if it is to hit a slippery operational target date. But after a hugely handicapped start, obstacles are still mounting. If faced with an unprecedented choice of telecommunications providers, would you pick SNO Telecoms? Ajay Pandey, the chief executive of the fledgling SNO T, certainly hopes so. In fact, he believes that droves of South African consumers and businesses will do exactly that later this year, when his company goes to market with an as-yet-to-be-determined package of services.

In the meantime, SNO Telecoms has been talking a good fight and, by all accounts, happily poaching vast numbers of telecoms specialists from their monopolistically-minded rival. SNO prefers to talk about strategic hiring - as it would - but in almost all other respects it`s hardly had the easiest time of it thus far, as it inches its way towards actually going live. The company`s stakeholders would have thought they were finally on the gold-paved road to success after wresting a long-overdue licence out of a sluggish Icasa late last year. Not so. The state-owned signal distributor Sentech is opposing SNO Telecoms` application for 850MHz spectrum, saying this "would interfere with digital broadcasting for 2010", prompting Pandey to appeal to Icasa to do more to ensure competition in the sector.

Pandey`s urgency is understandable. To get to market by its new target date of mid-year, SNO plans to use CDMA technology to reach corporate and individual clients alike. The latest incarnations of CDMA, which is used by an estimated 300 million people around the globe, are at least equal to the newest versions of 3G currently being unleashed on a bandwidth-hungry South Africa.

The beauty of CDMA is that it transmits data - and voice - extremely efficiently at extremely high speeds, without needing to roll out expensive fixed-line networks first.

THE SPECTRUM SPECTRE

Sentech`s attitude may or may not have something to do with the fact that it was investigating upgrading its distribution network from analogue to digital, and wants the SNO`s request to be put on ice while it establishes its own bandwidth needs.

SNO`s head of strategy, Dr Angus Hay, is on record as saying that at least 40% of this spectrum could be used for telecoms, and that if their request falls on deaf ears, they have "back-up plans".

Quite what those back-up plans are, is not entirely clear. BMI-TechKnowledge analyst Richard Hurst says SNO would certainly have several back-up plans in place, but it seems logical to assume that any projected rollout must be affected by the lack of a key piece of infrastructure.

"Our stance right now is that to achieve government`s aims of expanding access, spectrum must be made available across the board, and not just to us," says Hay.

Telecommunications analyst Andre Wills has some sympathy for SNO, saying the new Electronic Communications Act has made their lives a lot tougher than it would have been a year ago, by opening the door for new competition in the voice telephony arena.

"If they can`t get the 800Mhz spectrum, they will have to look at shifting to something like WiMax, which would be a bit of a blow to them," says Wills. "The bright spot for SNO is that the new Act allows Icasa to force other operators to lease facilities to them in their rollout phase at a regulated price."

GETTING A LINE

The SNO sums the situation up by saying its greatest challenge will be simply to reach customers. Although the reach will initially be limited, it promises to reach further and further into the market in time. Telkom says it expects to lose between 10% and 15% of its market share to the new upstart.

"The SNO will be focused, flexible, and willing to partner to build its market share and to address its customers` needs," it declares on its website.

That`s all very well. But what users really want to see are specifics, rather than the generic marketing blather about "seamless, customised and scalable connectivity solutions for businesses, service providers and consumers".

It certainly helps that for a start, the SNO plans to plough some R7 billion in capital expenditure into getting its infrastructure up and running. That sounds like big money - but it needs to be seen in context. Telkom is prepared to spend more than four times that amount, R30 billion, on network upgrades alone.

WHAT WE DO KNOW

In the real world, the first tier of users that will get a bite at SNO Telecoms` services is the mobile network operators, VANS providers and ISPs. SNO claims that it will provide better quality of service and greater value for money than ever before, and says its wholesale services will initially include international voice transit and point-to-point leased lines (national and international).

These services will mostly be provided using the telecoms infrastructures of Eskom and Transnet, who together own 30% of SNO. This infrastructure is also expected to form the backbone of SNO`s fixed-line services. SNO is busy trying to haggle deals with Telkom to use Telkom`s network where it has yet to establish a presence.

If this actually happens by the target date of the second quarter of this year, then business can look forward to domestic and international telecoms services in Q3. Apart from plain old voice services and bundled VOIP solutions, SNO says its offering will include private leased circuits, IP-VPN and Ethernet services. It also promises "new developments in managed services and applications", along with data centre services.

Now why does that sound strangely familiar? Yes, you guessed it. Those are exactly the kinds of areas Telkom is looking to move more strongly into with its audacious bid for giant IT group Business Connexion. And if Telkom succeeds, that would leave the SNO floundering even further in its wake - unless, of course, it turns up the heat itself by buying something like, say, Dimension Data`s Internet Solutions or its Asian business, Datacraft.

Is this wild speculation? Possibly. But given its huge starting handicap, can SNO Telecoms realistically afford not to buy into a business like IS or Datacraft, especially if Telkom is doing it? Needless to say, this could result in a startlingly different South African telecoms landscape.

BMI-TechKnowledge`s Hurst says it would make a lot of sense for SNO to at least develop some partnership with a company like Datacraft or IS to move up the value chain, and points out that such a deal would be extremely attractive to IS as well, which has not always been effusively pro-Telkom in the past.

And it`s not just business. As the SNO expands its footprint across the country in 2006-07, it plans to introduce "a variety of consumer services for the benefit of individual consumers". However, it confesses, to ensure that the SNO customers experience "nothing but the very best", it intends to roll out its retail services in stages, starting with basic voice telephony and Internet access in the major cities of South Africa. The target is Q4 - but don`t hold your breath.

Even if individual users are able to start using the new network`s services by the end of the year, they won`t be using any existing handsets they may own to access these services. Users will need to procure special handsets to receive CDMA signals - and those handsets can`t be mobile, because SNO T`s existing licence doesn`t provide for mobile services. This sounds like a contradiction in terms, but just because you have the potential of tapping into the lowest voice and data transfer costs, that doesn`t mean that conventional fixed-line services aren`t it.

ANOTHER HICCUP

However, this presents another little twinge in the growing pains of SNO. To deliver fixed-line services, SNO needs to tap into Telkom`s so-called last mile - that magical connection between the network and the user. And while the government is likely to force Telkom to provide this connection, Telkom is hardly likely to fall over itself to conclude any agreements in this regard quickly.

This is partly why SNO MD Pandey is trying to get Icasa to move more quickly to finalise interconnection and facilities leasing guidelines, pointing out that these form an important aspect of creating a competitive market.

"In the light of the pent-up demand we have found in the South African market for competitive services, the process of creating suitable regulation must continue apace, and not be delayed," he told Finance Week last month, arguing that Icasa did not need to wait for the passing of the Electronic Communications Act to implement the draft interconnection and facilities leasing guidelines. To do so would unnecessarily retard the further development of a competitive and robust ICT sector, he said.

IN SUMMARY

The bottom line is that eager South African consumers waiting for relief from Telkom`s sometimes onerous tenure - and telecommunications costs - may have to wait a little longer. The fact that the country is crying out for some competition to Telkom is not in dispute.

In fact, a recent survey by NUS Consulting found that South Africa had the highest telecommunications costs out of 14 countries surveyed. So now you know where they got the money to give former CEO Sizwe Nxasana a golden handshake that is understood to have been several million.

This is extremely frustrating. The SNO has been several years in the making, but industry analysts have become increasingly jaded over the ability - or will, for that matter - of any new entrant to provide the infrastructure-based competition that is required to open up the sector, to reduce the cost of doing business in South Africa, and to extend communications into the second economy.

On its website, SNO proclaims that it is competition, rather than regulation, that will bring South Africa in line with the wider world of telecommunications. On the other hand, its strategy head says that although greater competition in the sector and more cost-effective services will bring down the costs of telecoms in this country, it is not going to get into a price war with Telkom. Read into that what you will.

Hay says it doesn`t make sense to provide services below cost just to win market share. That`s perfectly understandable. But one can`t help feeling that we`re being set up for disappointment when he says the costs of telecommunications will not be pushed down by lower tariffs alone, but by factors like more effective services and faster Internet speeds.

In short, says BMI-T`s Hurst, is that SNO needs to get to market sooner rather than later. "If they intend making their business a reality, they would have to start meeting their own deadlines, especially if they hope to be seen as serious player in the telecommunications industry."