Benjamin Mophatlane on consolidation, competition and the Telkom deal TELKOM`S ACQUISITION of local empowered IT services company Business Connexion looks set to go ahead. In light of this iWeek speaks to Benjamin Mophatlane" rel=tag>Benjamin Mophatlane, Business Connexion`s (BCX) deputy CEO, about his views that the local IT industry needs to consolidate, and about telecommunication interest in IT, the nature of competition and, of course, The Telkom Deal.

Having launched Business Connection (sic.) in 1996, merged it with Seattle Solutions, and renaming the new entity `Business Connexion` in 2001, and merged it with Comparex Africa in 2003, retaining the Business Connexion name, Benjamin Mophatlane has established himself as an astute, empowered player in IT.

COURTING CONSOLIDATION

For several years, he has maintained that the IT services sector needs to undergo consolidation. "There are simply too many IT services companies - it`s not good for the companies in the services industry, their shareholders or customers," he says. To his mind, the proliferation of service providers has made the sector too competitive, which means low margins, reduced returns to shareholders and less than optimal service delivery for those using these services. And when you add the skills shortage that the IT industry is currently suffering, the environment is unsustainable.

TELECOMS ON THE PROWL

The sector consolidation that Mophatlane so ardently supports is, in fact, under way in the global market. And the companies most on the prowl for IT services acquisition fall in the telecommunications sector - particularly fixed-line providers.

Telecoms companies have been quick to realise that their revenue streams will come under increasing pressure as new technologies like VOIP become mature and freely available.

Accordingly, these companies have looked to new business models, delivery options and diversification opportunities to support their future business health. And for most, IT - particularly services - holds the most virtue as there are close synergies between the two offerings.

IT`S GOING TO HAPPEN

Of course, in a deregulated environment, with multiple providers of bandwidth, this would not pose an unfairly competitive advantage. However, in South Africa, we have one operational fixed-line provider with the SNO unlikely to become fully operational within the next 12 months.

So should the one remaining provider - Telkom - be prevented from embarking on an IT services strategy?

"Ultimately it cannot be prevented; it is just a question of whether it happens organically or through acquisition. The question is then whether Telkom should be prohibited from following an acquisition strategy which could determine its sustainability in the years to come. If, or when, this issue comes before the Competition Commission, it will have to consider international trends which have preceded Telkom`s strategy and consider what the impact of disallowing this strategy would do to the company, its shareholders and the market at large," explains Mophatlane.

TELKOM ON THE TABLE

So do Mophatlane`s views mean that BCX is looking favourably on Telkom`s offering? Currently the board is awaiting advice from an independent advisor who is assessing the offering and will make a recommendation. In the end, however, it will be the shareholders who make the decision, and if Telkom is to be believed it has more than 50% of shareholder support for its offer.

But what does Mophatlane think? It is a difficult question for him to answer as he holds a position on the company`s board of directors and is thereby restricted. Nevertheless, he does hold interest in Gadlex - the black empowerment company that holds 25% of BCX`s operating subsidiary - together with brother, Isaac, Bridgman Sithole and Nkenke Kekana. And this group recently signed a heads of agreement with Telkom regulating its future participation in the BCX Group - a sure sign of support for the move.