Coasting along

For most in the IT sector, the 21st century has been marked by terrific highs and horrific lows. Nevertheless, after a period of bated breath, IT companies are finding that survival no longer dominates boardroom table discussions; instead, attention is turning to how best to capitalise on government`s ambitious growth targets.

And companies in the sector are certainly getting smarter about how they do business, according to Roy Blume, IT research manager at independent analysis house BMI-TechKnowledge.

"It hasn`t been a bad year for the IT industry. As predicted, we saw moderate but continuous growth with some areas, like security, delivering good growth off greater demand. However, what we have seen is evidence of companies learning how to operate within the parameters of basic economic business rules. "This has resulted in greater efficiencies within business, delivering better profit margins and increased returns to shareholders," explains Blume.

TAKING STOCK

In fact, ICT companies on the JSE`s main and alternative exchange have generally performed moderately to fairly well over the past year: the mobile telecoms sector continued to considerably outperform the all share index (ALSH), while the technology index showed fair growth - albeit below the ALSH - seeing a decline toward the half year but remaining up on the year.

Making up the fixed-line telecoms sector, Telkom remained well above the ALSH but saw a significant share price plunge after an initial high in the first quarter of the year. This sharp decline has largely been attributed to announcements earlier this year that the telecoms giant would spend R30 billion on infrastructure upgrades and more recently its loss before the Supreme Court of Appeal in the Telcordia matter which wiped off R2.8 billion off its market capitalisation on the day of the ruling.

Noah Greenhill, GM of marketing and business development for the JSE and the alternative exchange, says that IT companies are once again considering the benefits of listing on the stock exchange.

"IT companies are certainly seeing value in coming to market as part of their growth strategy. Going into the New Year our pipeline is strong, with several IT companies preparing to list on the AltX," he says.

HUNGRY FOR MORE

Of course many businesses that are listed have used growing cash piles to drive non-organic growth. In a market that is rapidly maturing - and in some areas oversaturated with providers - companies have turned to acquisition strategies for growth and bolstering of market positioning.

Global Research Partners founder Paul Booth explains: "We certainly have seen some significant deals this year led by MTN, Dimension Data, Datatec, DataPro and Pinnacle Holdings, and we also saw some major delistings. However, there are still a few companies hanging over from the boom, so acquisition and consolidation activity is expected to continue in the New Year."

Of course no discussion of appetite for take-over would be complete without mention of Telkom`s proposed acquisition of Business Connexion (BCX). Earlier in the year, the telecoms company came out with an open proposal to BCX shareholders that ultimately led to the Competition Commission`s recommendation last month that the deal be prohibited. Telkom now hopes to plead its case before the Competition Tribunal.

And then there were two, three, four.

When all is said and done, it was the telecommunications industry that really captured headlines this year. The much awaited second network operator launched in September this year to a fair amount of disappointment from the market.

Named Neotel, the fixed-line player missed market expectations of a second quarter launch and consumers are yet to see offerings from the company, although Reuters reports that domestic offerings could be seen as early as January 2007.

Following hot on Neotel`s heals, Public Enterprises Minister Alec Erwin surprised the market with an announcement that Eskom and Transnet`s infrastructure would not be sold to Neotel but would instead provide the foundations for a third, government-owned network operator, InfraCo. The aim of the development, said Erwin, would be to provide the intervention required to bring down the costs of broadband.

In the mobile sector, a new service provider was introduced by Virgin`s Sir Richard Branson with much fanfare. Kitted out in a red jumpsuit, Branson promised SA consumers that the company would provide an alternative to the "rip-offs" prevalent in the local cellular market. Yet growing speculation suggests that the local operations may not be performing as well as hoped. CEO Sajeed Sacranie has stepped down to make way for a marketing man from the company`s US operations and if numbers were as high as expected, wouldn`t Branson be glorious in his gloating?

So if - as a consumer - you were less than impressed with the actual change in the telecoms market, then take comfort in the fact that much of what did take place will provide benefits shortly. Arthur Goldstuck of World Wide Worx explains: "Many have the sense that we are not moving forward, however, the telecommunications landscape today is completely different from what it was four years ago. Additionally, 2006 saw some significant changes to the fundamentals that govern the telecoms market, particularly through the promulgation of the Electronic Communications Act. Moreover, the eventual introduction of Mobile Number Portability will be very important to consumers, adding greater options and increased clout," he says.

As for the coming year, Goldstuck says that telecoms players - both established and aspirant - will have to take responsibility to move the market forward.

"If we wait for government to act, we will wait forever. It`s up to the players as to what change we see in 2007, but it is encouraging that telecoms players are actively and aggressively embracing the potential and becoming more competitive, more customer oriented and more in tune with the evolution of telecoms," he concludes.