On the Cover

Ajay PandeyAjay Pandey


Can the operator redeem itself? As disgraced Neotel chief Ajay Pandey returns to India, iWeek uncovers where it all went wrong and whether the telecoms operator can be resuscitated.

The operator was welcomed by South Africans almost as voraciously as democracy itself. Five years later, its ability to continue as a going concern is being questioned by its auditors.

, the country’s eagerly awaited second network operator (SNO), has disappointed regulators, shareholders, employees, businesses and consumers alike. Did lose its way? Or was its path too potholed to allow progress?
Certainly the road to its ultimate licensing was beset with disputes and setbacks.

The early years of the 21st century was a less than auspicious period for the global ICT market, given Y2K turning out to be a non-event and the crash of the dot.com market in the years following. Locally, however, excitement was growing as the liberalisation of the telecoms sector was debated in Parliament; including legislating the entry of to fixed-line telecoms monopoly .

Although initial submissions to Parliament proposed the licensing of the SNO take place mid-2002, it was only in June 2003 that the Independent Communications Authority of South Africa () was able to shortlist two bidders from the original seven applying for the licence.

Two months later, the regulator rejected both bids as financially deficient as neither had provided evidence of long-term funding. 2004 saw the entry of yet another stumbling block, as Nexus Connection, the SNO’s empowerment partner, sought a judicial review of a process which had divided up the SNO’s shareholding, awarding 30% to government via Eskom and Transnet, 13% shareholding to CommuniTel and Two Consortium respectively and 19% to Nexus Connection, leaving a 25% shareholding warehoused for the future bid winner.

Finally, the Tata/VSNL consortium was declared winner in February 2005 and the shareholders agreement was signed by all parties in August that year. And, after a few scares, the SNO was licensed on 9 December 2005 – a good 44 months behind schedule.

As government and the regulator struggled to award the SNO licence to a winning bidder, public opinion was beginning to turn against monopoly operator . In 2004, grumbling among consumers around the company’s prices and bad service levels started infiltrating the headlines of the general media, such as The Star’s June headline: “: Are customers being sucked dry?”. Providing a far angrier view, anti- Web sites such as Hellkom.co.za began emerging and refused to buckle to threats of litigation by lawyers. Indeed, these threats only served to increase the popularity of the sites.

Soon after, a report comparing South Africa’s telecoms prices to the rest of the world was released, revealing its prices featured among the highest in the world. A year later, local ICT research house BMI-TechKnowledge revealed that its research suggested that as many as half of the top 350 corporate telecoms spenders would consider moving to the SNO “if the service offerings were competitive”.

In a rare display of consumer activism, the Telecoms Action Group (TAG) was formed in 2007 and donations from over 100 angry consumers were used to take a full page advert in the Mail & Guardian newspaper. The strongly worded advert called on to reduce costs and improve service levels.

South African-focused forums and notice boards on the Internet regularly featured consumers and businesses alike declaring their impatience for the SNO to launch services so that they move to the new operator and leave behind once and for all.

Red carpet welcoming

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Richard Hurst" />Bonnie Ramaila, head of communications for the Council for the Built Environment (CBE) and one time contributor to ’s marketing efforts, says it would be pretty difficult to find a more promising venture to embark than that offered to .

“Launching should have been a marketer’s dream job – the opportunity to make a significant mark in a relatively short space. The company virtually had customers begging for its services as it prepared to open its doors. Unfortunately, this opportunity was lost, ruined even, and I can’t help but wonder whether the management team knew what it was doing,” she says.

One of the first statements to come from the SNO, prior to its launch as , in 2006, was the unequivocal announcement that the company would not engage in a price war with . It’s statements such as this which point to concerning lack of investment in market research, says Ramaila.

“Government had promised the SNO would bring prices down; newspapers declared was virtually raping its customers; market sentiment was very much against , but very price sensitive too. Why on earth would they make such a statement, without explaining why you would be unable to compete on price? It was the first hint for the public that the golden telecoms saviour may just be covered in gilt,” she explains.

Career brand manager and long time anti- activist Andrew Fraser defends , pointing out the company was simply unable to compete with the telecoms giant.

needed to pour huge amounts into developing its infrastructure and business requires that customers contribute towards that funding requirement. Once the infrastructure investment has been largely completed and a critical mass of customers has been built you will naturally begin to see prices drop. Expecting to cover, rather than subsidise, the billions of rands it has put into infrastructure is quite simply unrealistic,” Fraser argues.

Ramaila agrees, however, she says that the message could have been managed infinitely better. “The market understanding was that would not make an effort to reduce prices, not that its services would be priced around ’s price points in light of the considerable infrastructure investment required. Same story, but completely different meaning to the man on the street, who does not know about the infrastructure requirements.

“The same could be said for [ CEO and MD] ’s statement last year that the consumer doesn’t interest them. Instead, Pandey could have explained that the company needed to focus on the lucrative corporate sector in order to bring stability to the business and ultimately better services to the customer.”

Whichever way you look at it, ’s face to the market has not had the all important “Wow factor” that marketers seek and management statements have just served to push their customers further away, says Ramaila.

A sorry affair


 Ovum senior research director notes that those customers who refused to be put off by some of its management’s unfortunate statements – or determined to desert at any cost – are finding the experience less than pleasing and, alarmingly, are returning to on the basis of service.

recovered from their earlier statements as South Africans saw the cables being laid. The company is still known as the guys that dug up the roads. So there is an understanding that the company has been pouring money into infrastructure. Can they recover from their customers returning to out of disappointment? That’s a far more difficult feat to achieve,” he comments.

Hurst made headlines in 2006 by predicting had “missed the boat” and would most likely prove to be ineffectual as a competitor to . At the time, Hurst pointed to the countless delays in awarding the SNO licence and a concern that SA’s regulatory constraints seemed to be protecting the interests of entrenched telecoms entities.

Today, Hurst says compounded these issues by choosing to run with YCDMA technology, declining to enter a mobile play and not making optimal use of its WiMax spectrum.

faced an almost impossible task from the outset and then made it worse by making some unfortunate decisions. On the upside, it still has some beautiful assets – particularly the fibre it has laid since its inception and its spectrum – which, if used properly, could potentially save the company,” he says.

Insiders, however, point to the strain ’s R230 million purchase of Transtel has put on the company’s financials.

“Transtel’s management put forward a proposal to ’s management that said if the business was ring fenced within , it would be able to deliver substantial profits to the organisation in next to no time. That proposal was the basis for the final setup of the transaction. Unfortunately, the Transtel division have not delivered on their promises of profits and have instead become a major cost centre for the business. What’s more has not been able to touch that division with any degree of effectiveness and the company remains lumped with a workforce more consistent with the public sector than a new business trying to make the most efficient use of its resources,” says one manager, who wants to remain unnamed.


This agreement has just matured and a significant portion of ’s current restructuring is aimed at integrating that team and slimming the workforce to far more acceptable number, the employee reveals.
“The Transtel people have been very nervous throughout this process, because their division has failed to deliver. However, the board is also trying to balance the need to keep the best people against what could be an astronomical retrenchment cost if it is Transtel people that are mostly selected to go. Some of those people have been with the company for 30-plus years, their exit will not come cheap,” the manager says.

Joining the selected employees on the journey out the door is Pandey, who is largely being blamed for the company’s dismal performance by the board and Tata Communications’ new MD and CEO Vinod Kumar. Replacing Pandey is Tata Communications executive " rel=tag>Sunil Joshi. Another employee, who also asked to remain unnamed, points to a change in management style from India. “Pandey and Tata Communications’ ex-MD and CEO had a quieter, more understanding, even gentlemanly style of management. Kumar and Joshi on the other hand are balls to the wall, deliver-the-results-and-cut-the-crap type of managers. There has been quite a bit of discomfort with the change in style locally, particularly as it influences the restructuring. Even those who have been confirmed as ‘safe’ from retrenchment are actively looking for employment elsewhere, as they find Joshi’s techniques distasteful.”

He adds: “Either Joshi will pull the company together and inject new energy or his plans will fall apart due to employee resentment. At the moment, it could go either way, emotions are high.”

Getting on target


Management-employee tensions aside, what do the experts suggest ’s turnaround strategy should entail?

Hurst says the company must move quickly to make better use of its spectrum and make moves into the mobile space as a matter of urgency. “This is Africa – voice still dominates and mobile is the preferred option for users, even in the corporate space. The real money is in mobile voice.”

also needs to take a page out of ’s book and start camping out on its customers’ doorsteps, rather than waiting for customers to come to them, adds Hurst.

“The culture needs to change to support proactivity and customer centricity. If you go to a housing development open day, one of the first things you see is offering its services to new homeowners. doesn’t stand a chance if it doesn’t start competing at that level. Added to that, the company has to look at its support structures and bring about radical change in its service department or a fair portion of its customer wins will be lost in short shrift.”

Ramaila agrees: “ has to get close to its customer all over again. They need to do market research to understand where their opportunities are. They no longer have the perception advantage over , as has poured money into improving its image and delivering solutions its clients want. It needs to build its identity and educate, educate, educate the market on its offerings. But should be aware that if it doesn’t get its house in order rapidly, will do it for them.”