Tata Communications’ South African subsidiary Neotel, which was acquired in 2007, registered a substantial growth in consumers. The company’s managing director Sunil Joshi talks to Katya B Naidu on the company’s prospectives in the market, and drivers for growth. Excerpts:
How has been the consumer intake growing in South Africa?
In terms of number of customers, our business customers grew 92 per cent year-or-year and our retail customers grew 100 per cent. The market that we chose to address in the consumer side was fixed wireless. So that is going to replace the traditional home phone with a fixed wireless solution for homes and offices. We had 50,000 customers a year ago and we crossed a 100, 000 in this year. Customers give 10 per cent of our whole revenues, 90 per cent of Neotel’s revenue is business to business. Overall business customers grew 92 per cent and therefore from about 1300 enterprise customers to over 2,000 customers now.
Tata Communications has data centres in South Africa. What kind of traffic are you getting from people who want to invest in Africa?
Both mature markets and emerging markets, they are all looking at emerging markets for growth. The acknowledgement of emerging markets is important as a growth strategy. South Africa is still one of the most dominant economies in the continent. You see more investments into this region as people are looking for other markets to enter.
What kind of infrastructure have you built in the country?
We have built up 7,000 kilometres of fibre, so far. By September-October this year, we would be getting another 2000 kms, and we will lease some more. We will have 11,000 kms of fibre across geographies. In South Africa, we are still engaging with the government, that will enable us to invest our capex wisely in areas where there is no infrastructure.
Why did you enter the consumer business? What has been your experience?
We chose to enter the consumer market about three-and-a-half years ago. We saw market opportunity in fixed-line household’s need for voice and data. We did not pick mobility because 3-4 years ago penetration was very much close to 100 per cent, and investments there may not have given us adequate credibility of returns.
Consumers still maintain 10% of our revenue and that will continue to grow. The consumer business on revenue doesn’t show signs of growth, it will maintain relatively flat. Whereas, we see 3-6% growth in the enterprise business.
How is enterprise business is growing in South Africa?
On an average, the market is growing by about four per cent. We are growing at 25 per cent, which is six times the industry growth rate.
What is your current market share in the whole broadband business?
The total market in South Africa is about 44 billion Rands from a fixed communication stand point. We have five per cent market share of that right now.
What kind of growth do you see this year, as slowdown fears spread across the globe?
South African GDP is growing by approximately 2.8 per cent and therefore we see economic consistency. Africa as a continent will continue to see growth.
Our missions haven’t been watered down by the global economic uncertainty because we still see growth opportunities within emerging markets and especially within South Africa. The investments we make, the results we have shown give us the confidence that we are still able to drive the growth in our market and in our top line and bottom line.
Do you see growth for Neotel outside South Africa?
South African businesses have strong trading partner relationships with the SADC region. They also have growth strategies in some South African countries and some have in Nigeria, Kenya, Uganda and Congo. Businesses from South Africa are also looking for trading partner relationships with India and China.
Do you have any expansion plans?
Our capital expenditure for last year was in the range of 500 million Rand. In this fiscal year we have a similar capital expenditure plan. And, 80 per cent of that capital will be used to augment our fibre footprint and 20 per cent of that will be used for automation and growing efficiencies through IT. So we are certainly expanding. We are aiming to expand our telepresence footprint to Cape Town and Durban later this year.
Are you planning to expand data centres also?
We have two data centres and they have room for expansion, and as the requirement continues to grow we will continue to expand data centres.
What kind of growth do you envisage, for high speed data, in South Africa?
There are two drivers for high-speed data growth. Video continue to be a major contributor to bandwidth hungry applications and therefore we will find businesses as well as consumers leveraging video as they did voice for collaboration and communication – domestically and globally. Increased economic activity and business growth will be the second driver of growth in bandwidth required by businesses.