Even three years after Neotel was founded, CEO Ajay Pandey says the group is still finding the burden of expectations to be a heavy load.

His fledgling company is steadily gaining a foothold in the SA telecom sector, and is on track to make R3-billion in revenue for the year to March. But customers, desperate for genuine competition, are still putting Neotel under unrelenting pressure to drive down costs.

Neotel is a far cry from the startup business that got its licence in 2006. But there was no aggressive deployment, no promise of big price cuts. Little was heard from the company until it started offering services to businesses a year later.

The silence resulted in Neotel being mocked, by an analyst at a technology conference, as "the rarely spotted" second network operator.

"It is really going to be a big player in years to come," says Birgitta Cederstrom, the ICT programme manager Africa for research and consulting firm Frost & Sullivan. "But we believe its deployment is too slow."

Neotel to take 15% of Telkom's businesses

Neotel says it is making headway. Rival Telkom said that when Neotel got its licence, it expected the upstart to take 15 percent of Telkom's businesses within five years. After a subdued start, Neotel says it is on track to meet the target set by its rival — and even expects to make a profit by the end of its third fully operational year.

Neotel now carries 99 percent of its traffic over its own network, and expects to be in a position to offer potential access to 80 percent of the population well before its 10th year of operation (which is what is required by its licence agreement).

The maturation of the group can be seen in its moving from an office park in Woodmead, Johannesburg, to its own large premises along the N1 in Midrand. The bright orange-coloured buildings along the country's busiest road are a branding statement. (Telkom had rented a large billboard offering cheaper telephony just outside Neotel's old offices.)

Despite progress, says Pandey, "the expectations are unreasonably high; but we can’t run away from them". Already, Neotel has to fend off complaints of bad service similar to those other operators have to deal with. Pandey says most complaints seem to be in connection with the wireless network, and he points out that, while the group is doing its best to deal with these queries, wireless networks are by their nature prone to disruption.

"More bang for their buck"

Pandey says managing growth is the other challenge for the group. It has developed services in a methodical way. In the past two years it has steadily built its offering to the public in Johannesburg, Pretoria, Cape Town, Durban and Ekurhuleni. It plans to expand to Port Elizabeth and Pietermaritzburg in the next 12 months.

Though Neotel has managed to attract a following among individual consumers, most growth has been among large and medium-sized businesses. The need for companies to reduce the risk of being too dependent on one fixed-line provider is driving some of this growth, but Pandey claims businesses are starting to be attracted to Neotel because of what it offers. "They are starting to wake up," he says. "Now they are getting more bang for their buck." Several studies have found Neotel to be the lowest or second lowest priced telecom operator.

Frost & Sullivan's Cederstrom says Neotel has been able to get traction because of its good client services. She says customer retention will become key in the telecom sector, and Neotel already has a good retention programme in place.

Pandey is proud of the group's success but wants the regulator, the Independent Communications Authority of SA (Icasa), and government to do more to level the playing fields when it comes to taking on more established operators like Telkom.

High costs in the telecom sector

New communications minister Siphiwe Nyanda and the parliamentary subcommittee have moved quickly to address high costs in the telecom sector. They have demanded that interconnection fees — what operators charge each other for transmitting calls on their network — must come down from R1.25/min to 60c/min by 1 November.

Pandey backs the move, but has some concerns. He wants there to be a process that can be followed. "There has to be methodology." The apparently ad hoc way in which the department and the subcommittee came up with the cut has many worried. Pandey would prefer the cut in fees to be driven by Icasa.

As a small operator, Neotel does not get a lot of money from interconnection fees, but Pandey still wants the fee to be structured so that it benefits smaller operators over larger rivals, by having the bigger companies pay a higher fee to the newer operators. "I'm a new operator but I'm not being treated like one," he says.

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