Neotel’s Prepaid Flop

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Neotel’s prepaid flop

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Entrance to Neotel's head office in Midrand

Neotel’s much-vaunted entry into the prepaid consumer market doesn’t appear to be paying dividends for the telecommunications company.

More than three months after launching prepaid products, Neotel says 10% of its retail customer base is on the prepaid offering.

It won’t provide exact numbers, but this probably means that it’s signed up only about 5 000 prepaid customers in a market where there are estimated to be more than 40m prepaid cellular subscribers.

In August 2010, Neotel had fewer than 50 000 retail customers in total and it’s unlikely the company has increased that number significantly since then.

Neotel has struggled to gain traction in the consumer market, and now questions are being asked about the company’s strategy as it begins a process of restructuring and retrenchments.

Speculation is rife that parent company Tata Communications plans to replace CEO Ajay Pandey. There’s no word yet on who will take the reins at the operator, which was licensed in 2005 as the first fixed-line rival to Telkom.


Ajay Pandey ... to make way for new blood?

The company is putting a brave face on its performance in prepaid. It says it’s “pleased” with the way the products are performing. “The business is growing steadily and we are satisfied with progress,” says a company spokesman in written response to questions from TechCentral.

However, Neotel’s performance is pitiful compared to another new entrant in the prepaid space. Telkom’s 8ta signed up 186 000 customers in its first month of operation — that’s about 37 times Neotel’s estimated prepaid base.

World Wide Worx MD Arthur Goldstuck says Neotel’s prepaid numbers are not going to excite the market.

“There is no evidence that Neotel has solved its consumer conundrum. And that is exactly it: it doesn’t have a proper consumer strategy,” Goldstuck says. He says the company has a vast amount of work to do if it wants to boost its subscriber base.

Since its launch, Neotel has enjoyed considerably more success in the enterprise and wholesale markets. Its consumer products showed a lack of understanding of what was needed in the retail market.

Goldstuck says the company’s first consumer home phone and broadband product is a good example of this. “You couldn’t use broadband and take a call at the same time,” he says.

Then, last August, Neotel played down the importance of the retail consumer market, saying it would focus on the enterprise and wholesale markets.

However, a month later it was talking up the consumer segment again. At the time, Pandey said Neotel had “taken heed” of consumer feedback.

The company has spent at least R400m on its code division multiple access wireless network, which it uses to provide voice telephony and basic data offerings to subscribers. However, up against well-funded rivals in the mobile market, it has struggled to make much of an impact.  — Candice Jones, TechCentral

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  • Hilary

    Neotel’s problem is self inflicted. Consumers we excited to at last have an alternative to Telkom.

    Then Neotel consistently LIED to consumers and businesses about its offering. Its MOBILE phone company NOT a fixed line company.

    That is the problem. They have confused the buyers and so the buyers have left. They have lied to the clients, so the clients a have stopped trusting them.

    Simple really.

    Give me that CEO’s job and then we will see.

  • Hilary

    Consumers were excited to at last have an alternative to Telkom.

  • John

    Yet again similarities can be drawn with the other failed telco operators. Pre-paid should have been the saving grace for companies such as Neotel and iBurst. But in both cases they completely seem to have missed the opportunity.

    Cell C showed how one can launch a pre-paid only business with great success (and they got 12 MONTHS worth of money upfront, not just a measly 30 days!).

  • Gixxy

    The expectation was for Neotel to be a gift for the masses as the name suggess but they eyed the corporate market and put their eggs in that basket. Now they are retrenching showing that lack of diversified strategy especially failing to have a strong consumer focused offering has backfired and quite frankly the CEO must take the blame.

    Their advertising under the stewardship of tbwa has not done them favours. The approach was not consumer savvy and as such never connected or resonated with their desired public. It was as if they were forced to entice the consumer and when you compare to 8ta launch then subsequent campaigns then you can understand why 8ta has grown so quickly. You have to make people demand your product not some sort of soft launch. Let’s hope Network BBDO can injet better ideas into their advertising.

  • Britin SA

    Well I can certainly concur that many of their problems are self-inflicted.

    I dumped Neotel Prime 5G when Neotel improved the conditions of the cheaper packages and did nothing to sweeten what is now their flagship consumer product. I moved my data business to Cell C, much cheaper and much faster…

    Since Neotel has attractive prices for calls to mobiles and land-lines, I visited their walk-in shop at Cedar Sq JHB with a view to re-using my existing Neotel phone on a pre-paid basis.

    “Oh sorry no!” said the Neotel employee. At this time we are unable to accept applications from people who previously had post-paid accounts and devices. We can only sell you a package involving purchase of a new device.

    “Uh, I see, that’s a disappointment. Any idea when Neotel will start to accept customers who already have a phone”? “No sorry, sometime in 1Q11”.

    I rest my case.

    I hope Pandey is sacked (along with the useless cretins at Neotel who think there is nothing wrong with the above story)

    Neotel need someone dynamic (like Lars Reichelt) to turn their business around.

  • Shozi

    It is a shame that lot of promises were made by politicians in regards to cometition with Telkom on a fixed line. Upto now there is no tangible and visible observations. It is really distabing that poor people are suffering yet these politicians are getting more richer, as they are playing with our minds.

    We really need to make the politicians more accontable.

  • KLA

    The biggest problem with the prepaid offering is the difficulty involved in taking them up on it! I tried for three months, and then just gave up – nobody had stock of the units (for 3 months!!), and none of their resellers was particularly interested in selling prepaid – but tried very hard to talk me into a contract… uh no thanks – that’s why I’m dumping Telkom!

    A week ago, I called Neotel with a completely different question, and figured while I was on the line, I’d tell them about the prepaid story. “Oh,” says the guy on the other end; “no problem – just pay the amount and we’ll deliver to your premises within a week”.

    Why didn’t they tell anyone?!? If people know what they offered and how to get it, they wouldn’t be having this problem!

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