Neotel's Gloves Are Off

Despite earlier assertions from SA's second national operator, Neotel, that it would not compete against Telkom on pricing, its latest consumer voice offering shows it has decided to enter the cost ring.

The company yesterday released details of a proposed voice product that comes to the consumer at an aggressive price point. The company has also revised its targets for the coming year, hoping to bag 60 000 consumers by March next year, an increase from the last estimate of 50 000.

According to Neotel executive head of consumer business Mukul Sharma, the company's mission to bring in consumer business is starting to show good success rates.

“Since our first consumer voice and data offering was launched, we have had between 20 000 to 30 000 leads. Our only real problem is the level of our coverage, which we have expanded, but we need to do more.”

He says the number of consumers now on Neotel's network is in the thousands; however, he would not release exact figures. “We will give full details once we have reached our milestone in consumer numbers.”

Call rates

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Neotel's new home phone, aimed to directly compete with Telkom, is available in two varieties.

The first is a R99 per month option, where users will have to buy a handset upfront for a cost of R599. While the service is not a contract, Sharma says consumers will receive a monthly payback of R25, meaning a client would have the handset free after two years on the Neotel network.

The service is not intended as a voice and data product; however, Neotel says consumers hoping to use it as a data service will be able to do so on a usage basis. Out of bundle data rates for the company are 8c/MB.

The second package includes the device on a monthly payment basis at R199 per month. “On this package, users receive 1 000 free Neotel-to-Neotel minutes and 200 free SMSes within Neotel's coverage area,” adds Sharma.

He says the free minutes are applicable for local, regional and national calls. “In essence, calls between Johannesburg, Pretoria, Cape Town and Durban will effectively be free.”

Telkom's line rental, including VAT, is R124.20 per month. Telkom also charges a minimum rate for any call, while Neotel offers per second billing from the first second.

The call rates for the service are the same as the NeoConnect consumer services, which the company launched this year. These packages are pending Independent Communications Authority of SA approval.

Local rates to Telkom lines are 34c per minute, while a call from a Telkom line to Neotel will cost 65c after the minimum charge of the first minute. On-net calls for Neotel will cost 17c, compared to Telkom's 39c. Neotel's off-peak calls are 17c for connections to both Telkom and Neotel phones.

National rates will also be well received, with Neotel calls to Telkom lines at 57c in peak times and 43c off-peak – Telkom's are 65c across the board for national calls.

The figures listed above are based on Telkom's increased tariffs, implemented at the beginning of August.

Telkom's pinch

Telkom is feeling pressure from a changing local telecommunications landscape.

In its group annual results, released this week, Telkom reported a drop of more than R1 billion in its fixed-line voice revenue, to R6.3 billion for the period ended 31 March 2008, from R7.6 billion the previous year.

CEO Reuben September said: “Both the fixed-line and mobile segments are operating in changing and challenging business environments. As mobile voice growth slows, the mobile segment is aggressively expanding into data and particularly corporate data. The fixed-line is challenged with increased competition and pricing pressures in its traditional high margin, predominantly retail markets.”

Telkom's number of fixed access lines also dropped from 4.6 million in 2007 to 4.5 million this year. The company has stated it expects to lose 10% to 15% of the market share to competition. It has also said it is taking active steps to combat that competition.

A comparative pricing table, including Telkom's old pricing, can be found here.

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