Neotel Has Tata Backing: Joshi

Sunil Joshi, MD and CEO of Neotel says that the company has the backing from its parent company, Tata Communications to continue its operations in South Africa despite not making a profit since its inception five years ago.

On Tuesday (22 May 2012), the group announced a 25% year-on-year increase in revenue for the year ended March 2012. Revenue was R2.3 billion in 2011.

For the year ended March 2011, the group’s parent company, Tata Communications reported a comprehensive loss of R1.8 billion for Neotel, with a loss of R1.15 billion in 2010.

Tata has a 61.5% stake in South Africa’s second fixed-line telecommunications group.

Neotel attributed the jump in revenue to a 50% growth in business customers, doubling its consumer base over the previous year to 100,000 customers. The company is planning to grow this subscriber base to 150,000 within the next year.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved 113%, the group said, stressing that it was EBITDA-positive.

Speaking at a media briefing in Midrand, Joshi told BusinessTech: “The AOP (Annual Operating Plan) that I have for FY 2013 is signed off by our board. The acknowledgement of the board in the signing off of our AOP is testimony to acknowledgment of the progress the business is making as well as the milestones we have crossed,” he said in reference to the EBITDA position of the group, and its aims to be EBIT-positive in the coming financial year.

The company head added that capital expenditure for the coming year amounted to between R500 million and R600 million, the same amount as in 2011.

Joshi said that 80% of that capex would be used towards growing the company’s “fibre footprint” and the remaining 20% would go towards IT optimisation.

Neotel has already invested R4.5 billion rand into its operations in South Africa.

Joshi said that Neotel’s national fibre network now stretches over 12,000km, while the company has laid over 6,500km of metropolitan fibre. He added that Neotel plans to light up another 2,000km of its national fibre network in 2012.

The success of Neotel’s network growth is reflected in the company’s increase in customer numbers. The company announced that it grew its business customer base by 50% and doubled the number of residential customers in the last financial year.

Joshi added that that the group would look at adding cloud-based products in the coming financial year.

Frost & Sullivan, the business research and consulting firm, noted that Neotel also indicated that it hopes to utilise existing infrastructure belonging to other market participants in providing services to the market, as opposed to building their own infrastructure. The aim of this strategy is less capital expenditure and more focus on operational expenditure, as seen in various segments of the market.

“Should Neotel wish to continue on the current growth projection, it will need to focus on clearly defined strategies for capturing market share and driving growth. Leveraging the network and capabilities of Tata Communications could be the key differentiator for driving growth in future,” said Frost & Sullivan’s head of ICT, Ian Duvenage.

“The market will be watching closely as Neotel aims to capture a 2% market share.”

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