When Sunil Joshi took over as Neotel MD and CEO on April 1, 2011, misery was written all over South Africa’s second national fixed line telecommunications operator. Five years after its establishment—amid fanfare and incredibly high hopes—the experiment looked destined for the doldrums, facing one public relations and marketing nightmare after another.
<div id="attachment_319" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-319" class="size-large wp-image-319" src="/wp-content/uploads/2017/04/308-367_1-1024x683.jpg" alt="" width="474" height="316" />Neotel CEO Sunil Joshi in the corporation&#8217;s Telepresence Suite, Midrand, South Africa; 1 December 2011 &#8211; Photo by Brett Eloff.</div>
A couple of months earlier, auditing firm, Deloitte, had declared that “the company’s recurring losses from operations and shareholders’ deficit raise substantial doubt about its ability to continue as a going concern”. This after Neotel had reported losses of $188 million and announced to staff that some of them faced retrenchments.
The revelations were a big blow—not only to the government’s concerted effort to liberalize a sector long held to ransom by the previously state-owned monopoly operator, Telkom—but also to the country’s 48 million people. Expectations had been high that the new provider would help bring down the costs of telecommunications, offer a much better service than the complacent incumbent operator, create employment, as well as facilitate numerous business opportunities.
Although analysts blasted Neotel management and shareholders for, among other things, lacking vision and leadership, they sympathized with the new entrant in instances where they felt it was a victim of circumstance. For example, two years after Neotel got its operating licence, a technology group challenged the government’s “managed liberalization” process in court, and won. This meant that privileges initially reserved for Neotel would now also be enjoyed by the country’s mobile phone giants, as well as by numerous other players.
On the day the FORBES AFRICA team is visiting Neotel’s Johannesburg headquarters, it’s exactly seven months since Joshi took over after a big management shake-up that saw founding CEO Ajay Pandey return to India.
Joshi quietly asserts that numerous realities were ignored when the story of Neotel’s perceived failure was being told—though he maintains “that’s no excuse”. One such reality, he says, is the cardinal truth that a business has to make an investment before it can reap rewards.
He points out that five years ago, Neotel started from a zero base—with no infrastructure, no employees and no customers—in an industry that grows at about 4% annually.
Neotel has had to invest over R4 billion ($485 million) in the business, he says, most of it spent laying out about 7,000 kilometers of optic fiber. The company has had to employ more than 1,000 people and build more than 400 base stations.
Joshi has spent the past seven months “integrating” the business—something he believes will result in much better offerings. He has called on his parent company, the India-based Tata Group, who are 68.5% owners of Neotel. The other shareholders are South African consortium Nexus (19%) and Namibia’s CommuniTel (12.5%).
“Tata Communications are the world’s largest owner and operator of submarine cable systems. They have about 207,000 kilometers of submarine cable assets on the sea bed,” Joshi boasts, with a lot of glee, “so as we integrate our domestic capability and our submarine cable into Tata infrastructure, we now have the unique capability to enable customers to expand at any geography across the Pacific or Atlantic, on primary or secondary parts on our own infrastructure, giving us the ability to provide resilience,” he says.
What that means for Neotel business clients is that one public room in Midrand, Johannesburg, is connected to 36 others across the world. The facility enables local customers to hold meetings with other people who are based in other parts of the world, without having to travel. Two new data centers that Neotel has built in Cape Town and Johannesburg are now seamlessly connected to 42 other data centers across the world. So if, for example, a business in South Africa wants to expand into Asia, and wants Singapore as a hub but also wants a single point of service for network and data services, Neotel can provide that with ease.
Joshi says Neotel is also serving its consumer portfolio with competitive voice and internet solutions.
The biggest news came in November when, for the first time, the company announced that in the previous quarter it had reached positive earnings before interest, tax, depreciation and amortization (Ebidta).
Last year, Neotel raked in R2.3 billion ($279 million) in revenue, which Joshi reckons is “significant in such a short time”. But was it the best Neotel could do? “There’s always room for improvement,” Joshi quips, before adding: “Revenue streams will only come once critical mass has been achieved. Our revenue streams are growing 30-35%, year on year, enabling us to grow between six and seven times industry growth rate, albeit off a small base.”
Market share stands at 5%, while business customers grew by 23% and consumers by 40%. Neotel now has more than 50,000 retail customers.
Joshi believes the worst is now behind. He is turning his attention to four “strategic imperatives” he’ll be pursuing this new year: profitability, increasing market share, improving customer experience, and training and empowering his “ambassadors” (staff).
But, he says, he will also do with a little bit of help from the country’s national regulator, the Independent Communications Authority of South Africa (ICASA).
Decades ago, South Africa’s then state-owned telephone company laid out copper wires throughout many parts of the country so that it could be easy for telephony to reach homes and offices. For now, only formerly government-owned Telkom can use the infrastructure. Others have to rent from Telkom at significantly high rates. For years now industry players have been trying to convince ICASA to regulate the use of underground copper infrastructure so that other service providers can use it too—not just Telkom. The industry players’ argument is that by making the local loop available to all service providers, telecommunications will reach more people and bring down costs.
“What we are asking for is a fair, competitive and affordable price that industry can bear. We are certainly not asking for it to be free. The investment was made decades ago,” says Joshi.
The second area Neotel would also like to see government paying attention to is the pace and rate of approval in local municipalities. Companies have to get municipal approval for their fiber footprint layout plans, and Joshi says the process is often fraught with delays.
If the relevant South African authorities could attend to those two obstacles, Joshi reckons, there would be no stopping Neotel.
And how does he think history will judge him when his contract ends in three years’ time? “We will all look back and say we made history—by bringing a second operator to  South Africans, and making it successful.”

The Worst Is  Now Behind Us

Indian companies like Bharti Airtel are pioneering the telecommunications industry in Africa using bold business strategy and the experience they gained from opening up communications in their own country 20 years ago.
“When we took charge of Zain’s African operations, we made a commitment to bring world-class, affordable mobile services to customers in Africa and take our networks deep into rural areas,” says Manoj Kohli, joint managing director and CEO of Bharti Airtel’s international operations. This radical move immediately established Airtel as the world’s fifth-largest mobile service provider, immediately gaining 42 million customers. This unique business trend is being employed by Indian companies in Africa, who have adopted a strategically integrated approach to doing business. By integrating socially, politically and economically into 15 African countries, they differ in strategy from their Chinese counterparts, who tend to operate in isolation, importing Chinese workers and goods. Arthur Goldstuck, an expert analyst in telecommunications in Africa, says Airtel’s aggressive marketing strategy of cost cutting and increased volumes is making inroads into the East African market.
According to Goldstuck, this approach to price fighting in Africa and bringing down the costs of calls, SMS and data has dropped the average tariff in Kenya from 12 shillings in June last year to three shillings. Kohli believes it is incorrect to look at tariffs alone. “We have simply corrected the 20-30% premium that Zain was charging over the normal price. This was unsustainable and we brought the tariffs to more affordable levels for the customers.”
The socio-economic spin-offs of Airtel’s presence has contributed greatly to improving the lives of people, especially in the remote areas, says Dobek Pater, telecommunications and market analyst at Africa Analysis. An increase of 10% in teledensity (the proportion of cellphones in use by every 100 people in an area) is almost equivalent to 1% of GDP growth in some of these countries. However, technical challenges on the continent can be enormous. Initial investment is required to develop infrastructure, which can be very high. Extensive rollout of base stations is necessary for any network to expand into Africa, which is both expensive and time consuming from a regulatory and infrastructural point of view. Airtel has received support from governments across all markets, who share its vision of taking the benefits of telecom to every corner of the respective countries.
The Indian business strategy of social and political integration is key to doing business in Africa, and is the ingredient that has seen Bharti and Neotel successfully expanding their networks and distribution to cover a larger population, particularly in rural areas. The sharing of passive infrastructure in African countries also avoids unnecessary infrastructure duplications and helps bring down costs for the industry. Sunil Joshi, CEO of Neotel, says their approach to human capital development is unique and effective. The establishment of the Neotel Training Academy, where 30 people are currently being trained in telecommunications, is a benchmark of social and economic integration as 70-80% of these people will be employed by Neotel. “We believe in leveraging local resources within South Africa and getting the local context by engaging with government and ICASA. Our approach is to socially align with what the needs in the country are. For example, currently we employ 1,000 people in South Africa, of which the majority is local. We are also very proud of the fact that in terms of BEE we have a level three listing, which shows that we give the right focus in terms of the local dynamic.”
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The Worst Is Now Behind Us

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