Neotel on profit trail as sales rise

NEOTEL, South Africa’s second national fixed-line telecoms operator, is poised to announce an improvement in its financial performance helped by growth in customer numbers and increased revenue.

According to Sunil Joshi, Neotel chief executive, earnings earlier interest, tax, depreciation and amortisation jumped 47 percent in the nine months to December last year. Revenue rose 20 percent, during the Ebitda margin increased 134 percent.

Since its launch five years ago, Neotel has struggled to show a profit as it grapples with competition from entrenched rival Telkom and the increased use of mobile telephony. Last year Neotel reported a loss of R1.18 billion for the year to March 2011 compared with a full-year loss of R1.15bn in the prior year. Revenue was R2.3bn for last year.

Joshi, speaking at the Tata Communications global media and analyst summit in Dubai, said the achievement of Neotel’s positive Ebitda was due to revenue growth and the doubling of customers while April last year from 50 000 to 100 000 customers.

New product

Neotel had as well launched a new product, NeoOne, a research solution that provides upgrades as frequently as the business customer requires, via the “cloud”.

Cloud computing is the provision of services over the internet from a shared location, saving users from the costs of purchasing information innovation hardware.

“Our then and there milestone is to be Ebit positive,” Joshi said while an interview with Business Report. Ebit measures a company’s revenues excluding interest and income tax expenses.

Neotel aims to make inroads into the Southern African Development Community over the straightway year by expanding WiMax research services, global ethernet, managed services and data centre hosting from its data centres in Johannesburg and Cape Town.

In South Africa, network managed services are expected to reflect a 16.9 percent compound annual growth rate by 2015, according to technology by Frost & Sullivan published in January this year.

Neotel’s business strategy focuses 90 percent on enterprise clients and 10 percent on households, a market it says is already then covered by cellphone and landline incumbents. Neotel looks to launch video connect nodes for business and cloud computing services.

Joshi said 52 percent of internet traffic was video related. Tata Communications, Neotel’s parent company, will focus on expansion beyond the SADC.

Network of 6 900km of cable across the country

Neotel has a network of 6 900km of cable across the country and a 6 500km fibre-optic cable network linking 14 central business districts in South Africa.

“Every year we spend about R500 million in capex. Eighty percent is committed to expanding the network footprint,” Joshi said.

Neotel is the only service provider in South Africa with access to all five undersea network cables that link the continent to the West and Europe.

Tata as well announced the completion of its 100 percent owned “ring around the world” fibre network which Joshi says Neotel will leverage to connect its customers in South Africa and the SADC to any continent.

Illustration

He said as an illustration, if customers wanted to connect to the US, the network had made it possible to avoid the routing of African network traffic via London altogether, and in a connection time of 230 milliseconds.

Neotel is as well expecting completion of its national long-distance fibre network project, in collaboration with MTN and Vodacom, while the second quarter of its 2013 financial year.

Joshi said Neotel’s vision was to become a “partner of choice, enabling a new world of communications, and create value for clients”.

Srinivasa Addepalli, senior vice-president for corporate strategy and communications at Tata Communications, said Neotel was heading “in the right direction”. “We’re patient. We realise it is an important market,” Addepalli said on the sidelines of the conference.

He said Tata could commit future funding to Neotel: “It’s a matter of the business case for why they would need it. Neotel is quite strategic. It all depends on what is required.”