Telkom on Thursday took the wraps off its plans to compete with Vodacom and MTN in the business mobile market and to launch converged fixed and mobile solutions to business customers.
TechCentral editor Duncan McLeod spoke to Telkom Business MD Brian Armstrong about Telkom’s changing approach to the market, its plans to compete in the cloud computing space and the regulatory minefield it has to navigate. This is an edited transcript of the interview.
Duncan McLeod: It appears from this outside observer that Telkom has become a lot more aggressive when it comes to competition in recent months. It’s almost as if the company has suddenly realised it’s operating in a much more competitive market. What changed?
Brian Armstrong: Yes, the market is competitive and we realised for us to lead and thrive and to return to growth we have to respond to a dynamically changing market.
Customers give you very direct feedback and in the last few years we’ve made the transition from having subscribers to having customers. It’s an important mind shift because now customers are always right, whereas in the old telco world subscribers had to take what they got and if they didn’t like it they could [take a hike].
I think the culture of the company has changed. Telkom Mobile and 8ta and the people who came in to drive the mobile business have brought in a fresh “can do, speed counts” attitude.
There has also been an infusion of new leadership. There is an alignment of forces across the board that is creating the change.
Telkom has always been a rational company. It’s filled with technocrats, and one thing about technocrats is when they see things change and the evidence is there that it’s unavoidable, they’ll change.
DM: You’re pushing this idea of fixed-mobile convergence and having one operator supporting business customers for all their needs. Are SA companies ready for that? Do they want it or would they rather play the operators off against each other to try and get the best deal?
BA: It’s a bit of both. The future is converged. In future, people won’t think about communications from a fixed perspective or a mobile perspective. They will simply communicate by whichever means suits them at the time. The underpinning mechanism will be irrelevant to them. That’s true for voice and data services.
Sooner or later, and we believe sooner, companies will start saying we need to get our services from one place, we need to start positioning ourselves for this converged world and we need to start looking for products and service providers that will take us to this future.
DM: Several years ago, Telkom tried unsuccessfully to buy Business Connexion, the IT services company? You’re now talking about being a big player in cloud computing. Does Telkom again need to consider buying an IT services player?
BA: The cloud is really important to us. It was after the Business Connexion story that we decided to launch [data centre operator] Cybernest. The approach to Cybernest has largely been an organic one.
We do have some areas where we still need to develop our portfolio and, of course, you need to decide whether to build on what you have or buy. But before there is any speculation about Telkom being on the acquisition trail for an IT company, the answer is “no”. However, we are thinking about what we need to do to supplement our existing cloud computing capabilities to be leaders in the cloud in the medium to long term.
DM: The IT services skills set is very different to the skills set that a telecoms operator has. Can you build that sort of business organically and to what extent do you want to get into that IT services market and compete with companies like Dimension Data and EOH?
BA: IT services mean different things to different people. We don’t see ourselves playing in the high-end systems integration, systems consulting and application development markets. SA has some world-class players in those areas.
What a telco has always done is “productionise” unit-delivery of communication services. It is possible for a telecoms company to very effectively productionise unit delivery of IT services, so I think cloud is different for telcos.
We have a lot of work to develop the culture, the capabilities and capacity to deliver it, but it’s also different for IT companies, which have to move to more productionised environments.
If you took a guy out of one of the IT companies and put them in an IT factory, it would be as much a culture shock for them as is would be for one of our guys. It’s hard for us for one reason and hard for existing players for almost the opposite reason, but both parties will need to move towards the new world of productionised unit-delivery of IT over a common infrastructure.
DM: Doesn’t this mean that in the long-term, telecoms operators and traditional IT services companies are going to merge, or will they remain separate entities well into the future?
BA: There’s certainly a trend towards integration across the value chain. If you look internationally, there have been a lot of telcos partnering with, buying or being acquired by IT players.
Telefonica has a partnership model when it comes to IT. Then there are others, like [Japan’s Nippon Telegraph & Telephone Corp] that bought Didata. BT had a different approach, with a lot of small acquisitions.
If the product set is converging, there definitely has to be some change or convergence in the market structure that delivers that product set.
DM: What percentage of the business mobile market are you hoping to attract over the next few years?
BA: We won’t disclose exact market share targets. We aim to be a significant player. We do not see ourselves being a fringe player. We want to be big enough to provide some real leverage for our fixed-line business.
DM: In the past, Telkom has had a number of run-ins with the competition authorities. Do you think there will challenges on that front when Telkom starts offering bundled fixed and mobile products?
BA: We need to be very aware of the constraints we have to abide by in terms of significant market power on the fixed voice side. Regulation impacts us from a telco regulation perspective as well as a competition law perspective. We are very careful of contravening either of those.
Obviously, from a mobile perspective, we don’t have significant market power — yet — and our competitors do, so it’s going to be interesting.
In terms of the way we bundle fixed and mobile services, we need to be careful we don’t contravene any competition provisions and we act in a pro-competitive manner.
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