[By Duncan McLeod]

Neotel’s been getting a lot of bad press lately. Financial losses are mounting and retrenchments are looming. But it’s too soon to write the company off. If it acts tactically now, it could still be a force to be reckoned with in SA telecommunications.

In some respects, inflated expectations about what Neotel would achieve, especially in the retail consumer space, meant it was never going live up to the hype. When it failed to build a compelling alternative retail offering to Telkom, many consumers felt betrayed.

Neotel was licensed in 2005 as SA’s second national operator, the first competitor to Telkom, as part of the Thabo Mbeki administration’s policy of managed liberalisation of the sector.

A lot of water has flowed under the proverbial bridge since then. Two short years after Neotel received its operating licence, technology group Altech challenged the policy of managed liberalisation in court — and won. That meant many of the privileges Neotel enjoyed were shared with hundreds of other companies.

MTN and Vodacom, in particular, quickly took advantage of the changes, investing billions of rand in terrestrial and submarine cable infrastructure. Neotel would find it difficult to compete with the mobile giants as they rushed to extend their third-generation mobile networks across the country.

In the business market, Neotel had to contend not only with Telkom, but also with a handful of companies that began building fibre-optic infrastructure to the country’s biggest companies. Prices plummeted as competition intensified.

Neotel missed earnings targets agreed to with its debt providers in three consecutive quarters in 2010, blaming the worldwide economic recession and disruptions associated with the soccer World Cup.

Now wholesale changes are on the cards at Neotel. A management shake-up has been announced, with founding CEO Ajay Pandey to return to his native India, chief marketing officer Jacky Humphries heading for the exit, and Tracy Cohen, Neotel’s regulatory head, being promoted to the position of chief officer for corporate services. Stefano Mattiello is taking over the marketing function while retaining his sales portfolio.

A wider restructuring is underway, with retrenchments expected by the end of March. Company insiders say the restructuring is more than two years overdue — it should have been done when Neotel bought Transtel from Transnet in 2007 for R230m. They say the company has a duplication of skills in a number of areas.

They also say it needs more dynamic leadership. Senior executives at the company say Pandey, though competent, hasn’t proved to be the sort of inspirational leader Neotel needs to compete against bigger rivals.

However, the view internally is that the new CEO, Sunil Joshi, appointed by Neotel parent Tata Communications, could be the man the company needs. In town last week to meet Neotel staff, Joshi is an energetic go-getter, those who have met him say. He starts on 1 April.

Of course, Neotel will need more than a spirited leader to be an effective competitor. It’ll need to be clearer about its strategy in the consumer market, in particular, and become more effective at managing perceptions.

Cell C CEO Lars Reichelt has shown how it can be done. In the space of 18 months, SA’s third cellular network operator has gone from a nobody to one of the hottest brands in SA telecoms.

Cell C shareholders have agreed to convert billions of rand of debt into equity on the strength of Reichelt’s plan, believing the company can generate a return for them.

Neotel could do worse than drawing a few lessons from Cell C’s dramatic reinvention.

Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail
This column originally referred to the new CEO of Neotel as Vinod Kumar. It is, of course, Sunil Joshi. Kumar is the CEO of Tata Communications, Neotel’s parent company. The error is regretted.