South African incumbent Telkom this month announced a BT-style functional separation of its network, following a review that considered – but found no evidence for – a full structural separation. TelecomFinance talks to Alphonzo Samuels, managing director of its new Openserve wholesale unit, to find out more.
South African incumbent Telkom this month announced a BT-style functional separation of its network, following a review that considered – but found no evidence for – a full structural separation. TelecomFinance talks to Alphonzo Samuels, managing director of its new Openserve wholesale unit, to find out more.
Claire Landon: Was the functional separation a decision by Telkom, or was it driven by regulators? The language in the statement seemed very regulatory-friendly. In the UK, for example in 2005, regulators forced BT to separate its network division, Openreach. In Australia, the government was also behind Telstra’s structural separation, creating NBN.
Alphonzo Samuels: The decision to launch Openserve is based on a commercial and customer-led strategy. Telkom wanted to strengthen its focus on customers, entrench accountability, ensure performance management and measure progress in a transparent manner. Prior to Openserve’s launch, Telkom had already implemented a functional separation between retail and wholesale. Our action, in launching this new brand, goes far beyond what the Competition Commission ruled or envisaged. We intend to play a meaningful role in lowering the barrier to entry for new players and to increase the competitiveness of smaller players.
CL: Will Openserve seek its own financing? We have seen that infrastructure-only companies find it easier to raise financing, given their long-term steady revenues.
AS: Openserve remains part of Telkom and finance will be raised, when required, within that context.
CL: To which operators will Openserve provide fixed-line services? Neotel, recently acquired by Vodacom, is the only other significant fixed-line provider. Are mobile-only operators such as MTN and Cell C likely to lease network space for backhaul?
AS: Openserve will be available as a wholesale telecommunication infrastructure provider to all licensed operators in South Africa, and to Telkom’s own retail division.
CL: Will Openserve build a fibre network?
AS: Openserve will be allocated custodianship of Telkom’s existing fibre network, and will continue with further expansion of the open-access fibre deployment. Currently, 147,000 kilometres of optic fibre has been deployed, and fibre-to-the-home (FTTH) access is available to 38,000 homes. Openserve will align with Telkom’s strategy to ensure the company can deliver on its target of rolling out fibre access to one million homes by 2018.
CL: To what extent will Openserve play a role in the government’s broadband targets?
AS: As a wholesale telecommunications infrastructure provider, Openserve is strategically positioned to play the role of lead agency for the rollout of national broadband. We believe Openserve is well placed to be South Africa’s national broadband provider.
CL: What are Telkom’s plans for mobile? Does this separation make the acquisition of Cell C more likely?
AS: Mobile remains an integral part of the company’s convergence strategy from a retail perspective, and Telkom will continue to expand its mobile footprint and offerings. This functional separation does not have any impact on any possible future acquisition for the group.
CL: Is Telkom’s mobile network included in the new network division?
AS: The mobile network was originally purpose-built for Telkom’s retail business, which is a wholesale customer of Openserve. All assets are owned by the Telkom group, and business units will be allocated custodianship of different assets and assets classes in line with the evolving operating model.
CL: How is Telkom valuing the new division on its balance sheet?
AS: Openserve’s finances will form part of Telkom’s overall financial results. This approach is similar to that taken by other global operators that have also opted for functional separation. It will however be responsible for and measured against its own profit and loss.
