Wanted: ICT Disruptor

Comment on Broadband by Alec Hogg

Over the past couple of weeks, I've been immersed in the recent history of our company ahead of my September labour of love - the 3 000 or so words that make up the CEO's letter in Moneyweb's annual report.

Reflecting on the past couple of years, it struck me how disappointed we South Africans should feel after being promised so much by the Johann Rupert/Aga Khan-controlled broadband wholesaler Seacom.

In the last couple of annual reports, I've relayed to shareholders how the undersea cable had the potential to transform South Africa's internet sector. Prices, we were told, would drop 90% as a flood of more than 100 times the current bandwidth would hit our country - transforming the online experience of everything from downloading emails through to watching videos on our laptops.

OK, it's only been a couple of months since Seacom landed at Mtunzini. But as a transforming force, its impact has been akin to those early BEE deals. A privileged few are surfing at the speed of sound. But for the vast majority, the impact has been underwhelming at best. The price reduction has been modest. Download speeds have hardly budged. Once again, the middle man - Telkom (JSE:TKG)- seems to have triumphed over public interest.

Sitting in on the Seacom/Altech (JSE:ALT) press conference last week made me wonder, not for the first time, why South Africans accept being gouged in the name of "market stability." Only now that the Competition Commission has highlighted a few of the worst examples are we looking differently at those who supply our steel, bread, cement pipes and airline tickets. But what about broadband? Does Telkom's part-Government ownership put a leash on our monopolies watchdog?

Seacom's CEO Brian Herlihy, a New Yorker who is clearly not used to operating in a market sewn up by colluding distributors, had to visibly restrain himself at that press conference. Seacom, he inferred, has delivered on its promise. But it is a wholesaler. It can only bring cheap and plentiful broadband to the beach. Seacom needs those next in the chain, the distributors, to come to the party. They control the channel to end-users. But so far, none of the distributors has broken ranks. Gouging out the last little bit of extra profit for as long as the informal cartel holds.

Herlihy is not an idiot. Those self-same distributors are his customers. So he attacks them publicly at his peril. But he did some gentle prodding of Altech's CEO Craig Venter, his company's key partner in East Africa where Seacom bandwidth - and targeted legislation - is transforming the ICT sector.

"Seacom's and Altech's mentality is completely aligned," Herlihy suggested, "Altech is not one of those companies who are determined to keep its profit margins as high as possible for as long as possible. We're going to see big things happening together in East Africa and hope to see that kind of thing in South Africa as well."

With a glance at his partner, Herlihy added: "What we need in South Africa is a disruptor......"

Venter, mindful perhaps of his conservative directorate, didn't bite. He steered the conversation back to his group's East African broadband distributor where, Venter said, Altech expects to generate almost half its earnings within two years. He calls broadband distribution "the next big growth engine of the Altech group". So with the focus to the North, any battle with the comfortable South African incumbents, Venter intimated, will have to wait. For now.

More's the pity. Not just for South African internet users who continue to pay excessive prices despite having cheap and plentiful bandwidth on their doorstep. But, perhaps, for Altech itself.

The road of the corporate disruptor is difficult, lonely and treacherous. But the rewards for shareholders can be enormous. Witness Richard Branson, whose Virgin Atlantic has overcome enormous odds to best the massive British Airways. Or, locally, Adrian Gore's Discovery Holdings which after being the disruptive force in medical aids has since done the same to life assurance.

Craig Venter is not a man to run from a fight. He took on and beat government's regulator when all others in his sector kept their heads down. He personally engineered his company's hefty bet in Kenya which many thought was foolhardy at the time. Now it's looking like the inspired brilliance of MTN's (JSE:MTN) investment into Nigeria.

But the Altech CEO's natural competitive instinct tendency is being tempered at home. By a bullying competitor? Or an over-conservative board? So South Africa's best bet of ending its starved and expensive broadband is being tethered. So the country falls further behind, not the more progressive nations to the West and East, but even Kenya, Rwanda, Tanzania and Uganda.

Colleague Hilton Tarrant and I discuss this and related issues in this week's Boardroom Talk podcast. Take a listen (or read the transcript) at http://tinyurl.com/kwvhvs. We need to up the level of the conversation. In the National Interest.

Until next week,

Best,

Alec