The weird and wonderful world of South African telecoms

South Africa is a strangely unique place when it comes to telecommunications and the high price thereof.

We have first world technology in a developing nation; alongwith a monopoly on fixed line [Neotel, our SNO, cannot yet be considered as competition / but hopefully that will change soon], 3 GSM network service providers, ISP's that have to buy bandwidth from the incumbent foxed line operator "Telkom" and a host of virtual GSM Networks.

The goverment own shares in Telkom, Telkom owns 50% of Vodacom [GSM SP], Vodacom is getting into the fixed line business in competition to their parent company Telkom, there is talk in the marketplace that MTN and Telkom will merge and the goverment is supposed to ensure the people [thats us] get a fair deal. We have interconnect fees [costs charged by one network to terminate calls on another] that should make network shareholders blush, but instead are making them rich.

And we have so much "smoke and mirrors" [read marketing gumpf] around products and their pricing, that people [including me], make a living out of understanding and managing telecoms for businesses.

Hopefully, this blog will give you those who need it, some insight into how to come to grips with your costs in your business, and how we can help you if you need it.

Peter Walsh_3rd June 2007 / http://www.dataroom.co.za/

Is IP Telephony an option for your business?

There has been so much hype around the benefits, pitfalls and implementation of VOIP [Voice over IP] in South Africa in the last few years that anyone in business would be forgiven for struggling to know whether the costs involved would be worth the potential savings.

For the uninitiated, VOIP is the conversion of voice into “packets” of data, which are transported via a data network to reach the person you are trying to contact. And once they arrive, the “packets’ are converted back into voice, allowing a conversation to take place.

All this happens seamlessly for the people making and receiving the call – but it results in the call being far cheaper than, for example, a normal fixed line call via Telkom.

In the first world country where Internet is freely available and bandwidth is so cheap, VOIP is fast becoming the norm. But in South Africa, where Telkom’s monopoly keeps the cost of bandwidth high, cost reduction is not the norm when it comes to VOIP. Telkom’s monopoly allows them to high charges for connectivity [bandwidth]. Interconnect charges between service providers are high and VOIP service providers are always on the back foot when it comes to providing quality of service.

Another issue affecting the decision by a potential client of whether to convert to VOIP is the problem of poor delivery by the some suppliers and, too often, I hear scepticism from corporates in South Africa when it comes to successful implementation of VOIP.

Despite all this, it is inevitable that of most South Africa companies with high telephone costs will go the IP telephony route in the future – a case of not if but when, and it is only a matter of time before IP telephony becomes main stream in South Africa.

So what do you need to understand in order to make that decision?

Most importantly VOIP is not a status symbol, or a must have because it’s the latest tech trick and there should be a business need for you to make the switch.

And, as important, is how you do you decide whether you are ready to move to IP Telephony?
Below are a few indicators:

· Call costs are escalating because of high cell and national and international calls - indicate are such that you can benefit from a VOIP solution;
· You are moving into a new building and installing VOIP could save the cost of duplicate cabling requirements, as phone lines and data lines can be channelled one single point of connection;
· Making use of Centralised Contact Centers [Call Centers] nationally or globally make IP
Telephony attractive to your company;
· Redundancy (backup) may be required for your Contact Centers and or IP based PBX systems;
· Managing your voice infrastructure can be cheaper when using IP Telephony, as your IT department can access and manage change remotely on one single integrated voice platform.

Then there are other factors to take into account before signing off on a project or choosing a vendor and proceeding with implementation:

· Can you change your voice infrastructure using innovative Service Providers solutions and achieve the same result? In other words, if your SP supplies the bandwidth and cheaper rates along with carrier grade voice solutions, then why do it yourself if you can cut costs and hold your SP to a written Service Level Agreement
· You need to understand your requirements fully before making any decision and ask the right questions. Like:
o What infrastructure and bandwidth do I require to operate optimally?
o Who pays for what?
o Will I need to upgrade my own infrastructure – and, if so, what will it cost?
· Costs and ROI
o What hidden costs are there [if any] in managing the solution on an ongoing basis?
o Remember, the moment you move into the IT world, everyone wants you to pay for licenses on a per user basis. So, for example, you might need to pay for each employee who uses the phone;
o And, does my company have the knowledge – or capacity to manage this?
§ Is it cost effective to manage voice infrastructure ourselves?
§ Do we want to outsource the management of voice infrastructure?
o Will the move to VOIP require large capital expenditure and, if so, how much?
§ Is this a once off or a recurring cost?
§ Who will manage your WAN to ensure continuity of voice and data?
§ Can voice have priority over data?
§ Do you need to upgrade your WAN and what will it cost?

And then there is the most important decision on choosing a vendor with a strong track record. Without the right vendor and the correct support structure, your venture into VOIP will fast become an object lesson in frustration.

Your vendor should allow you to “try before your buy” as most reputable vendors are quite comfortable with this approach and will offer you a service level agreement outlining roles and responsibilities as well as response times in times of need.

And lastly, we cannot emphasize enough the importance of understanding your own business need - before you go to market. Get contactable references on successful role outs from your vendors and call them.

All these investments should bear fruit when you finally roll out your VOIP solution.

Peter_Walsh_14thJune2007 / http://www.dataroom.co.za/

Where to now for the LCR industry?

Ever since the advent of cellular networks in South Africa, entrepreneurs have been using Least Cost Routers [LCR or Premi-Cells] to help businesses save money on cell phone calls originating from their PABX. So where to from here with the advent of change looming on the horizon?

And, in turn, the Industry has over the years flourished because of the “huge” recurring revenue streams that were created. And the foundation on which the industry was built was because of a few simple reasons:

• Firstly cell to cell calls, charged at a per second rate, are far cheaper than a Telkom to cell call, as Telkom charge a per minute rate. So where Telkom charge R1.65 per minute for a GSM terminating call irrespective of whether you talk for one second or one minute, a cell network charges approximately. R 0.02 cents per second, so you only pay for what you use.

• And, secondly, GSM networks are charged an inter-connect fee of 20-25 cents for calls terminating on Telkom’s network – while they charge Telkom R1.25 for calls terminating on the cell phone networks.

The cell phone business is the ultimate recurring revenue stream product and Least Cost Routing of cell phone calls off of a business PABX is no exception to this rule. Companies such as Orion, Storm, Telepassport, Vox, SmartCom, Telemasters [the latest AltX addition], Nashua, Autopage, Vodacom SP, MTN SP and many others have all been using this business opportunity to generate large recurring revenue streams for their shareholders.

Typically, these LCR companies do not want the overhead of large sales teams; so they have traditionally shared this ongoing revenue streams with dealers/resellers of telecoms products who enjoy existing relationships with their customers. It is not uncommon for individuals to have recurring revenue streams of R50 000 to R100 000.00 a month paid to them every month from the vendors in ongoing commissions. Commission can be anthing from 4% to 15% depending on your negotiation skills, the SP whose “minutes” you on-sell and the volumes that you manage to bring to the table.

Historically, the LCR business was quite easy: all you had to do was turn up onsite at business “XYZ”, install the SIM cards and some form of hardware to interface to the PBX and savings began for the customer, while the profits rolled in for the LCR vendor and their dealers.

Along the way the GSM networks got clever and implemented an array of new packages that basically protected their own revenue streams to a degree, by requiring a MTN SIM card for MTN calls and a Vodacom SIM card for Vodacom calls. By introducing these special packages for LCR cellular, the sophistication required to get the right mix of SIM cards connected to the PABX, as well as managing this requirement, overnight upped the ante considerably for LCR company and their dealers.

The fact is that many reputable LCR companies do not have the sophisticated billing analysis tools or operational capacity to deal with these changes, which we see in the reporting we do for our clients on a daily basis.

Some LCR companies do a good job and monitor the way these calls are routed through their PABX systems, but often they get it wrong and fail to find the cheapest routing.

Add to this number portability, where cell phone users can change networks but still keep their same numbers – and all of sudden a call to 082 from a Vodacom SIM means that a company could actually be dialing 083 or 084 and incurring a higher cost than if the call had gone via Telkom.

So, now it’s a whole new ball game and changes are happening that could adversely affect the LCR cellular industry.

These include:

• GSM calls are fast becoming the most popular way to make calls to reach your customers or suppliers quickly and in the most cost effective way. When we started our business we found most companies on a 70% Telkom / 30% GSM call pattern. These days it is not uncommon to find it the other way around, with an 80% GSM/20% Telkom split

• Telkom have already started offering Telkom per second billing packages, limited to a maximum of R 20 000 a month per account number. Telkom has also limited this option to one package per account number in order to protect revenue streams it receives from big corporate customers.

• Now with more PSTN [fixed line] operators coming to market – like Transtel, Eskom and Neotel - Corporate SA will soon have the option of carrier grade voice quality in per second billing at cheaper rates than Telkom’s. An added incentive for customers to switch to these companies is that they offer GSM rates lower than those of Telkom. This results in LCR Cellular becoming redundant at sites that no longer use Telkom as their main stream carrier.

• VANS [value added network service providers] in South Africa will soon be licensed to terminate minutes, meaning they will become virtual “telco’s”. Most have already entered into inter-connect agreements with GSM Networks and are merely waiting for the green light from Icasa.

An added incentive for customers to switch to these companies is that they offer GSM rates lower than those currently offered by both Telkom and LCR vendors.

• Some LCR Cellular companies are already offering 3 year contracts that tie in customers in order to protect revenue streams as they no longer see as so rosy?

Then look at the recent listing of LCR companies on the South African AltX, and one wonders whether the “boys” are cashing in their chips before traditional cellular LCR loses its advantages.

Consider the fact that ICASA is under huge pressure to drop the interconnect rate between networks - including the cost of making calls from Telkom to cell phone networks - and I would say you have some industry players that will have to make major changes or face extinction.

The LCR companies that are morphing into converged voice and data solutions will live to fight another day, but those that rely solely on recurring income from routing calls off PABXs are in trouble unless they change their business models.

So as a business you need to ensure that you are looking very carefully at the manner in which you route your cell phone calls - and ensure that you do not tie yourself into any long-term contracts for the foreseeable future.

Peter Walsh_3rd June 2007 / http://www.dataroom.co.za/

Single view reporting for optimal telecoms reporting

After decades of a telecommunications monopoly, and despite deregulation, the price of telephony in South Africa has skyrocketed. The issue has even drawn fire from the presidency of South Africa, via Thabo Mbeki who at the time complained that the high costs of telephony was deterring investors.

But despite complaints, Telkom's monopoly remains entrenched and while government and ICASA contemplate 'policy reviews', Alec Erwin contemplates becoming a self appointed SCM [second communications minister / the first one has not been very successful] by starting a new broadband operator to compete in the marketplace; it is left up to individual companies to explore methods of reducing their telecoms spend - a real challenge as telecommunications costs in South Africa are among the highest in the world, and businesses typically overspend by anything from 15 to 50 percent.

Customers are looking for new and intelligent ways to analyse and streamline their telecommunications spend. Recent requests for solutions include the Cape Town Unicity and Parliament. These are typical examples of BIG business shouting for help.

One of the major problems in terms of escalating costs is that most companies use a complex mix of traditional landline phones, their own WAN for Voice over Internet Protocol (VOIP), different cellular networks and multiple cellular service providers, to deliver telecommunications to their branches nationwide. Furthermore, all these networks and SP's deliver invoices and itemised billing to the customers every month in disparate formats, to multiple postal addresses [or email inboxes] and no intelligence is applied to this billing data. So as time goes on, customers find it increasingly difficult to manage their costs as invoices and itemised billing become more and more unwieldy to consolidate.

The problem is that you cannot manage your costs if you cannot measure them. And even if you can measure these costs, with convergence of voice and data you need the skill set [and time] to implement change efficiently. There are companies in the market place charging small fortunes to perform telecoms audits for customers. Once complete, the customer then has to find a service provider to deliver the change required and then 12 months on, if the customer wishes to measure success, perform the whole complex costly exercise again.

The Nett result to customers is that more and more [customers] are asking for a single point of contact / or single view point into their telecoms expenditure.

Our belief is that customers need a solution that gives them a ‘Single View' into their telecoms spend, irrespective of supplier, and derived from source documents; ie the network or SP's monthly billing.

This ‘Single View' should provide insight into the opportunity available to them based on their actual business need and products in the marketplace. Examples would be existing call patterns / employees profiles / business processes and company strategy. Whilst defining the business need, the solution should take into account the customers geographical location, supplier invoices and supplier detailed billing, analyse the call patterns and then use this data to come up with an optimal telecoms plan.

Once the action plan is agreed, employees / consultants / service providers can then work together to implement the plan, manage the change and reporting will show the fruits of their labour. This is approach is very different to the current solution's out there, in that most solutions [TMS / Extension Reporting / Consultants] are able to provide reporting on a portion of their clients telecommunications needs, but not everything.

The results are that in nine times out of 10 opportunities will go begging. For example, a service provider of Least Cost Routing (LCR) services understands LCR, but generally they do not understand cellular handsets, PBX or VOIP. The same would be true for any service provider / solution / consultant who does not provide a complete offering to market.

So when choosing a solution to manage your costs, ensure that the solution reports on all TYPE's of expenditure [especially cell phones / 3G cards and wireless] and that all the role players in your company [Networks / SP's / Management / Employees / Suppliers] have instant access to data that is relevant to the role they play in your business, whether they are employees / management or suppliers. This ensures that everyone will know where to start, what to start with and what change to expect.

Peter Walsh_3rd June 2007 / http://www.dataroom.co.za/