Neotel becomes Tata Communications subsidiary

India’s Tata Communications has upped its stake in South Africa’s second national operator Neotel, making the telco a subsidiary of the company. Tata’s stake has increased from 56 per cent to 61.5 per cent. It is not clear which of Neotel’s other shareholders has sold its stake; the Neotel website lists Communitel and Black Economic Empowerment (BEE) partner Nexus Connexion as the other shareholders.

Following the deregulation of South Africa’s telecoms market, Neotel became the country’s second national operator in 2006 and commenced operating the following year; it has so far failed to post a profit, reporting a R1.1bn (112m) loss last year, up from R739.5m in 2009. Earlier this year, auditors Deloitte and Touche expressed concern over the telco’s capacity to continue “as a going concern”, pointing to ongoing losses and shareholder deficit as key issues in the fixed-line operator’s ongoing sustainability.

Following turbulent financial times, new chief executive Sunil Joshi was appointed to the Neotel helm in April this year, replacing Ajay Pandey, who move back to the Tata Communications fold following a five year stint at the South African telco. According to Pandey, more than R3.5bn had been invested in building Neotel’s infrastructure at a time when South Africa’s telecoms market was undergoing a period of intense change.

Although it has made some inroads into the wholesale market, Neotel has yet to make any significant dent on the South Africa consumer market, with only 50,000 customers in that segment. New CEO Joshi has said that the telco will be targeting growth in this area, looking for a 50 per cent increase in customer base by the end of March 2012. As part of its drive to appeal to residential users, the telco has launched a new ZTE WP850 cordless handset designed to run on the company’s CDMA fixed-wireless network and capable of functioning outside of residential parameters. The telco has also engaged in price-reduction promotions, including pre-paid packages.