Neotel and MTN team up

Marcia Klein

Marcia Klein

MTN and Neotel have avoided very expensive duplication by joining hands to build a 5000km long distance fibre optic network with a joint investment of R1,7billion to R2billion.

The project, which will result in improved network availability, increased bandwidth and higher speed connectivity, is due for completion within two years.

MTN, which was originally expected to build its own cable network, has decided to pool its resources with Neotel.

Tim Lowry, head of MTN SA, said this was the biggest telecoms collaboration in SA. It was, however, nothing more than a joint project. There was no joint venture agreement or exchange of shares.

The two companies decided to work together because of the complexity of the project and the large investment required. Importantly, it would result in reduced dependency on the lumbering giant Telkom for transmission quality and links. Following the announcement, the Telkom share price dropped more than three percent.

The project will enhance connectivity with the sea cables, due to be ready this year (Seacom) and next year (Eassy) and result "in almost unlimited bandwidth".

The first phase - from Johannesburg to Durban and on to Richards Bay to make contact with the sea cables - will be completed within seven months.

The total project, which includes further lines to Cape Town and other centres in the country, will cost R1,7billion to R2billion, with the first phase costing R200million. The total project should be completed within two years. By building together, it is estimated that MTN and Neotel will each save R400million to R500million.

Lowry said MTN already paid Telkom about R1billion a year for transmission. MTN will cut about R200million off this bill - and its operating expenses - this year, growing to annual savings of around R300million by 2012, not taking into account potential increases Telkom would have levied on it.

Over time, the project will result in faster data speeds and, only possibly, a reduction in prices.

MTN has started the year with a bang. Apart from this announcement, it has also received the go ahead for its R1,4billion acquisition of 69percent of Verizon SA, making MTN one of the biggest Internet service providers to corporate clients in SA.