Tim Modise interviews the CEO of BCX Mr Isaac Mophatlane on the Telkom takeover, BEE and State Owned Enterprises missing the opportunity to grow and develop black business leaders. He says business is a long game and South Africa needs young entrepreneurs who take a long term view of their commitment to business.
CEO of BCX Isaac Mophatlane on the Telkom takeover & consolidation of the telco sectorWelcome to the Transformation section of Biznews. This time, we’re talking to the CEO of BCX, Mr Isaac Mophatlane. Welcome Isaac. It’s a pleasure to have you talk to us today.
Thank you very much Tim, and thanks for having me over.
The deal between Telkom and BCX has been stalled for some time, waiting for the Competition Commission approvals. Why did it take this long?
One of the reasons why it’s taken so long is because Telkom previously tried to buy Business Connexion in 2007. The Competition Commission and the Tribunal did prohibit the deal at that stage. In addition, at that stage the landscape had not changed significantly. Telkom was a dominant player. What they’ve done is they’ve done their homework this time around and looked at all the different potential people who could object to the deal. It’s been given the go-ahead with obvious conditions.
How’s this deal going to change the Telkom landscape and the ICT landscape?
More importantly, if you look at what’s happened traditionally worldwide, is that the telco and mobile operators have all battled for new revenue streams. I think all of us do know this as a drop in fixed line/fixed voice revenues, so Business Connexion offers Telkom an alternative in new revenue streams – specifically in the enterprise space -, which is essentially the space we play in.
Is this a complete takeover by Telkom, and what does this mean for the BCX leadership?
Well, Business Connexion management and leadership, including myself, will stay on there for the next five years. Business Connexion will remain an independent subsidiary within the Telkom Group. The branding will continue and from our side, we’ll continuously manage the business on behalf of the Telkom shareholders and the Telkom management. We’ll be the custodian of the business, going forward.
There margins have been getting tighter and tighter by the day, for telcos as well as for traditionally IT companies like BCX. With these new synergies and integration of the business, where do you see opportunities coming from? How is it going to generate new revenues?
If you look at the businesses, they’re obviously two different players. Business Connexion is a leading outsource/IT services business on the continent. Telkom is a world-class infrastructure IT/telco services business. If you put the two together with the connectivity that Telkom offers Business Connexion, we think there’s a value play there in terms of creating unique solutions for our customers going forward, as well as being able to reduce cost. I think our business is now more commoditised. Yes, the margins are tight but [inaudible 02:55]. It will provide a scale. It will also provide Business Connexion with access to Telkom’s customers, which I believe are in excess of about 300,000 clients.
Telkom has been laying off employees in recent times and now, when you merge the two businesses, the implications may be that you (as BCX) may lay off people.
One of the obvious conditions that the Competition Commission has put forward is the fact that we’d only be allowed to reduce 60 heads, post the merger of Telkom Beta Centre and Business Connexion. What is rather clear (and is clear to the market as well) is the fact that we are two distinct/different businesses with different skillsets. The skillset that we have in Business Connexion is not what Telkom has and what Telkom aspires to have. If you look at it, they’ve built up business over the years with traditional fixed line/fixed voice business, which is in a decline because of the other competitors in that landscape. For example, MTN, Vodacom, etcetera. I therefore don’t that Telkom laying off people are of big concern to us. Those are traditional telco people that have laid off. They need more IT skills. There’s a shortage of IT skills in the country and I think that with the Telkom customer base and Telkom itself, Business Connexion is well positioned to look after the customers and Telkom itself.
You’ve spent many years in the ICT sector and I just want to briefly, delve into your background in IT. After almost two decades of being in this kind of business, what have you learned over time?
In 1998, there were 800 black IT-owned firms of which, some have not survived and some are still with us. We’ve built a business over the years, which we felt (my late brother and I) that we needed to build a sustainable business that wasn’t a ‘once off’, with sustainable revenue as well as creating opportunities. In 2003, when we did the deal with Comparex, we had 3500 people – Comparex and Business Connexion combined. Today, we have 7000 employees in the business and I certainly believe that we can grow this business. One of the key parts is investing skills. By its nature, IT evolves at a rapid pace and part of it is spending time overseas, looking at trends, spending time with technology vendors like Microsoft, Cisco, and EMC and even some of the new Chinese ones coming on board, like Huawei. The key is to invest in skillsets and become relevant to customers.
When you started with your late twin brother, did you imagine that the company you started back then in 1996, that you would start where you started and grow your business the R2.7bn business that it has become?
The R2.7bn is value of the contract that Telkom is paying for the business today. Not in a wildest dreams did we think we’d be this significant, but we did have a bit of a vision. At that stage, we spent a lot of time with Microsoft and certainly, Bill Gates was one of the inspirations to building a business of this size. The key for us when we started this business (and remains one of the key drivers) is that we’ve always wanted to build a uniquely South African business, which was a reflection of the diversity and demographics of the country. It’s a journey. We were starting with [inaudible 07:01] gigs among our friends because in those days, people were a bit scared to get around computers. Today I think everybody else is comfortable around smartphones, behind a tablet, or a PC. What we envisaged then was to always build a uniquely South African company that reflected South Africa.
You stepped into your late brother’s shoes as the CEO of BCX. You and he were very close. How did that affect you personally – the fact that he passed on suddenly as he did, and how did that affect the company?
It was quite a hard time on a personal note, but one has to look at things in perspective. What we’ve been able to achieve jointly is a legacy, which I’m in a fortunate position to continue and I think it’s also given me the strength to want to continue. My zest for life, for Business Connexion, and for this IT space remains relevant. It’s unfortunate. It’s life. It can happen to the best of us. What was quite interesting was that the staff, our clients, our technology, and our partners…the support they’ve given me has been tremendous. Obviously, my family and friends have also been huge in being able to support me. I feel that there are many people, who want me to do well and to continue with the story of Business Connexion. It really inspires many young South Africans in that it is possible to start a business from grassroots level and be able to build it up. It all comes down to sticking to what you know. It’s been nearly a year. As much as it’s been painful, what I’m grateful for is the fact that the support we’ve received has been tremendous.
You started in your early twenties when you started your own business, which leads me to the next question. Many young South Africans (specifically black South Africans) are very angry that the promise of democracy and freedom has not provided them with the opportunities that many of us expected would go their way. We have substantial numbers of that group not being employed and not having entrepreneurial opportunities in this economy. What are your thoughts on transformation?
There are two sides to it as well, in terms of transformation. This economy has to create enough job opportunities for the young graduates coming through. Not every young graduate will be an entrepreneur. The key, which I always refer to, with young people starting businesses is, “Do not look for short term gains”. Business is about long term and if you look at some of the stalwarts in this country who’ve started businesses over the years – the likes of Brian Joffe with Bidvest -, these business have been going on for 40+ years (20/30/40 years). In terms of building a business, it’s a long-term venture. Many young people hope to be the next Zuckerberg with Facebook. A few people like Mark Shuttleworth who’ll come through a generation and be able to do those things – huge things that create a lot of wealth immediately. The key here is also that Government (specifically, in private sector) working hand-in-hand in stimulating entrepreneurship. When you travel outside the country, you start to realise that some of the country’s young people are more entrepreneurial. You see it in the streets and maybe, even in the informal sector. We have to engrave a culture of entrepreneurship in townships and villages, so that people do see entrepreneurship as part and parcel of life. It’s a skill, which can be taught in some areas, that people are able to see an opportunity but you need Government support and private sector support. When Ben and I started the business in 1996, it wasn’t the banks who were the biggest supporters, but people who saw potential in us and backed us to the tune of R4m as our start-up capital. Obviously, those people saw something they really liked. It was Software Connexion or the Connexion Group guys who saw potential in what we were doing and bought the story. We managed to repay the money that they loaned to us and grow the business because we always took a long-term view of our business.
Recently, Government published the new laws governing black economic empowerment. The codes were revised, etcetera. What is your view of the new codes and the reaction from the private sector? Do you see any keenness of willingness on the part of the private sector, to bring about this empowerment at a much faster pace than before?
As long as economic empowerment is seen more as a compliance issue in the economy, it will remain a compliance issue and people will find different ways of masking it or giving it a façade. Real empowerment (in my view) is seeing potential young, black businesses you could partner with and who are willing to learn from their counterparts in growing the business. There is merit in having to look at community-based/NGO’s getting involved in a broader based empowerment, but I don’t think it should be done at the expense of the entrepreneur. Young entrepreneurs need opportunities. When I look back at the likes of Christo Wiese and Brian Joffe, they built business over the years through hard work and they didn’t have to share from day one, in terms of white economic empowerment. They have done all those things through sheer, hard work. Entrepreneurs like us always feel a bit hard done by. The little that you’re working hard for…you’re looking at having to share on a broad based empowerment and sometimes, some of this broad based empowerment is that you’re bringing people on board who may not be able to add value. I think there’s a key for us, as well as for South Africans, that we want to give back. In particular, entrepreneurs like us want to give back to the communities we were raised in. We want to give back to communities that need assistance and we have to find smarter ways of reinvesting. If you look at what’s happening in America, many successful billionaires and millionaires are putting money back in terms on philanthropy. The key is that in driving philanthropy in our country, we also want to be able to see the results in that we’re putting money in people that are going to use it. I would rather be involved from a broad based economic empowerment with education funds because that’s where they key is. From a Business Connexion point of view, we have NGO’s in education that offer value. They contribute towards uplifting society and it’s not simply a case of people getting dividends and we don’t know what they’re going to be doing with those dividends. We can see real results. Where the private sector may feel a bit undone is that most people have been saying, “We loathe having to empower few individuals who are politically connected rather than empowering communities via NGO’s”. In that way, it’s safer to get that. Honestly, that does not stimulate the economy, though. We need to identify young entrepreneurs whom we can assist in growing as part of the economy.
Energy is a major problem/challenge facing the nation at this time, which raises a broader question about the state-owned enterprises and the so-called developmental role they’re supposed to play in the economy to stimulate it, to provide services, and of course, free the economy to create the opportunities that we spoke about. What is your take on the state-owned enterprises and comments on Eskom?
Brian Molefe is probably ‘hot-bedding’ in terms of driving Eskom, but I think he’s probably the right person who should probably have been appointed much sooner. I think he has the skills to be able to make Eskom relevant. He might fix all the electricity/energy crises that we have in the country but through the legacy he’ll leave behind, through some of the work he’s done; he will create opportunities for young engineers to come through and be part of Telkom. What you’ll see with [Brian? 15:57] Tanner there is a different skillset coming through. Young people will be coming through the system as he’s done at Transnet with much of the apprenticeship and artisans for whom he’s created opportunities. The role of state-owned enterprise in general, and which is important from leadership perspective is that state-owned enterprises also provide a catalyst for the economy as well as for leadership development. I’ve always felt that if we can have succession plans and leadership that stays longer and can make an impact in state-owned enterprise, it will create an opportunity for Government or the private sector as well, for people to come through state-owned enterprises and contribute meaningfully. If you look at some of our state-owned enterprises and what’s happened over the years, people don’t stay in a job for more than two or three years. It’s a golden handshake and unfortunately, some of them have to leave under a cloud. That does not help our cause in terms of transformation and state-owned enterprises being the catalyst to do that are key for leadership development and changing the economy. In addition, they are allowing disadvantaged individuals who were never part of the mainstream. Today, South Africa should asking, “How many black parlours have we been able to produce in the last 21 years” or “How many engineers have we been able to produce with Eskom in the last 21 years of democracy?” I think that’s key, going forward.
What is your outlook on the economy, going forward? What do you think?
I think that we’re in for tough times and globally, it’s not only South Africa. If we could fix the energy crisis in this country as well as settle down the issues around labour, we have the potential to recover out of this. More than ever, this country needs to create enough opportunities and jobs. Many young people are angry and rightfully so. They go to universities and they aren’t given opportunities. We see it in our business. The number of interns who apply for positions – and I’m sure I’m not only talking for Business Connexion – is huge in terms of the number of young graduates who are roaming the streets, looking for opportunities. We’re going to have to accelerate the economic growth and create new opportunities in this economy. My outlook remains cautious positive. In 2017, we’ll probably start seeing a rebound in the economy.
Isaac Mophatlane is CEO of BCX. Thank you for talking to us.
Thanks for having me, Tim.
