Bandwidth price cuts for BPO investors

15 July 2008

State telecommunications company Telkom has announced its willingness to work with the Department of Trade and Industry’s incentive programme by significantly dropping the costs of bandwidth for the business process outsourcing and offshoring (BPO&O) industry in South Africa.

BPO involves relocating business processes that a company usually performs in-house to a third-party service provider, such as a customer care or call centre, to carry out on behalf of the company. Outsourcing becomes offshoring when the third-party service provider is located overseas.

“We do not expect to make any profit from the BPO sector,” Telkom group executive for strategy Steven Hayward said at a national BPO&O conference in Durban last week. “We are prepared to do this for the department’s incentive programme and the BPO industry.”

In 2004, Hayward said, two megabits of bandwidth cost R250 000 a month, which was “absolutely exorbitant”. This had gone down to R200 000 a month in 2005, R135 000 a month in 2006 and R105 000 in 2007.

“This year the price for the same amount of bandwidth will be R88 000,” Hayward said.

He also announced that Telkom was now offering its multi-protocol label switching (MPLS) technology – which has voice carrying capabilities and is far less expensive than its equivalents – to the local industry at R50 000.

US market ‘under-exploited’

Craig Reines, managing director of US-based BPO giant TeleTech, which recently set up a facility in Cape Town, told the conference that South Africa should be at the top of the list when it comes to business process outsourcing and offshoring.

India, he noted, had a BPO industry that has grown by over 500 000 jobs since 2004, but unlike South Africa had suffered two major terrorist attacks and four significant natural disasters in that time.

Over the same period, another of South Africa’s competitors, the Philippines, had had six terrorist bombings, 50 media assassinations, three attempted coups and seven super typhoons, as well as earthquakes registering above 7.5 on the Richter Scale.

Reines asked why South Africa was under-exploiting the BPO opportunities that existed in North America, despite its being the United States’ 10th largest trading partner.

Trade and Industry Minister Mandisi Mpahlwa echoed Reines, telling conference delegates that while the Euro-zone would remain a strategic BPO market for South Africa – “as we get to deal with their service needs in real time” – the United States would be targeted for its potential.

The minister explained that as Americans were getting ready to go to bed, South Africans were getting ready to go to work, “and we could therefore deal with their service requirements overnight, allowing the problem to be dealt with by the time they arrived back at work the next morning.”

Industry poised to grow globally

Mpahlwa said the BPO&O industry was expected to have a global value of around US$50-billion in 2008 and to grow by 50% per annum over the next three to four years, creating an additional 3-million direct jobs worldwide.

“However, it is also anticipated that there will be some unmet demand, as existing centres will not be able to maintain or grow their supply for a number of reasons,” including talent and infrastructure “bottlenecks” in traditional BPO centres such as the Philippines.

At the same time, the global increase in prices had forced many companies to cut costs, particularly in the United States, creating an added incentive for businesses to shift certain functions, such as after-sales service and data processing – overseas.

“What this means is that a window of opportunity exists for us to further develop the sector in our country, and to do so as rapidly as possible,” the minister said.

Support programme

“Certainly the evidence exists that rapid development is possible,” he added, noting that R658-million in investment value had been attracted, and more than 25 000 direct and indirect jobs had been created, since the launch of the government’s BPO&O support programme in 2007.

This programme includes a BPO&O investment incentive comprising an investment grant of between R37 000 and R60 000 per seat, and a Training and Skills Support Grant – to help cover the costs of company-specific training – of up to R12 000 per agent.

Mpahlwa said the department would be looking to raise these incentives further still.

Andrew Briggs, sales group executive at Dimension Data, said that while the government had shown commitment to making South Africa’s BPO industry more attractive, the cost and ease of doing business in the country remained a concern.

Source: BuaNews