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Telkom reverses monopolistic thinking

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 28 Apr 2015
Extensive network investment allowed Telkom to reduce wholesale prices across a range of its broadband products.
Extensive network investment allowed Telkom to reduce wholesale prices across a range of its broadband products.

Last week's sweeping wholesale price cuts by Telkom mark a move away from the monopoly thinking of the past and, together with increasing competition, SA's telecoms landscape is slowly levelling out.

This is according to industry watchers and comes after Telkom - the state-owned company that essentially owns SA's telecoms backbone - introduced price cuts of up to 63% across a range of its wholesale broadband services on Thursday.

While Telkom says the ultimate goal for the wide-ranging cuts (including IP Connect, fibre broadband access, Metro Ethernet and SAIX dedicated access offerings) is to increase broadband penetration in SA, it is also allowing for increased competition in the space.

This is a marked improvement on the Telkom of yesteryear, say analysts, and a step towards mending a historically strained relationship between the incumbent and the around 400 licensees it serves.

In August 2012, the Competition Tribunal found the South African telco guilty of abusing its dominance in the telecoms market between the years 1999 and 2004.

In 2013, Telkom and the Competition Commission reached a settlement, whereby the company would pay a penalty of R200 million and institute a functional separation of its retail and wholesale divisions. It also included monitoring arrangements of its future conduct, and wholesale and retail pricing commitments for the following five years, estimated to yield R875 million in savings to customers.

Melting monopoly

ICT expert Adrian Schofield notes Telkom has struggled to break away from the monopoly thinking of the past, "[which was] exacerbated by the exclusivity period when so-called managed liberalisation was introduced".

He explains, because the wholesale market feeds Telkom's competitors in the end-user space, "it can be hard for Telkom managers to understand why those competitors should get better margins". Schofield sees the relationship now "mending slowly".

Ovum analyst Richard Hurst says, although this was not the core objective of Telkom's latest price cuts, it may be one of the positive spin-offs from the move. "Perhaps the relationship in the past has been strained, but certain small facets are changing with the increased competition in the market, which may be changing this."

Consumer win

Meanwhile, end-users stand to benefit too, say analysts.

Prenesh Padayachee, MD of Telkom Wholesale Services, says the wholesale price cuts - introduced in a bundled approach following extensive network investment - were fully intended to be passed on to the consumer.

"The reason for the end-to-end price cuts was that they will in theory be passed on to the end-user."

He says further cuts, to Telkom's resell DSL product, can be expected within the next two to three months. "The [recent price cuts] were not the end point, but just one of the revisions we plan to make across the entire product portfolio."

Schofield notes last week's price cuts will help offset the increase in line rentals and slow down the impact of inflation on this particular input cost, while high-volume Internet users should be able to get better deals from service providers.

Hurst says wholesale cuts are "certainly good news" for consumers - whether this means lower prices or more value for existing communications rands being spent.

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