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How the SNO can take on Telkom

Being a monopoly, Telkom is not used to competition. But its heavy-handed manner of dealing with any sort of competition has presented an ideal window of opportunity for the second national operator (SNO).

Being a monopoly, Telkom is not used to competition. But its heavy-handed manner of dealing with any sort of competition that may crop up in any of its spheres has presented an ideal window of opportunity for the second national operator (SNO).

Worth the wrath

Calls from a fixed line to cellphones have blown phone bills sky-high and that is why companies are prepared to risk Telkom's wrath.

The window I am referring to stems from Telkom's handling of least-cost routing (LCR), whereby a company routes calls to a cell number from its telephone system directly onto the cellular network. Telkom claims this is an illegal circumvention of its network.

But companies can save up to 40% of their telephone bills by using LCR so many are adopting the practice. Even the government's Department of Communications decided to use LCR at its Pretoria headquarters.

As monopolies are wont to do, Telkom is suing MTN, Nedtel Cellular, Nashua and Orion Cellular for adopting this practice, and has invited other interested parties to join the suit.

It originally also sued Vodacom, but it has a 50% stake in that company so has subsequently dropped the charges against it. One of the main reasons it did this is because Vodacom is making a mint from companies using LCR, and Vodacom is a huge contributor to Telkom's profits. With Telkom's listing, it did not want to have to tell potential investors that much of that revenue might disappear.

You cannot accuse Telkom of having principles, can you? That move is so unashamedly hypocritical it leaves me breathless.

Let us assume that Telkom wins its suit against the other companies and all businesses which use LCR (and there are many) have to stop. Then along comes the SNO and says, sure, companies can use LCR if they contract to its fixed-line network.

The SNO will obviously not make as much profit because it will not make any money from calls to cellular numbers. But it will certainly be a huge incentive for companies to switch to the new operator – calls from a fixed line to cellphones have blown phone bills sky-high and that is why companies are prepared to risk Telkom's wrath. And perhaps the SNO could negotiate a deal whereby it gets a small percentage of each call. That would be a win-win for the customers and for the SNO.

Telkom would find itself checkmated. Having sued the companies for using LCR and ensuring that its use off a Telkom network is illegal, it would hardly be comfortable doing an about-turn.

It is extremely difficult for a new competitor to take on a monopoly – all the advantages lie with the existing entity. In this case Telkom's knee-jerk litigation – another example of its arrogant management practices – opens a gap for the new operator which I hope it will identify and pursue. If it ever does get off the ground, that is.


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