Telkom, BPOs square off

By Christelle du Toit for Telkom
Johannesburg, 23 Jul 2008

Telkom says the cost of telecommunications is no longer an inhibitor for business process outsourcing (BPO) operations, such as call centres, to operate in SA. But industry players disagree.

According to Telkom SA group executive for strategy Steven Hayward, the country's fixed-line provider has brought down the cost of telecommunications significantly in the last couple of years.

Hayward was commenting on the recent speculation that Telkom was ready to announce reduced tariffs for the BPO sector - something he says the company is still working on in conjunction with government, but warns the new tariffs will not differ greatly from current costs.

"Telkom has reduced the price of international bandwidth aggressively over the last few years," says Hayward. "The prices are much lower, so there are fair margins charged now."

In 2006, Telkom reduced bandwidth costs by between 9.3% and 31.8%. In 2007, the average DSL price reduction was 18.2%, and this year the company filed for an average decrease of 7% on data products.

XHead = Not enough

Tim Marshall, international investor with the Dialogue Group, as well as for a number of international BPO investors, vehemently disagrees with Hayward's stance.

"That is typical monopolistic behaviour," he says. "Telkom has not done nearly enough - bandwidth in SA costs at least 10 times more than in Asia and the Philippines."

As an example, he quotes intentions by Amazon.com to move its call centre into SA a couple of years ago, but the quote it received comprised 70% of bandwidth costs, something Marshall says should account for only about 12% to 18% of such a quote.

In addition, the availability of bandwidth is an issue, he says - a sentiment that is echoed by Keryn House, CEO of ContactinGauteng (CiG).

"This continues to be a constraint as many of our BPO transactions require large graphics and data transfer, which simply cannot be done from SA unless those pipes are laid in the relevant areas," she says.

"We believe telecommunications is the last major hurdle to job creation in BPO sector."

Discrimination

Hayward says labour is a bigger expense for BPO operations than telecommunications and that there are call centre operations that have been in the country since before Telkom reduced its rates, leading him to believe "there are models that work, so it (the cost of telecoms) is not an unbeatable impediment".

There is great pressure on Telkom to reduce the operating costs of BPO operations due to their strategic importance in the national growth plans. The Department of Trade and Industry (DTI) has even availed special cash incentives for companies bringing call centres into the country, with additional incentives for those bringing seats into rural areas.

Hayward says Telkom has to structure any tariff reductions into a bigger package of government incentives, as cheaper telecommunications could otherwise be seen to be anti-competitive.

"We can't give a BPO a price that is better than for an ISP (Internet service provider) - that would be discriminatory - so the incentive scheme has to be approved by government," he explains.

However, Marshall is adamant that no incentives by the DTI, whether in partnership with Telkom or not, will succeed in bringing the big international players into the country if broadband costs are not addressed.

"Government, which essentially owns Telkom, is working against itself here," he says. "If it wants to create jobs in economically depressed areas, it needs to control the cost of telecommunications, otherwise it (job creation) remains just a good idea."