SA`s telecoms market failure

Since the inception of the Universal Service Agency, now the Universal Service and Access Agency of SA (USAASA), the digital divide has widened.

Dr Paul Cole, a consultant on telecoms and economics, told delegates at the Convergence, Broadcast and Telecoms Summit in Johannesburg this morning, that according to the ITU Digital Access Index, SA dropped six places, indicating the divide has widened.

In addition, there has been a 300% increase in the cost of a local three-minute call, making South African telecoms among the most expensive in the world.

Cole was presenting research undertaken on behalf of USAASA, which was completed in June last year. He said, despite the end of the monopoly in SA`s managed liberalisation policy, the country is still effectively serviced by a monopoly.

Such a monopoly indicated market failure, he said. "You are dealing with a very serious problem here."

Access prices are above the average prices in Africa and other developing countries, Cole stated. Furthermore, decreasing marginal costs by SA`s only fixed-line operator should have the effect of reducing prices, but prices are increasing. In addition, as fixed-line prices are going up, fixed-line use is falling.

Cole added the agency should have recommended policies to address these issues. However, even the rate of deployment of public phones has fallen since the agency`s inception.

He said the cost of telecoms services should be 0.7% of a household`s monthly income, but locally it is almost 3%. This results in basic telecoms access in SA being 440 times too expensive. Even if costs were not even 2% of monthly income, he said, 44% of local households could not afford basic telephony.

SA is also well below the average of developing countries in terms of delivery, Cole said. Developing countries are on average three times better on delivery. SA`s efficiency lags that of developing countries by 20% and Africa by 10%. He stated SA is not leading the developing world on delivery or cost of access.

Spend in the telecoms sector is also unusually high - usually it is 3% of gross domestic product, Cole reported. In SA is it more than 5%. "This means resources are being diverted."

Despite higher spend on telecoms in SA, which in 2002 amounted to R56 billion, the Department of Communications` 2003 budget gave the agency R15 million to double teledensity by this year. However, he noted, to achieve that target, the agency would require R80 billion or, at the budgeted amount, it would take 1 500 years.

Cole also pointed out that 75% of new lines installed in underserviced areas are disconnected, stretching this time frame to 3 500 years.

The Universal Service Fund, which is the agency tasked with subsidising the USAASA mandate, has been capped at R50 million. International best practice, he said, indicates a spend of between 1% and 2% of telecoms revenue. In 2002, this would have given it R540 million.

Cole contends the USAASA does not have sufficient internal capacity to deliver on its promises. The "weak and ineffective" agency and monopolistic exploitation cost SA R4.2 billion extra in telecoms in 2002. However, the social cost to the country is almost R100 billion a year, he concluded.