Bad economy ups Telkom rates

By Candice Jones for Telkom
Johannesburg, 23 Jun 2008

Rate hikes, rising fuel costs and another electricity price increase were the deciding factors for Telkom's proposed 2.4% overall tariff increase, says the operator.

"Economic pressures, including things like the interest rate hikes and fuel costs, have had a serious impact on business," says Godfrey Ntoele, Telkom's group executive of national sales and marketing operations.

The utility filed its 2008 tariff adjustment with the Independent Communications Authority of SA (ICASA) on Friday. If approved by the authority, the new tariffs will become effective on 1 August.

While many consumers have greeted the 2.4% increase with relief, analysts are surprised that prices have not decreased overall. "Telecommunications prices are meant to be going down. Throughout the world, DSL prices have dropped substantially," says MD of BMI-TechKnowledge Denis Smit.

He says, while there is some reality to Telkom's suggestion that economic pressures are driving up the business's operational costs, Neotel's prices are still highly competitive. "I think Telkom is misreading the market, and they [Neotel] will probably be pleased with Telkom's announcement."

Frost & Sullivan ICT industry analyst Lindsey Mc Donald says the increase may well be warranted; however, she adds that the true test will be in Neotel's response. "The two companies are working in the same economic environment, and if Neotel doesn't raise prices, we will have to rethink Telkom's increases."

She says consumers are already under pressure in terms of the cost of telecoms and the decision will put even more pressure on them.

Telkom says it needed to balance operational costs without putting too much pressure on the consumer. According to Ntoele, the increase could have been as high as 17.2% -‑ using ICASA's regulatory formula.

"We have to be consistent in our decisions with respect to our tariffs. If we want to be the preferred partner, we have to be as affordable as possible. This really is why we chose the 2.4% overall [increase]."

He says Telkom has committed to the 2.4% despite the unstable economic environment. "Our biggest challenge will be to pull through the next financial year, with more interest rate hikes on the cards and petrol going up again, as soon as this week."

The company has essentially left the costs of its entry-level Internet products unchanged. "Penetration of Telkom Internet is still one of our challenges. It is critical for us to ensure those customers already using the services for education and connectivity are still gaining value."