The two cellular operators, Vodacom and MTN, have increased their rates to Telkom with effect from 1 April 1999. This rate increase will be passed on to Telkom customers from 7 April 1999.
It is anticipated that the increase of 10 cents per minute will result in a total annual revenue increase of some R127 million. This full amount will be paid over to the cellular operators, regardless of whether Telkom actually collects the money from its customers.
The arrangement around the rate increase by the cellular operators, and the impact thereof on Telkom, is based on an agreement entered into between Telkom and the cellular operators five years ago. This agreement allows Vodacom and MTN to effect rate adjustments and demand payment at the increased level from Telkom at their sole discretion.
The conditions of this agreement are further aggravated by the fact that the risk of non-payment by Telkom customers who make calls to cell phones is borne in total by Telkom. The cellular operators thus receive all monies billed to Telkom, without any risk associated with non-payment by customers.
The rate for a one-minute call from a Telkom phone to a cellular phone during 07:00 and 18:00 on weekdays will be R1.60. Of this amount, Telkom will receive only 21 cents, while R1.19 will be paid over to the respective cellular operators. The balance of 20 cents will be paid over to the government as value-added tax. The same arrangement will apply with regard to payment for calls in the other rate categories.
This rate increase is detrimental to Telkom, since the company stands to make heavy losses as a result of bad debt through expected non-payment. Of the total revenue increase of R127 million for the cellular operators, Telkom is likely to lose between R5 million and R10 million.
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