The Communications Users Association of South Africa (CUASA) says that while Telkom`s proposed average tariff increase of 2.7% for 2004 may initially look reasonable, it feels there are "puzzling claims and possible omissions" that could cost business and consumers millions next year.
"We are seeking clarity on various discrepancies associated with the proposed tariffs," says CUASA chairman Ray Webber. "It appears that Telkom`s increases could be around 1.8% higher than what they should be."
Telkom has clarified the increase, saying the pricing structure is in accordance with regulations. Telkom filed its 2004 tariff adjustments with the Independent Communications Authority of SA (ICASA) this week in accordance with the Telecommunications Act.
Current regulations impose a price cap on a basket of services of 1.5% below inflation, based on the year`s movement in the Consumer Price Index (CPI) measured at 30 September in the year preceding the increase.
In the Stock Exchange News Service statement on the pricing, Telkom said: "In the 2003 annual tariff increases, Telkom did not utilise the full allowable rate benefits. The amount carried over to the 2004 tariff increases will have a 0.5% impact on the allowable increase in tariffs."
"This appears to deviate significantly from our recollection of events surrounding the monopoly`s previous bout of rate hikes," says Webber. "Telkom`s increases for 2003 were surely made at the maximum to which they were allowed in terms of the Act. Where they find an extra half percent based on a previous period is a mystery to us.
"Yes, we accept that based on an incorrect CPI figure of 12.5% in September 2002, Telkom could, in theory, claim an increase of 11% in their tariffs for 2003. However, CUASA, other organisations and individuals were instrumental in bringing irregularities in the 2002 rate hike to the attention of ICASA. At the time, we conducted our own investigation into actual rate increases based on a large services company. We found that that actual cost increases deviated substantially from what Telkom claimed they would be," says Webber.
"ICASA provisionally approved Telkom`s rate hike at the time, pending their own investigation into the matter. ICASA later decided that the monopoly should forfeit R320 million in terms of these discrepancies. According to media reports at the time, Telkom stated that the R320 million equated to 1.5%, which they decided to forfeit in one financial year. Therefore, Telkom did not increase their rates by 11% in 2003, but rather by 9.5%. We feel that this did not leave a surplus of 0.5% to further add to their already high communication fees," he says.
"By our calculations, with a September 2003 CPI figure of 3.7%, Telkom`s increases should not be greater than 2.2%," says Webber.
"Furthermore, Telkom`s rate increases in 2003 were based on CPI figures which were later corrected by Statistics South Africa. At the time, it was reported in various media that Telkom`s increases were based on a CPI of 12.5%. It would appear that the official CPI for the same period at Statistics South Africa has now been adjusted to 11.2%.
"Even if Telkom is not required by the Act to adjust its figures in accordance with CPI corrections, surely they have an obligation to their clients to ensure a fair rate for their services," says Webber. "By this argument, Telkom`s proposed rate increases for 2004 are a further 1.3% off the mark."
Telkom clarifies
Responding to CUASA`s criticism, Nombulelo Moholi, Telkom chief sales and marketing officer, points out that Telkom`s annual tariff adjustments are calculated according to the current tariff regime regulated by ICASA, which is linked to CPI.
The formula implemented by ICASA is based on the year-on-year movement in the CPI as measured at 30 September 2003 less a productivity factor of 1.5%.
"Year-on-year CPI as at 30 September 2003 was 3.7%, which as CUASA implies, suggests that Telkom`s tariff adjustments should have been 2.2% (3.7% less 1.5%). However, the regulation that governs Telkom`s fees and rates also makes provision for the carry-over of allowable rate benefits that were not used in the year that they become claimable, to the next year," says Moholi.
"In the 2003 year, Telkom didn`t make full use of the allowable revenue benefits available to it. In July and August, we lowered fixed to mobile call charges to the three mobile operators, and in terms of the regulations, we could have increased the cost of another element of the basket of regulated services to compensate for this."
Telkom chose not to do this, resulting in a carry-over of allowable benefits to the 2004 year. " Fixed to mobile calls have a very heavy weighting in Telkom`s price-controlled basket and thus account for the largest portion of 0.5% carry over.As a result of the carrying over of these unutilised rate increases in the 2003 year, the allowable adjustment in 2004 increases with 0.5%. The increase for 2004 will therefore be 2.7% which is still 1% below CPI," Moholi says.
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