Fixed-line operator Telkom is set to pay an additional R885 million in spectrum licence fees each year, after the Independent Communications Authority of SA's (ICASA's) new fee structure came into effect this month.
The operator recently told shareholders that for the year to March, basic earnings per share would slump by about 90%, because of several once-off items.
The issues affecting basic earnings include an operating loss from its mobile arm, 8ta, of R2.2 billion; a net loss of R950 million on its sale of Multi-Links; a R550 million impairment of iWayAfrica; and depreciation of R670 million on its network equipment.
Telkom said the costs would be “partially offset” by lower employee spending as R739 million was spent on voluntary employee severance packages in the previous year. Headline earnings per share, which strips out Multi-Links and iWayAfrica, would be 25% lower.
In the year to March 2011, the company turned over R33.4 billion, a decline on the previous year's R35.2 billion. Telkom reported net profit from continuing operations of R2.4 billion, down from R3.4 billion.
Effective use
Administrative incentive pricing of spectrum through regulations was introduced by ICASA in August 2010. Although implementation was delayed, the new regime has now come into effect.
It seeks to incentivise spectrum users to make the most effective and efficient use of radio frequency spectrum using higher frequencies and coverage in rural areas.
Previously, before the administrative incentive pricing structure came into effect this month, Telkom's annual licence fees cost it R37.47 million. This cost, according to an ICASA presentation, is set to increase to R922.5 million.
ICASA councillor William Stucke's recent presentation argued that spectrum is a national asset and that it is scarce. As a result, a way of managing frequency is to charge fees for its use.
Stucke said fees reduce the incentive to “hoard” spectrum, and frequency is not owned by a licensee, but rather that they have a “right of use”.
“The new system means significant changes for some operators. Some will pay much less, some will pay much more. Most won't be affected much, but everyone needs to know how much they will pay.”
Lower for some
The Internet Service Providers' Association (ISPA) has commended ICASA for the new regulatory framework. ISPA's regulatory advisor, Dominic Cull, said the regulations are designed to provide an economic incentive to encourage licence-holders to use spectrum efficiently.
Cull explained that point-to-point (PTP) links would become cheaper, especially in rural areas. The new pricing model moves away from a fixed price of R770 a MHz a link per annum, to one that takes into account different uses of spectrum and the need to ensure that licensees occupy appropriate spectrum for these uses.
“The annual licence fees payable for a PTP link will fall from tens of thousands of rands to, in some cases, hundreds of rands per annum.”
However, Telkom has a “bulk” licence structure and its fees will increase because of the changes.
In Telkom's latest annual report, it says it expects the then proposed “fee structure to substantially increase our spectrum fees, even though we are looking at various options to reduce this amount”.
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