Telecoms costs still constrain BPO

The cost of telecommunications in SA is still too high, says the business process outsourcing (BPO) sector. This hampers its competitiveness, despite the promise of cheaper connectivity through new undersea cables.

Seacom landed last July, and the Eastern Africa Submarine Cable System (Eassy) should be up in August. The West African Cable system is also due to arrive soon.

However, the cables have not significantly forced down the cost of connecting internationally, says umbrella body Business Processing enabling SA (BPeSA).

Acting CEO Bulelwa Koyana says the increase in bandwidth should have reduced costs for players in the sector that use voice over IP to connect internationally. However, the reduction in costs has not taken place as the industry had hoped.

A few years ago, the BPO industry, through the Department of Trade and Industry, applied to Telkom for a concessionary rate. However, this bid was abandoned after it was decided this would be anti-competitive and would be thrown out by the competition authorities.

Koyana says some costs have come down, but not nearly enough. She explains that telecoms costs account for between 17% and 30% of the typical expenditure of running a BPO centre. “It is a significant factor, but many other factors come into play, such as the cost of labour, which is 60% of total costs.

“If we can get telecoms cost down to India and Philippine levels, it will close the cost gap by 15%. That will make a material difference to our international competitiveness,” adds Koyana.

However, House is hopeful that, with the imminent landing of Eassy, market forces will result in more competition, which will drop prices. “Every cent counts in competitiveness at the moment,” she notes.

Interim CEO of BPeSA Western Cape Fagri Semaar says telecoms costs have come down about 40% in the past three years. “Despite the cost reductions, SA is still a relatively expensive destination when it comes to telecommunications.”

Seacom CEO Brian Herlihy explains that “the unbundling of the local loop is essential”. He says it is this final link between the end-user and the network that is keeping costs high.

“It's happened almost everywhere in the world, but when you look at the different ISPs locally, they are completely disadvantaged because they have to pay fees to Telkom to reach the end-user. That change will create the biggest impact in SA.”

In April, communications minister Siphiwe Nyanda said his department would issue a policy directive to ICASA to conclude the unbundling of the local loop. This last mile is expected to be opened up to competition next year.

Telkom, which owns the local loop, says it has been involved in ICASA's process around local loop unbundling and will continue to be involved. “Telkom is awaiting ICASA's direction regarding what the next steps in the process will be,” says Ajith Bridgraj, Telkom's senior specialist for media relations.

ICASA did not immediately respond to a request for a progress report on the unbundling process.