Telkom increase hits business

By Nicola Mawson for Telkom

Johannesburg, 29 Jun 2009

Telkom has been lambasted for making it more expensive to do business, instead of cheaper, as local three-minute calls rise by 11%.

The telecommunications operator's local call charge for a three-minute call, made during standard time, will increase by 11% from August, if the Independent Communications Authority of SA accepts the proposed hike.

Telkom's announcement was made in the same week communications minister Siphiwe Nyanda said not enough work had been done to reduce telecoms costs.

Local calls, up to 50km away, will go from 39.2c a minute during standard time - from 7am to 7pm - to 43.4c a minute, while calls made during callmore time will increase to 20.7c, from 18.6c.

Telkom says the minimum charges for local calls remain unchanged with effect from August, while the per-second tariffs increase by 11% during standard and callmore times.

The minimum charge of 65c, which includes value-added tax, covers the first one-and-a-half minutes of a call made in standard time, and the first three minutes and nine seconds during callmore time.

As a result, a one-and-a-half minute call will remain unchanged in cost; while a three-minute call in standard time will go up to R1.30, from R1.17.

Inflated increase

Chris Gilmour, an analyst with Absa Investments, says Telkom's increase on local three-minute calls made during office hours is ahead of inflation in percentage terms. “Eleven percent is significantly ahead of the rate of inflation.”

He says, although the cost per minute will only increase by under 4c a minute, this extra cost will be seen at business level, and will have to be passed onto customers, which will affect the rate of inflation.

Gilmour says the company should be reducing costs, not putting them up as competition heats up.

World Wide Worx MD Arthur Goldstuck says: “At a time Telkom should be looking after its customer base, it is alienating it.”

He says the 11% increase will up the cost of doing business, as well as boost the negative sentiment towards Telkom and fuel the move to mobile.

In addition, says Goldstuck, fixed-line rentals keep going up and have never once come down. “They are punishing their most loyal customers.”

Infrastructure development

However, Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says: “It does make business more expensive, but I think it's necessary.”

She believes Telkom needs to invest in its infrastructure to take advantage of the undersea cables.

Neren Rau, CEO of the South African Chamber of Commerce and Industry, says the increase will be a strain on business, even if it is a few cents a minute.

However, Telkom may need the increase to develop its infrastructure and connect more people in rural areas, which would benefit the economy, adds Rau.

Not all bad

However, Telkom's tariff for long distance calls of 50km and further, remains unchanged. Its overall price increase application was for 1.7% across its basket. “That 1.7% hides a multitude of sins,” says Gilmour.

Telkom Closer 1 subscription charges will increase by 7.4% and Closer 2 by 5.6%. PrepaidFone, both on a weekly or monthly system, as well as postpaid residential and business line rental charges, will see an increase of 5.5%.

PrepaidFone Waya-Waya's annual subscription will increase from R120 to R130.

Telkom has not increased the prices of its DSL, DO Broadband and TelkomInternet services. Instead, it will give customers extra bandwidth. TelkomInternet customers with 2Gb and 3Gb offerings will now be upgraded to 3Gb and 5Gb offerings.

“Telkom has an ongoing commitment to provide our customers with the best possible service at a fair price, within the context of current economic realities,” says Telkom's group executive for national sales and marketing, Godfrey Ntoele.

“Customers of Telkom's data products will see considerable savings, with data tariffs in the basket decreasing by 6% overall,” says Ntoele.

Last year, Telkom applied for and received a 2.4% increase to tariffs at a time when most industry analysts were expecting the company to drop prices.