Reports this week of the likelihood that Telkom may raise the price of local phone calls highlights once again the urgent need for competition.
The legalisation of voice over Internet Protocol (VOIP) has shown the effect of competition in the international arena. This is where Telkom now faces most of its competition, and, as a result, the network operator has cut the prices of international calls to remain competitive.
Telkom slashed the cost of international calls by almost a third and long distance calls by almost 10% from the beginning of the year.
The side-effect of that is that Telkom now sees the need to raise the cost of local calls to recoup its investment in the local loop.
VOIP is hardly likely to take local-call business away from Telkom, and the lack of competition in this area means that as competition in other areas increases, this is where consumers are going to feel the pain as they subsidise price cuts elsewhere to allow Telkom to deal with that competition.
But not only consumers are feeling the pain. As local rates go up, the burden on small businesses also becomes increasingly unbearable. On the one hand, government is on a stated drive to nurture the small business sector, but on the other, moves like that of Telkom work to stifle those plans.
While we may be tempted to appeal to government to prescribe prices, this is not the answer. The only way costs are going to be lowered at home is for increased competition on the local front. The intervention by government must consist only of allowing for further deregulation of the market and permitting much wider competition.
If the cellular sector has shown us anything, it is that SA can support more than two operators.
Iain Scott, finance editor, ITWeb
Although the state has agreed to a second network operator, I don`t feel this is going far enough. If the cellular sector has shown us anything, it is that SA can support more than two operators.
North America - the US and Canada - shares an integrated telephone system with regard to the telephone number system, but the network is operated by several companies. The result of such competition is that local calls in most areas are free. Generally, the price of long-distance calls depends on the distance. And this in countries where VOIP has been legal for years.
I doubt whether SA has a large enough market to transplant that model directly, but if the country is serious about being competitive, and about growing small business, our own model needs a serious rethink.
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