Storm has stirred up the Telkom profitability argument, saying the partially state-owned utility's comments that rate hikes are unavoidable are "unjustified and indefensible".
In response, Telkom criticised both Storm and the media for misunderstanding the profit model.
Storm's statement follows recent press articles quoting Telkom CEO Sizwe Nxasana as saying domestic tariffs could be increased "in the short-term" to protect profits and due to the cost of running the local loop.
Nxasana also said that since Telkom dropped its international call rates in January, it had seen an increase in long-distance and international call traffic.
However, Storm says such an increase should be condemned as an unjustifiable abuse of Telkom's monopoly position.
Telkom's rebuttal states that Storm doesn't understand where its profitability should be measured.
"Telkom continues to charge consumers and business high tariffs for fixed-lines, even as it is forced to reduce some international rates to fair, market-related prices as technologies such as voice over IP are legalised," says Storm joint-CEO Tim Wyatt-Gunning.
"Telkom's claim that it needs to still get a return on investment from its expenditure on network roll-out is not justified by fact."
Raking in the profits
He says Telkom made a net profit of over R4 billion last year, and has raked in a total of R10.523 billion in profits since 2000, while spending less in real terms on infrastructure to build an acceptable local telecommunications capacity.
"Our local call charges are among the highest in the world, and phone costs are already a massive burden for both business and individuals, especially the poor. Telkom's claim that it 'spent a lot of money rolling out our network and is still in the process of reaping returns on investment' is misleading and cynical."
He adds that telecoms operators around the world are able to offer high-quality services at a fraction of the price South Africans have to pay, while still being financially viable. "For Telkom to claim that it cannot provide voice services at rates that are competitive internationally is an admission of failure on its part."
Wyatt-Gunning says Telkom has made massive profits every year without making anything near the investments in the fixed-line system it needs to have made to allow SA to be competitive in the information age.
"None of the hard facts support Telkom's assertion that it is struggling to make money, or that it is investing its huge profits in telecoms infrastructure in SA in any kind of meaningful way. Fewer South Africans have fixed-line telephones today than they did in 1998," he says.
Hard analysis
The International Telecommunications Union says the cost of a three-minute peak time local call in SA is consistently higher (often two or three times higher) than nearby southern African countries (Botswana, Madagascar, Mauritius, Namibia and Mozambique).
A study of comparative markets (SA, Malaysia, India and SADC), conducted by Telecon and Spintrak for the International Finance Corporation in November 2004, found that SA is the most expensive. It also found that while these countries have consistently reduced the cost of local calls, Telkom has increased rates by as much as 100% over five years (1998-2003), and increased them again both last year and this year.
According to Storm's analysis, Telkom made a net profit of R1.5 billion, R1.6 billion, R1.2 billion, R1.6 billion and R4.5 billion in 2000 to 2004 respectively. Even as its fixed-line voice-minutes have been stagnant for four years, the revenues it gathers have mushroomed, and the amount it has spent on infrastructure development and upgrade has dropped steadily, he says.
Telkom's "capital expenditure to revenue ratio" dropped steadily to 12.5% for 2004, he says, and is less than a third of what it was in 2000 (all figures from Telkom's financial statements).
Wyatt-Gunning says there is no justification to increase local call rates because of the drop in international call rates and some other limited services such as ADSL.
"Telkom's revenue in the first half of 2004 (source: Telkom half-year report) shows that local calls (including line rental) form 32% of total revenue at R2.9 billion. National calls form 21%, fixed to mobile 40% and international 7% of total revenue."
Wyatt-Gunning says that in January 2005, Telkom increased its local call costs by 10%, generating R0.3 billion extra revenue, with an additional 5% rise in cellular call costs generating another R0.2 billion. This was offset by a 10% drop in national call costs (-R0.2 billion) and a 30% average drop in international call costs (-R0.2 billion).
"We estimate Telkom still cleared an additional R0.1 billion in profit and that is before accounting for Telkom's recent admission that it has captured more international traffic since then. A further raise in local call charges is going too far."
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