South Africa: Let’s talk

South Africa suffers some of the highest telecommunications costs in the world. But with municipal authorities taking matters into their own hands, the outlook is improving.

FROM THE ECONOMIST INTELLIGENCE UNIT

It’s never easy for a monopolist to loosen its grip on a market, but if the frustrations of a group of South African consumers serve as a guide, the national telecommunications incumbent Telkom has found the spectre of liberalisation an especially bitter pill.

In January, the Telecommunications Action Group (TAG) published a full-page advertisement in the Mail & Guardian newspaper, calling for faster reform of the country’s telecommunications sector. The central bugbear of the 200 people who signed and paid for the advert stating that Telkom recorded R9.3bn (US$1.3bn) in profit last year while South Africans continued to pay "some of the highest prices for telephony services in the world." Outlining the group’s grievances, TAG co-founder Alastair Otter claimed to local media that consumers had gained very little while the minister of communications and the Independent Communications Authority of South Africa (ICASA) "fiddled" for 10 years.

Supporters of the campaign fear the high costs of bandwidth and telecommunications services are damaging the country’s economic prospects, with businesses either not able to operate profitably or simply not willing to invest. As the advertisement pointed out, broadband Internet access in South Africa is among the most expensive in the world – and certainly dearer than in African countries like Morocco, Egypt, Botswana, and Mozambique.

Worse than that, TAG claims, South Africans pay five times as much for a local call now than they did in 1996. Apparently it’s not unusual for a new fixed-line phone connection to take six months, if it happens at all. TAG accuses Telkom of being too quick to pay a R15m fine for failing to deliver basic services where “it was not economical to do so” while laying off staff – 35,000 in the past seven years – to protect its profitability. For TAG, this is nothing short of negligence on the part of the government, which owns a 38% in Telkom, and the industry watchdog, ICASA.

True, things are changing. But while a licence for a second national operator has been awarded, to Neotel, observers say it will still take time for consumers to feel the benefit, and that the overall pace of change is still too slow. "We believe that Telkom has been able to profit for too long as a monopoly and we call on government to immediately speed up the pace of telecommunications reform," says Mr Otter. "Reform is needed now."

Kicked into goal

In fact, there are signs of life at Telkom. On 23 February the company purchased Internet service provider Africa Online from unlisted London-based African Lakes Corporation for £10.32m (US$20m). The deal fulfills Telkom’s desire to stamp an e-footprint outside its home market by delivering customers in nine other countries: Ivory Coast, Ghana, Kenya, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. So keen was Telkom for the deal to go through, it paid a 35% premium on a rival offer by the Kenyan and US-backed Africa Telecoms Company. It may provide cold comfort to disgruntled customers in South Africa, but the telco claims its first foreign foray will enhance not just its geographic coverage but its service capabilities – and its revenues, of course.

The success of the venture remains to be seen, but other developments suggest South Africa’s communications industry is not stuck in the past. In December, the city of Cape Town announced plans to spend R400m over four years on its own broadband network. Part of the motivation, not surprisingly, is to avoid paying huge costs to Telkom, as well as earn money off its own network by selling off spare capacity and services to the private sector. The projections are that the city could save as much as R40m in the first year in telecommunications costs to Telkom and mobile phone providers. Aside from connecting some 220 public facilities such as libraries, clinics and administrative buildings, selling access to its network to third parties could raise more than R12m in its first two years of operation.

This is good news for local businesses. Late last year, Cape Town Regional Chamber of Commerce and Industry reported Telkom to the competition commission for engaging in "prohibited price discrimination" by a dominant firm, because the carrier was forcing small firms to use a more expensive digital subscriber line (DSL) service as opposed to cheaper options used by home subscribers. Telkom was finally persuaded to cut the cost of its business service from R800 a month to R362, more in line with charges for the home market.

At the end of February the city of Johannesburg announced it would follow suit, launching a Request for Information (RFI) to identify a partner to help build the Joburg Broadband Network Project (JBNP). As in Cape Town, the city wants to drive down telecommunications costs, while improving service delivery to a range of sectors. "The development of a city-wide broadband network has been in the pipeline for some time and is in line with international trends in municipal broadband deployment,” said Douglas Cohen of the City’s Department of Economic Development.

The project is driven by the ICT Sector Support Programme, which emanates from Johannesburg’s stated 2030 Vision. This calls for the development of a broadband network for the city as a key step in ensuring improved access to telecommunications services and to stimulate socio-economic development. But those behind the scheme are eyeing a more immediate goal. The network is also aimed at catering for the city’s needs leading up to the 2010 Fifa Soccer World Cup and the anticipated demand for telecommunications at that time. As China’s development boom attests in the lead-up to Beijing 2008, there’s nothing like the glare of the international spotlight to focus energies. And as in other countries, the rise of broadband – and internet telephony – should help the incumbent to raise its own game as far as its customers are concerned.

SOURCE: INDUSTRY BRIEFING