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Spending more on telephony than your bond?

Many South Africans are paying more on their monthly phone and Internet bills than on bond repayments, according to Doug Reed, CEO of Data-Pro, an AltX-listed company that competes with Telkom by providing voice telephony over the Internet.

”Don’t get me started,” he says. ”This is a real bugbear of mine. I have a family with three kids and I know what it costs to have five cellphones, Internet broadband and fixed-line phones in the house. The bill can easily run to R5 000 a month, which is more than most South Africans are paying on their mortgage bonds.”

A 2004 study by the Link Centre at Wits University says the telecoms sector generated an annual revenue of R74-billion last year, equivalent to 6% of gross domestic product (GDP). This is about double that of other middle income countries.

”Imagine what this costs the economy in terms of lost growth,” says Reed. ”We could easily be growing by about 2% more a year if we had a competitive telecommunications sector.”

Johan Snyman, a telecommunications analyst with First South Securities, calculates telecom revenue from the three cellphone companies and Telkom at R66-billion, adjusted for interconnect fees the cellular operators pay to Telkom for using its exchange. This is about 4,8% of GDP.

Rudolph Muller, who is a lecturer in business information technology at the University of Johannesburg and caretaker of the MyADSL website, says the broadband revolution now sweeping the world is passing South Africa by. ”There are just over 100 000 Internet broadband users in South Africa. Compare this with Spain, where 100 000 people signed up for broadband in May alone. Australia, where broadband is much cheaper and a better quality than in South Africa, is about to break the two million user mark. The slow uptake in South Africa is because of the astronomical cost of broadband, all in the name of protecting Telkom’s monopoly.”

A recent international comparison of telecommunications prices by the South Africa Foundation found South Africa had the most expensive broadband out of 15 countries sampled, and was nine times more expensive than the cheapest country surveyed. Businesses, too, are paying through the nose for their dedicated data and voice links. The South Africa Foundation report says the most startling comparison was on international leased lines, where South Africa is almost three times as high as the next most expensive country and 31 times more expensive than the cheapest.

This has prompted calls to ring-fence international fibre optic links such as the SAT-3 underwater cable from Telkom’s control and classify it as an essential service to help bring down the costs of international telecommunications in South Africa.

Telkom spokesman Xolisa Vapi replies that Telkom reduced its ADSL (enhanced Internet access line) prices in March as the number of subscribers increased, and plans a further reduction in August, with entry level broadband priced at R270 a month.

Earlier this year President Thabo Mbeki criticised South Africa’s telecommunications fixed line rates, some of which were 10 times higher than in developed countries. He promised a speedy liberalisation of the sector to bring relief to long-suffering South Africans, but only a few weeks later his Minister of Communications Ivy Matsepe-Casaburri appeared to back-track on an earlier commitment allowing Value Added Network Services (Vans) to provide their own infrastructure, which would allow them to set up rival networks to Telkom.

Vapi says Telkom is aware of the need to reduce its tariffs for both data and voice services as part of lowering the cost of doing business in South Africa. ”Recognising that our international bandwidth prices needed attention, we started rebalancing them in early 2003 with a 25% reduction. Telkom again reduced international private leased circuit [IPLC] tariffs by an average of 23% during 2004. IPLC prices via the submarine cable and satellite will be reduced by 28% in August this year.

”We reduced our international call rates by 28%, and by up to 50% to some international destinations in January 2005. National call rates are 10c down this year, while local calls increased by 5,5% due to the high cost of operating the local loop.

”We are currently preparing for a filing to further reduce national and international tariffs. In terms of the Independent Communications Authority of South Africa’s tariff regulation, the prices for Telkom’s services will come down in real terms.”

Stephen Esselaar, a researcher at the Link Centre, says it is easy to blame Telkom for the high cost of phone and Internet charges, but the real problem is the regulatory environment. ”I doubt the licensing of a second national operator is going to introduce much in the way of competition initially. Look at the cellphone market, where there are three operators but call charges are still relatively high.

”Ideally, Telkom should hive off parts of its non-core businesses such as Vans and its Internet activities, but the chances of that happening are low. After all, government is a 38% shareholder in Telkom, so it is encouraging it to pursue a policy of productive efficiency.”

Broadband opens up a range of new services such as Voice over Internet Protocol (VoIP), which dramatically reduces the cost of long-distance calls. A call from Johannesburg to London using, a VoIP provider, costs 14c a minute, versus Telkom’s peak tariff of R1,70 for the same call. That’s because VoIP users only start paying when the call intersects with a local exchange at the point of destination. Internet-to-Internet calls are free, other than negligible network costs.

Using Skype, it is cheaper to phone London than it is to call your neighbour in Johannesburg or Cape Town on Telkom’s fixed line service. Data-Pro is now offering business customers reduced local call charges by routing traffic through a service provider in London, then back to South Africa.

The Link Centre study says local call prices have doubled since the privatisation of Telkom, despite a substantial improvement in its efficiency and a halving in its labour force to less than 33 000 since 1997.

Muller says the high cost of broadband places it beyond the reach of poorer communities who stand to benefit in terms of cheaper voice charges and Internet access.

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Ciaran Ryan
Guest Author

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