New Telkom CEO Papi Molotsane this week addressed the media for the first time since his appointment in September.
Telkom has recently come under fire from the Independent Communications Authority of South Africa (Icasa) and various consumer groups for its high tariffs. Its monopoly will also face competition for the first time when the looming second national operator (SNO) comes into play.
The Mail & Guardian Online asked Molotsane about Telkom’s high ADSL and call tariffs, its profits, the SNO and why he thinks he’s capable of running South Africa’s biggest telecommunications company.
1. To what do you attribute Telkom’s excellent profits?
To the people of Telkom, to the implementation of strategies that were adopted some few years ago, and to the focus on the business ethics and the business principles, or the basics of business. Looking at issues of costs, looking at issues around efficiency improvement, looking at issues around revenue growth — it’s a combination of factors, but these are all driven by the people of Telkom.
2. Telkom has made excellent profits in the past couple of years. Why has that not been passed on to consumers by lowering call costs and internet interconnectivity costs?
Investors, you know, put money in the business with a hope that they’ll get good returns. The margins that we are making through Telkom are compatible with, if not even lower [than], the global counterpart. So, in terms of profitability, we’re not really out of kilter with the rest of the world. That’s the first part, in terms of our returns between investors and shareholders.
The second part is that what we have done. At the beginning of September, we were expected by the regulation [Icasa] to increase our tariffs by 0,1% and instead we reduced our tariffs by 3%.
Thirdly, we have constantly looked at our tariff structures. We have reduced our local minute rates to about 38c. We’ve also reduced our international rate to about R1,70 [per minute to the United States and United Kingdom]. So there is a constant review of our tariffs. When we find that it makes sense for us to review these tariffs downwards, we will undoubtedly do so.
Would you say that your profit margins are on par with other countries in the world?
They’re on par with other countries in the world.
3. What challenges do you expect to face now that you have the SNO on the horizon? How do you plan to overcome them?
Well, I think first of all it’s important for us to have competition. It’s important for the consumer to have a choice between Telkom and the SNO.
Having said that, the best man will win. We’ll have to differentiate our services relative to the SNO. We’ll have to come with innovative products that will delight our customers. We’ll have to exploit the new developments in terms of what we term simple trade services, offering products that incorporate voice, video and data. We’ll have to delight our customers through impeccable service levels.
There are a number of things that we’ve actually put together recently in our strategic plan to make sure that we differentiate ourselves from the SNO that is about to hit our shores.
4. Where do you think the SNO will compete in South Africa and how will Telkom negate it?
We expect them to hit the lucrative markets like government and the business sector. We don’t expect them to go on to the telephone or local lines because that business is not as lucrative. [We expect them to target] all business sectors. They’ll also look at government departments and government institutions.
Well, you know we have also incorporated in our plans for [the] next few years that we will lose some market share to the SNO. We expect to lose 10% to 15% over the next five years.
It’s competition, it’s liberalisation, it’s going to affect us, but hopefully we are going to do our best to minimise the impact on our business.
5. Why do you think there’s been such recent opposition to Telkom, from the likes of Icasa and various consumer groups?
I’m a new guy [laughs]. I’ve seen this thing happening before I joined Telkom. A number of issues were raised about the cost of telecommunications, about the service levels that Telkom renders.
To be honest with you, I haven’t seen a lot of interaction with the people who are complaining. I think the problem that we have as an organisation is perhaps we’re not reaching out. We’re not talking to our clients. We’re not explaining to them what the problems are in our business. There are some times that clients understand when we have problems. We need to just go and talk to our clients.
We have a fantastic skills base in Telkom. We have people who are well renowned in their areas of business strategies, who are respected by their peers, in a world-class telecommunications company. We don’t talk about it. We don’t orchestrate the good things we do. I think, by and large, we really don’t sell ourselves.
What plans do you have in place to rectify this?
I think you have to make sure that people are aware of the skills base that we have. Two, that people are aware of the constraints that you operate under. Three, that people are aware of the plans that you have to improve service levels.
6. How vital is telecommunications in South Africa?
Without telecommunications, you will not be in contact with the rest of the world. It is vital in a sense that it is an area that keeps us in touch with the developed [world], with the rest of the world. It is vital in a sense that, globally, I think that perhaps it’s one of the most dynamic industries. If we don’t invest in it, we will be left behind in terms of the new information [and] communications era.
We have seen the convergence of information technology and communication. If you ignore these developments, you will be in darkness. You will not be in touch with the world.
There are areas that we can exploit on the internet side that will help improve the current needs of our country — of different countries. And that will help also on the issues of telemedicine [and] education. So, it’s vital. It’s vital to the economy of any country.
We’re now able to transmit video through telephone lines. Things are changing.
If it’s so vital, why does Telkom make it so expensive?
I think that one has to look at the benchmarks of the users in terms of determining the cost of telephone[s] in this country. Benchmarking exercises will tell you what you want them to tell.
If you take a company like Telkom or a country like South Africa and compare it with the cheapest telecommunications countries in the world, it will probably come up as the most expensive.
But if you take a basket of countries around the world, a cross-section of countries around the world, we’ll possibly come somewhere in the middle. So, the issue about telecommunications costs being so high, yes, perhaps there are areas where we are high, but there are areas where we’re also competitive.
I don’t buy the issue around our costs being absolutely appalling. I think there are areas where we are, but there are areas where we’re not. The challenge for us as an organisation is to look at these areas and say, what do we do to make sure that we balance our tariffs and we review our clients’ infrastructures.
Would you regard ADSL as one of the areas that is expensive?
Well, I regard ADSL and broadband as one of the critical areas that can contribute to the development of any economy. When you look at the tariffs as they stand right now, they’ve actually been reduced. Yes, they were high. People could say that they are still high. But we are constantly reviewing the price to make sure that we can become competitive with the rest of the world.
If you look at some of our ADSL offers at the beginning of, I think it’s January this year … we had monthly instalments of about R680 and today that instalment is about R480. So, we’re reducing the cost of ADSL. We have to constantly review structures and tariff structures.
7. South Africa has slipped in the internet rankings compared with countries overseas, and this is attributed to the high cost of connectivity in South Africa. How do you respond to this criticism?
Well, when you look at the broadband penetration [and] ADSL penetration in this country, we are sitting at about 2% penetration. That’s 2% of our fixed lines [that] have got access to broadband.
When you compare us with other international markets in the US or Europe, they’re sitting at about 20% to 25%. So, undoubtedly, we’re not doing very well on that score. But when you look at our strategic direction moving forward, the fact that we want to move away from relying on voice revenue and rely more on data revenue, which is ADSL and broadband, you’ll see that we going to be very serious about accelerating our broadband penetration.
We are looking at different ways of speeding it up. We are looking at different ways to ensure that we come up with competitive pricing structures that will encourage more and more uptake of broadband.
What we have done also is we’ve just spoken to various stakeholders. We’ve spoken to our shareholders, we’ve spoken to our customers, we’ve spoken to our employee base, we’ve spoken to [the] regulator in this country, and we put all these things together and we’ve formulated a plan in terms of what our business [is], or where our business should go. And this plan is not my plan, it’s not Lulu’s plan, it’s a plan of the people of Telkom. In that plan, broadband is identified as a critical aspect of our business.
I’m a big fan of broadband myself.
8. Recent studies prove that ADSL fees in South Africa compared with other countries are exorbitant. What is the reason for this?
Well, any service at its inception will come with a pricing structure that reflects its penetration and reflects how it’s accepted or how it’s going to be phased into the market place. As time goes on, when the product matures and improves, one expects that the prices would come down. So, we have a new product right now, we have very low penetration, and as I said earlier on, we will look at the pricing activity of broadband and assess where should we picture in terms of a pricing cap to increase our broadband penetration in volumes.
We will look at all these areas. I have no qualms about constantly reviewing [ADSL tariffs].
So as ADSL penetrates the market a bit more, and more people start using broadband, the price might come down?
The price could possibly come down. And not only that. We are building an internet-protocol network. And this internet protocol network will perhaps reduce maintenance costs. And when you do that, you reduce those costs of a maintenance site. That should also benefit your clients moving forward. So, there are a number of initiatives we’ll embark on to make sure our tariff structures are competitive compared to the rest of the world.
Are you finding an increase in ADSL usage in South Africa?
So far, I think we have over 95 000 [customers], 100 000, and we’ve actually increased that by near 160%. And I’m still not satisfied. I think we can do better in terms of accumulating ADSL. So, I expect to see more effort along these lines.
When will you bring the price of broadband down, considering the increasing number of ADSL users?
That’s a difficult one because one has to look at the market and one has to look at development to determine whether you should pitch a price at a certain level or not. It’s not a question of just dropping the price. It’s a question of accepting exactly what the market can take, what the market requires, what the market can afford. When you do that analysis, you can determine exactly where to pitch your price of a service that you render. So, it’s not as easy as just saying the price comes down by 10%.
9. Why did Telkom see a need for ADSL capping?
It’s mainly because the system was [being] abused in the past. We are not the only countries who have done that. There are other countries in the world that have actually embarked on similar [strategies] to stop the abuse. I don’t know much about this capping actually, to be honest with you. But it’s really an endeavour to stop the abuse. You give people a certain maximum download capacity and they go beyond that.
[Telkom has introduced a per-gigabyte billing system and hard cap for its ADSL offering, which will affect internet service providers (ISPs). ISPs have previously been reselling 30GB-capped ADSL products from Telkom at 3GB-cap prices with unlimited downloads.
The reason Telkom introduced the new capping system is to stop deliberate abuse of these 3GB ADSL accounts that are bought by users from ISPs. ISPs will therefore be billed based on how many gigabytes they use and will be held responsible for the total consumption of their clients. They will need to monitor and determine capping of each user individually.]
10. You’ve never dealt with telecommunications before. Why were you chosen as the new CEO of Telkom?
I’ve got a track record of leadership. I’ve got a track record of business performance. I’ve got a track record of delivery and I do not subscribe to the notion [that] you have to be a telecommunications expert to be able to lead a telecommunications company.
So, you need business [skills], leadership skills, people skills, strategic [plans], [an] ability to think forward and let the technical guys who are knowledgeable about this business do their job. And I’m lucky I’m an engineer. I catch on very fast [laughs].
Have you learnt much in the past couple of months?
I’ve been through a rigorous learning curve. But I tell you what is exciting. The people who I am dealing with, who are in my management team, have actually been quite open with me in terms of helping me to understand the nuances within the telecommunication environment.
I’m working with people I think who are sure of themselves, who are sure of their skills basically, who actually see me not as a threat but as a person who will complement the leadership team who are moving forward.
So, I’m busy building this team. We are starting to work together, we are starting to understand each other and I think the future bodes very well for all of us.