Has the country's foremost value-destroying monopolist finally seen the error of its ways? On the surface, that seems to be the case.
In mid-July, Telkom meekly agreed to pay a R200-million fine for anticompetitive abuses committed between 2005 and 2007, and to split its wholesale and retail businesses. TechCentral reported last week that chief executive Sipho Maseko apologised to Independent Communications Authority of South Africa (Icasa) councillors for Telkom's "fractious and adversarial attitude". This is certainly a change from the litigious bullying that has characterised the past decade of Telkom's history.
Telkom might have seen the light but it's more likely the company is feeling the heat of the realisation that its legacy businesses are shrinking inexorably, and that it has nothing significant with which to replace them. Its fixed-line business generated R29.6-billion in revenue in 2003. It generated R30.6-billion in 2012. Adjusting for inflation, that amounts to an effective decline of R17.5-billion over the past decade.
The source of this rot is clear; Telkom had 4.8-million fixed-line subscribers in 2003 but only 3.9-million by 2012. In 2003, its network carried nearly 33-million minutes of telephone calls. By 2012, it was barely managing 19-million minutes. Considering fixed-line telephony still accounts for over 40% of Telkom's revenue, its executives are naturally concerned. Like any good monopolist, Telkom has not allowed a declining market to affect its profits.It earned R7.3-billion from its fixed-line business in 2012 compared with R4.3-billion in 2003.
Much of this additional profit came from its data services, where Telkom was able to extract rents by charging exorbitant rates. But adjusting for inflation, Telkom's real profit growth for the decade was a paltry 4.6%. So even though Telkom has enjoyed a decades-long monopoly on fixed line telephony and data, it has not been able to keep up with inflation. Considering the incalculable damage its monopolistic tactics have caused our economy, it could have at least made hay while the sun shone.
Telkom has been insulated from reality for so long that any competitive instincts it possessed have long since atrophied. Its ill-fated venture into mobile telephony and data is an amusing case in point. Launched in 2010, its mobile network has stalled at 1.5-million subscribers and continues to bleed billions of rands a year. In a classic case of shooting the messenger, it has abandoned the original 8ta brand in favour of the dubiously generic "Telkom Mobile".
So embarrassing are these numbers that Telkom has stopped separating out its mobile operations in its financial statements. And now Telkom's last refuge, the "local loop", is about to be unbundled. This network of copper cables, spread throughout South Africa, is what you use when you phone someone on a landline or connect to ADSL. It is the only network over which Telkom still has an absolute monopoly. The unbundling process will force Telkom to allow competitors to use the network at reasonable rates.
Local loop unbundling has been delayed countless times since 2006, but it may finally be under way. Icasa has submitted its draft regulations to Yunus Carrim, the new communications minister, and if all goes according to plan, the draft will be approved within a fortnight. That may be wishful thinking, but even a further year of delay is not enough time for Telkom to prepare for the disruption of unbundling. It made over R10-billion from data in the past financial year – nearly 30% of its total revenue. It will not be able to sustain such revenues when it has to compete for customers in the open market.
To their credit, Telkom's new leaders do seem to recognise the need for change. If they hope to keep the company afloat while their legacy businesses die, they will need to cuddle up to wholesale data customers such as internet service providers (ISPs). Considering they have been fighting those same customers in court for the better part of a decade, this realisation is long overdue. And they had better hurry. As the penetration of fibre optic networks increases, Telkom is in real danger of being cut out of the market completely. Fibre is faster, cheaper to maintain and, unlike copper, does not get stolen for scrap. If ISPs and other service providers can connect directly to customers without going through Telkom, they will jump at the chance.
Telkom may not realise it, but millions of South Africans loathe its brand and everything for which it stands. If its leaders are truly sorry, then they should put their money where their mouths are. For starters, they could unbundle the local loop without any further fuss, drop interconnect fees and reduce line rentals. Nothing says "I'm sorry" like positive actions.