Western Cape Business News

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INFOTECH: Lower Telecoms Prices


Recent Western Cape Business News

The long suffering telecommunications consumer in South Africa has endured endless assurances of lower prices. However, the industry appears to be long on promises but stunningly short on delivery. Even with the laborious process of deregulation and the eventual licensing of the second network operator, the notion of very low or no-cost calls remains a dream.

“Back in 1989, people could make local calls for free in the United States,” says Snowball Effect CEO, Eugene van der Merwe, “While in this country, we still see prices going up every year by five or ten percent.”

Ours is a market in which conspiracy theories swirl, vested and conflicting interests coil thick and fast, and the grip on the market by those in power remains tight and tenacious.

“The theories are many and varied; the communications Minister, Ivy Matsepe-Casaburri, was supposed to help bring costs down, but didn’t. Telkom and Vodacom ascribe costs to interconnect fees, while the rumours of political meddling in the process of deregulation won’t go away,” says van der Merwe.

Since government earns massive revenues from its stake in Telkom, it finds itself in an awkward position of potentially killing the goose which lays the golden egg for it…again and again. “Government knows full well that lower telecommunications prices means heightened competitiveness for business on one end of the spectrum, and greater opportunity for the poor on the other. But it has to balance that equation against the substantial monies it receives as Telkom’s single biggest shareholder,” van der Merwe points out.

But what about the much heralded entry of the second network operator? This event was widely vaunted as the catalyst which would drive cost down. Indeed, expectations of a reduction in cost of up to 20% were considered reasonable as Neotel readied for launch.

In reality, the price differential is more like 7%.

Back to the conspiracy theories. Could the telecommunications market be in the grip of a cartel, fixing prices to maximize profitability from a public already beaten into submission?

Van der Merwe opines that the people who pull the strings (or the fixed lines) have a domino effect to worry about. “A price war won’t benefit either; Telkom, for example, has a price protection clause in its contracts with corporations. If any licensed operator can provide the same service at a 10% or larger reduction in price, it will match it. In effect, that means there is an element of price fixing.

“However, all pricing is confidential with these operators.”

But this also makes sound business sense, concedes van der Merwe. “Especially where the second operator is concerned, it has an investment to recoup. Like any good business, it therefore wants to charge just as much as the market will bear, and no more.”

Yet more sweet and sour hope is on the horizon and despite all the disappointments, the spirits of industry veterans like van der Merwe somehow still rise. “Seacom might have an impact…but Telkom will still play a part as it controls delivery across the country. Other major operators like MTN, Neotel and Vodacom might be busy laying cable with Dark Fibre Africa, but that takes years and is expensive,” he says.

Meanwhile, there is some pressure from businesses and consumers and there is an overall perception that prices are slowly coming down – probably more as a consequence of complicated pricing structures and clever marketing. “It has been a long road and we are on the doorstep of better pricing. But we are still not there yet,” van der Merwe concludes.

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