Telkom cannot use the fact that it is relatively overstaffed and unproductive to hold back local-loop unbundling (LLU).

The Independent Communications Authority of South Africa has rejected arguments the fixed-line operator has put forward about the impact of its so-called “access-line deficit” and has determined that this deficit is of “no relevance” in crafting the LLU regulations.

These findings are contained in an “explanatory note” published to accompany the draft LLU regulations that were gazetted in September 2013. LLU involves opening up Telkom’s last-mile copper network — and, it now appears, the access networks of other players, including mobile operators — to rivals.

The authority will hold public hearings on LLU on 17, 18 and 19 February 2014. The hearings are likely to prove a stormy affair, with Telkom already warning in a written submission to Icasa that it intends fighting the regulatory intervention tooth and nail.

Telkom uses the profits it makes from voice and data services partially to offset losses it makes from basic line rental — this deficit is known as the access-line deficit.

In a written submission to Icasa in October, Telkom warned that LLU would lead to competitors targeting high-value customers while only paying for the cost of the line. “LLU is therefore likely to adversely affect that overall financial sustainability of the network.”

It warned that LLU would “put pressure on the business to raise its prices, which will reduce the affordability of even its most basic services”.

But Icasa has chosen to disregard the access-line deficit argument. In the explanatory note, published below this article, it says it does not agree with Telkom on the scope and the scale of the deficit.

“The principle cost make-up of the deficit is related to the cost of employees and labour-related costs,” it says. “It is imperative that Telkom manage its labour costs in line with an efficient provision of services.”

Icasa says it is “evident” that Telkom’s business model and approach to providing services “needs to be adapted considering that the market dynamics have changed considerably since 2000”.

“The authority notes the difficulties faced by the shareholder [government] in terms of employment sustainability within the ICT sector as well as at Telkom specifically,” it continues. “However, this social challenge, faced by the entire ICT sector, is not a justification for preventing the provision of access to any form of local loop.”

It says Telkom provided it with “copious information about the purported access-line deficit”, but that the information provided was “not convincing”.

“The authority therefore determines that the purposed access-line deficit is of no relevance in determining access to the local loop.”

Icasa says elsewhere in the explanatory note that the proposed LLU regulations affect not only Telkom, but also mobile and fixed-wireless operators and other telecoms network licensees.

It says it is required by law to develop the regulations and that a regulatory impact assessment will therefore not be carried out as this is only necessary in instances where Icasa has a choice in drawing up new regulations.

“It should be clearly understood that the scope of these draft regulations is considerably wider than simply the copper twisted pair local loop,” Icasa says. “This means that Telkom is by no means the only licensee that will be expected to make its facilities available to other licensees. This changes the emphasis and the dynamics of the discussion on the subject significantly.”

The authority says, too, that there is “no intention that any licensee providing access should suffer any financial harm”.

“In terms of access to any form of local loop (fixed-line copper, fixed-line fibre and/or wireless access), the network owner has the right to set the price to ensure future sustainability of its own private network services and future investment commitments.”

Icasa says that a telecoms licensee seeking access to another operator’s network is “obliged to pay the capital costs of setting up their access to the local loop and any associated usage fees”.

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