Telkom surprised the telecommunications industry last week, announcing sweeping price cuts to its wholesale broadband services that should lead to real reductions in retail fixed-line Internet prices.
The cuts — which are said to go well beyond what the company agreed to with the Competition Commission as part of a settlement for past anticompetitive abuses — are part of a plan to position Telkom’s wholesale arm to service “exponentially increasing demand for copper- and fibre-based broadband services”.
Telkom is cutting the prices of a range of wholesale services, effective 1 May. They include wholesale fibre broadband access and IP Connect, used by Internet service providers.
The price reductions come on top of a series of cuts to IP Connect, the cost of which has now effectively been halved over the past 18 months. IP Connect fees are a big input cost for Internet service providers.
In 2013, Telkom and the Competition Commmission reached a settlement deal in terms of which the operator agreed to pay a hefty fine. It also agreed to “functionally separate” its retail and wholesale divisions and to implement wholesale price reductions. But Prenesh Padayachee, the MD of Telkom’s wholesale services division — and until recently the chief technology officer at Telkom rival Internet Solutions – said the price reductions announced last week go well beyond the agreement with the commission.
So, what’s Telkom’s game plan? It would appear from talking to the company’s executives that there is a genuine desire to separate fully the wholesale arm of the company from its retail division and to preempt further regulatory intervention in this regard.
The company appears to be drawing some lessons from the way that BT (formerly British Telecom) agreed with UK regulator Ofcom 10 years ago to spin off Openreach as a separate infrastructure business. Openreach provides access to BT’s infrastructure into homes and businesses on fair, equal and transparent terms to all service providers in Britain.
The change in thinking by Telkom — in the past an abusive monopolist — is nothing short of remarkable. Though Internet service providers remain sceptical about whether the leopard has truly changed its spots — and they are right to be cautious — the language used by the company’s management team has changed markedly in the two years that CEO Sipho Maseko has been at the helm. Supported by a strong and supportive board, Maseko has set about changing Telkom’s corporate culture fundamentally and modernising the company so it can better cope competitively in an industry it once dominated but in which it is now just another player.
Perhaps nothing illustrates these changes better than Telkom’s decision to move out of the giant, unwelcoming concrete edifice in downtown Pretoria that’s been its home for decades and into a smart, campus-type environment in Centurion. It’s the sort of work environment typically favoured by fast-moving technology companies, not lumbering telecoms incumbents.
Whatever the reasons for it, Telkom’s change in approach is long overdue. For years, the company has watched as consumers abandoned its network for mobile alternatives. Some of that substitition would have happened anyway, but some of it was the direct result of Telkom’s poor service levels and high prices.
Though mobile networks have made great advances in delivering high-speed broadband to consumers in recent years, they are still no match for fixed lines. The scarcity of radio frequency spectrum precludes mobile operators from offering consumers the same affordable uncapped or high-cap products that are possible on wireline networks. Even newfangled 4G/LTE networks aren’t nearly as well suited to delivering online video services like Netflix, the US company set to launch services in South Africa soon.
This has become apparent to the mobile operators, with both Vodacom and MTN planning to spend billions of rand in the coming years building fibre-to-the-home infrastructure and setting themselves up in direct competition with Telkom. Perhaps it’s this looming threat to its core business that has finally focused minds at Telkom.
Of course, South Africa would have been much better off today if the company had had this eureka moment 10 or 20 years ago, working with the industry to grow fixed-line broadband instead of trying to crush the competition at all costs.
Still, better late than never.
- Duncan McLeod is editor of TechCentral. Find him on Twitter
- This column is also published in the Sunday Times
