Is this a changed Telkom? - TechCentral

Is this a changed Telkom?

Duncan-McLeod-180-profileTelkom 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.

Fixed line trumps mobile for high-bandwidth applications

Fixed lines trump mobile alternatives for high-bandwidth applications

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

14 Comments

  1. Chrisjan Botha on

    Telkom have upped the telephone rental recently if memory serves…so no – smoke and mirrors methinks….

  2. bloemie20203 on

    I can’t wait till I can get fibre to my home – maybe just another year or so. I’m done paying Telkom so much money for line rental. Over the past 10 years it’s over R100,000 for a telephone line that was probably installed in the 1980’s, and I still have unstable internet.

    Telkom is going to get a huge surprise when fibre networks are in a mature stage and people realize that they no longer have to pay Telkom R400 a month just because they use Telkom’s telephone line for internet.

  3. Greg Mahlknecht on

    Yup, the IP Connect reduction helps middle-upper class clients, the only place Telkom has any kind of competition from the FTTH players. The low-end of the market got shafted and their barrier to entry became higher with the rental.

    Telkom have always been pretty good at responding to market pressures – long before Maseko came to the helm. That’s the problem, though – they respond to minimize losses, not move first to gain customers, it slows their decline, but the decline is happening every year – and the phone rental increase showed it’s business as usual… one day, someone else is going to make a play for the poor at which point Telkom will drop the rental cost, not because of great leadership, but because there’s no other option.

  4. Dave Baker on

    I am happy if we can see 2 Telkoms
    The Wholesale Telkom that sells wholesale services to retail companies (hopefully transparently without favour) and Telkom Retail which faces the customer.

    IPC costs comprise of 50%+ of ISP costs (according to the ISPs anyway)
    If Telkom further drop the price of FTTH line fees then great.
    Of course it is up to the SPs to drop prices. Of course if the wholesale component drops prices it only takes one or 2 SPs to set the cat amongst the pigeons.

    Yes, at the lower end (who dont buy ADSL or fibre) the situation is bleaker (as Greg asserts). Of course Telkom perceive they dont have to defend there (also as Greg says)

  5. Danny Baromen on

    I still have a firm belief that someone other than Telkom will be the first to get me fibre/fixed line internet access long before Telkom decides to back-track on their idea of refusing to give me a phone line…

  6. Please do not upset the ancestors!
    Ivy is still out there and ready to take us all back to the Morse key era…be afraid.
    She’ll be BAAAACK.

  7. We deal with Telkom Wholesale on a daily basis. We’ve seen the visible changes in the past decade, but more so, accelerated changes since Sipho Maseko took over.In the past few months there’s been progressive changes with Prenesh Padayachee at the helm of Wholesale. With plans of high speed internet via vdsl, wfbth, affordable ipc and lower saix prices, needless to say, I’m a big Telkom Wholesale fan at the moment…

    The retrenchment they underwent is a blessing in disguise in some way. We’re meeting new blood at Telkom with different ideas and a pro active approach. To account management and service deployment.

    Looking forward to their move to Centurion. It will motivate their team to have a fresher outlook for sure…

    Telkom Wholesale is surely on the right path..!

  8. Hi William, congrats on the new gig 🙂
    WFBA= Wholesale Fibre Broadband Access ,Layer 2, needs IPC.
    WFBTH= Wholesale Fibre Broadband To Home , Layer 3, this is an acronym we use in the office when we refer to our FTTH product…and not a Telkom service.

    Apologies for confusion, we say these acronyms all day long and forgot its our own term… Telkom’s term is WFBA.

  9. William Stucke on

    Thanks, Mohammad, on both counts 😉
    Always difficult to remember what’s common knowledge and what’s arcane jargon!

  10. ChantOlive on

    R100k??? So you say for line rental you paid on average 10K per year or R815 per month?? wow…. that’s about 6x the actual line rental… I call BS on your numbers…. what prize do I get?

  11. bloemie20203 on

    Well before you call bullshit go and do your homework. I pay just a little over R600 a month for line rental. I pay R170 to be able to make phone calls and R400 to have dsl. Not to mention it was a lot more expensive a few years ago, especially with dial up. So yes, I wouldn’t be surprised if it’s near the R100,000 figure. It’s at the minimum more than R80,000.

  12. bloemie20203 on

    At close to R600 per month just for line rental, not to mention how much money was spent in the early days on dial-up, then yes the figure is very close to R100,000. Before you call BS use a calculator.

  13. I’ve had the highest speed DSL since it started… I know what I have paid… and its nowhere near R100K… but then I have always had a mind for numbers