By Duncan McLeod

The telecommunications regulator came under attack last week after it published a long-awaited framework on local-loop unbundling. It was accused of, among other things, failing in its mandate. But the truth is it has limited room to move.

The Internet Service Providers’ Association lambasted the Independent Communications Authority of SA (Icasa) for going soft on Telkom over local-loop unbundling, the regulatory intervention whereby the fixed-line incumbent’s “last mile” of copper cable is meant to be prised open to competitors.

Others went further, accusing the authority of kicking the process into touch and delaying the first and easiest form of unbundling — something called “bit-stream access” — by another year and full unbundling by several years.

Local-loop unbundling is seen as a way of spurring competition in the fixed-line market, driving down prices and fostering innovation and product development.

The industry is right to be upset after promises made by successive communications ministers were not met. Full unbundling was meant to take place by November 2011. By failing to tackle the issues in a much more comprehensive way than it has, Icasa has demonstrated once again that it is a weak regulator. Though there have been some signs of improvement in the past year, deadlines are still routinely missed and it bends in the face of legal threats.

This appears, at least partly, to be behind what happened last week. Telkom was going to take the matter on review in the high court if the framework and regulations (which didn’t materialise) did not meet with its approval.

But I’ve argued previously that unbundling is no cure-all for high broadband fees in SA. It may be the wrong intervention right now, for various reasons.

MWeb CEO Rudi Jansen has taken a pragmatic approach. He argues for intervention to force a reduction in the fees that Internet service providers pay Telkom for access to its last-mile broadband network and ending the requirement for the operator’s customers to pay both basic line rental and broadband line rental, even if they don’t use a fixed-line voice service. Full unbundling, he says, can wait. This approach makes sense.

Telkom has long argued that local-loop unbundling will threaten its financial position, saying its “access deficit” — where it is unable to recover the cost of servicing the average telephone line through its basic tele- phone line rental charges — could mean its business is imperilled if full unbundling is forced on it.

The group’s CEO, Nombulelo Moholi, told me last year it costs about double what Telkom charges in line rental to maintain the average access line. These figures are probably somewhat inflated, but even Icasa officials admit privately the deficit runs into billions of rand a year. But if Telkom hikes rental charges it will drive more customers away from its fixed-line network and into the arms of the mobile players, accelerating the trend of fixed-to-mobile substitution.

The access deficit is not an issue that can be dismissed, but it shows clearly that Telkom is an inefficient operator by world standards. It also means the company, which was given a five-year statutory monopoly to rebalance its tariffs, failed to complete the process. It would also be irresponsible of the regulator to disregard this and to push ahead blindly with full unbundling.

What all this shows is that Telkom has painful work ahead if it’s going to survive and thrive in a fully liberalised market. That government is a significant shareholder is a big problem for the company because it is unable to restructure and retrench to the extent it must to become an efficient, world-class operator. That is the real tragedy here.