Telkom was losing R144/month or more on every fixed-line in service as recently as a couple of years ago and the fixed-line operator estimates that local-loop unbundling (LLU) could lob as much as R2,2bn/year off its revenue line if the regulatory intervention is introduced in full.

The information is contained in PowerPoint slides presented at an internal Telkom forum in April 2011 and which came into TechCentral’s possession this week. It shows that the fixed-line operator considers LLU, whereby rivals are given access to its last-mile copper network into homes and businesses, to be one of the greatest regulatory threats to its financial wellbeing.

After years of delay, the first step towards unbundling — providing bit-stream access to Telkom’s copper network — was supposed to be implemented at the beginning of this month. But the latest deadline was missed because Telkom and the Independent Communications Authority of South Africa (Icasa) apparently remain embroiled in discussions about how the process will work and how the operator will make up for the money it loses on each fixed-line in service.

Icasa has said that addressing this loss, called the “access-line deficit”, is a necessary precondition for unbundling to take place.

According to the 2011 Telkom presentation, it cost the company R256/month on average to maintain each fixed line in service. Although Telkom raises the line rental subscription charges every year — a standard Telkom line today costs consumers R130,15/month (excluding VAT) — it’s still far below the cost of servicing those lines. Also, pensioners, people over 70 and prepaid customers pay lower line-rental fees.

Telkom says the impact of unbundling will be largely dependent on a number of variables, including the form of LLU that is implemented and the degree of cost recovery allowed by Icasa. It says the revenue impact could be between R200m and R2,2bn annually.

The document also shows there is some willingness by Telkom to support unbundling. In a section detailing recommendations, it says that it supports a managed introduction of the intervention, starting with bit-stream access. It says full unbundling should be introduced only in outlying areas at first and must be used to drive competition in underserviced parts of the country. However, it warns the regulations must allow Telkom to fully recover the cost of the access network.

The document says that in order to minimise the potential impact of LLU, Telkom should “proactively revise prices of enterprise and consumer products and engage in aggressive broadband campaigns to drive penetration”.

The operator argues that factors such as the fact that only a quarter of its exchanges are profitable and 11% of them for 65% of its revenue — making them soft targets for competitors — means it’s more vulnerable to the effects of LLU than some of its peers elsewhere in the world.