[By Duncan McLeod]

Telkom has sent its customers a newsletter with their bills this month in which it tries to rubbish the uncapped broadband offerings introduced by MWeb and other service providers. Instead, it shows how Telkom is still stuck in the past.

The newsletter article — headlined “Broadband: put a cap on it!” — doesn’t once mention MWeb by name, but the Naspers- owned Internet service provider is clearly in the incumbent fixed-line operator’s sights.

Telkom tells its customers: “The introduction of uncapped broadband was supposed to bring with it pure Internet joy. But it’s become very clear that all that joy is subject to terms and conditions that are hidden in the small print. It’s unfortunate, but that’s what you get when you buy uncapped broadband in SA.”

This is rich, coming from a company that for years has engaged in price gouging and whose control over telecommunications has kept the rate of broadband penetration abysmally low.

Instead of managing to convince customers to stay with Telkom’s Internet service provider, I’ll bet the newsletter has had the opposite effect. People aren’t stupid.

The problem is not that Telkom hasn’t introduced uncapped offerings, it’s that it has done its best to give its customers as little bandwidth as possible for years, while charging as much as possible.

Telkom’s broadband customers are like Oliver Twist in the Charles Dickens novel. “Please, sir, can I have some more?”

When Telkom first introduced digital subscriber line (DSL) broadband in SA nearly a decade ago, it set a monthly bandwidth cap of 3GB. Only recently has it increased its top-end package to 5GB and thrown in some “free” local bandwidth, which is of little use to anyone.

Consider that since Telkom introduced DSL, the Web has gone from a mostly static text- and picture-based experience to one where video — via services like YouTube — now makes up a considerable proportion of online traffic. A 5GB cap doesn’t begin to cut it anymore.

Thankfully, there are alternatives. Seacom, the new undersea cable on the east coast, has allowed progressive service providers such as MWeb and Afrihost to slash per-gigabyte bandwidth prices and introduce the first relatively affordable uncapped offerings.

Instead of reacting, as it should have, to defend its market share from assault, Telkom has chosen to wage an ill-thought-out marketing war. Consumers will vote with their feet.

The question is, how long will it take Telkom to wake up to the fact that it’s no longer the only game in town and that it has to react quickly to market changes?

Part of the problem is that Telkom still controls the local loop, the portion of the network that connects you to your Internet service provider. This means that even if you buy your bandwidth from a third-party service provider, Telkom is still receiving most of your monthly spend. It’s one of the last remaining areas where Telkom is still able to impose monopoly rents, and it continues to do so, especially for higher-speed DSL.

The solution is local-loop unbundling, a complex process where the other telecoms providers are given access to the incumbent operator’s local loop. It’s meant to happen by November 2011, though regulatory deadlines in SA have an unfortunate habit of slipping.

When it does happen, though, the access costs for broadband should tumble, triggering a fresh price war.

If Telkom’s strategy then, like now, is to diss its competitors and refuse to react to market changes, it really will be up a muddy creek without a paddle.