LLU: Telkom threatens to hike prices
Telkom has warned that it will cut back on investment in its network and raise prices for consumers if telecommunications regulator Icasa forces it to unbundle its local loop of copper wires into homes and businesses. By Duncan McLeod.
Telkom has fired a shot over its regulator’s bow, warning the Independent Communications Authority of South Africa (Icasa) that if it attempts to unbundle the local loop of copper wires into homes and businesses, the telecommunications operator may have no choice but to raise its prices in response.
The warning is contained in a written submission to Icasa in response to draft regulations on local-loop unbundling (LLU), the regulatory process whereby Telkom’s rivals will be given access to its so-called “last mile” network.
The submission, the covering letter for which is signed by Telkom group CEO Sipho Maseko, warns that if LLU is introduced it will benefit only a small minority of wealthy customers and businesses in urban areas to the detriment of most South Africans. It warns that LLU was a policy introduced in the mid-1990s in North America and Western Europe and has no place in South Africa’s telecoms landscape in 2013.
Telkom says that it invests, on average, R5,2bn/year in its network along with a further R200m/year on cable maintenance.
“We are also rolling out a next-generation network to bring advanced, high-speed telecoms services to South Africa [and] intend to invest over R10bn in this network over the next two to three years,” it says. “LLU would directly threaten [this network’s] financial viability [and] would also undermine investment incentives for the entire industry. This comes at a time when South Africa is desperately in need of investment and economic growth.”
The company also claims that LLU will “harm the large majority of South Africans who want to get access to affordable broadband”.
“LLU will allow competitors to target and cherry-pick the most profitable fixed-line customers,” the submission to Icasa reads.
“The only South Africans who LLU is going to benefit are therefore businesses and high-income households in urban areas with a fixed line. This will happen at the expense of the middle and lower income households, particularly those in rural and peri-urban areas in South Africa.”
Telkom says it uses revenue it earns from its high-value fixed-line customers to fund the maintenance and upgrade of its national network. “This revenue also helps keep Telkom’s prices down. LLU will remove this revenue, forcing Telkom to cut back on network investment and raise its prices,” it says.
“LLU is a policy that will make it harder for the majority of South Africans to access broadband, but which may benefit a small minority of customers in urban areas,” the submission continues.
“LLU therefore does not promote affordable communications, address the digital divide or help with the modernisation and growth of the South African economy.”
Telkom uses the profits it makes from voice and data services partially to offset losses it makes from basic line rental – this is known as the access-line deficit.
“The introduction of LLU would remove a critical source of this revenue because competitors would target these customers while only paying Telkom for the cost of the line. LLU is therefore likely to adversely affect the overall financial sustainability of the network,” it says. “This problem affects the access network as a whole, but will be particularly acute in the unprofitable rural areas of the country.”
As a result, it says, the introduction of LLU will make it harder for Telkom to finance the operation and maintenance of its national network. “It will also put pressure on the business to raise its prices, which will reduce the affordability of even its most basic services.”
It says that in other countries, eliminating the access-line deficit has often been a “prerequisite” for LLU so as to “avoid these negative financial impacts”.
“LLU is a policy that was introduced in the mid-1990s in the US and some European countries. The main fixed-line operators’ copper networks in these countries reached close to 100% of homes and, at the time, were virtually the only means of accessing broadband. This period was long before either mobile broadband or next-generation networks were built so these fixed-line operators had a virtual monopoly on broadband access. LLU was a policy that was designed to address this competition problem,” Telkom says.
“The telecoms landscape in South Africa in 2013 is completely different from America and Western Europe back in the mid-1990s. Here, there are many different networks competing to provide broadband services to both businesses and residential customers. Because there is no comparable problem in broadband access in South Africa, LLU is an inappropriate policy.”
In addition, Telkom warns in its submission that implementing LLU is not technically or financially feasible. “Telkom’s current network architecture makes LLU technically complex to implement and in certain cases technically not feasible as well,” it says.
“In our view, the time and financial resources [invested in LLU] would be better directed at enhancing investment in the network and assisting the department of communications to meet its goal of achieving universal broadband access for all by 2020.” — (c) 2013 NewsCentral Media