Rock. Telkom. Hard place
While Telkom is putting up broadband prices, the rest of the industry is cutting them. However, the company has a unique dilemma: how does it keep government happy while succeeding in an increasingly competitive market? By Craig Wilson.
Mobile operators are hacking and slashing data prices but Telkom’s fixed-line broadband and line rental fees are set to go up at the beginning of August.
The operator desperately needs to cut costs, increase efficiency and attract new customers, but it’s caught in a dilemma: it needs to maintain its ground in a rapidly evolving market and play nicely with government, its controlling stakeholder, which is dead against further job losses.
In an ideal world, Telkom would reduce the size of its workforce and improve operational efficiencies in an effort, among other things, to minimise its “access-line deficit”, the cumulative amount of money it loses on fixed lines before value-added services are included. In reality, cutting costs is far simpler said than done.
There’s the problem of maintaining Telkom’s extensive and ageing network. More importantly, though, there are the problems it would have in slashing jobs, especially with government as a shareholder. It appears unlikely government would allow the company to make the swingeing cuts that may be necessary for it to remain competitive next to its mobile rivals.
The Communication Workers Union, aligned to trade federation Cosatu, has government’s ear and a vested interest in keeping its members gainfully employed, even if this is to the longer-term detriment of their employer.
The ill-fated deal with Korean telecommunications company KT Corp highlights starkly government’s enormous influence over the operator.
Although many minority shareholders appeared to support the deal — and government itself was instrumental in the early stages of the talks – cabinet subsequently opposed and halted the deal in its tracks.
Allowing KT Corp to acquire 20% of Telkom’s equity was a move many saw as a chance to reinvigorate and rejuvenate the operator, particularly in light of KT’s success in creating 21st century infrastructure at home.
However, government — which would have seen its 40% stake diluted through the deal — argued the move would have hampered its aims to provide universal broadband access to South Africans. It’s far from clear how blocking the deal will advance that objective.
One of the greatest obstacles to universal access is the low fixed-line penetration rate in SA, a figure that will only change when fixed broadband becomes affordable enough to be considered a utility rather than a luxury.
Yet Telkom has again increased its line rental and broadband charges, alongside an overall increase, albeit below the inflation rate, in data and voice prices. This will serve only to accelerate fixed-to-mobile substitution and continue to erode the number of fixed lines in service. This, surely, is not what government wants.
If, as seems likely, the cost of mobile broadband continues falling, Telkom risks becoming largely irrelevant as its market abandons fixed services altogether.
One of Telkom’s unique assets is its new mobile network, 8ta. The company is able to leverage both fixed and mobile better than its rivals to provide converged offerings to consumers, including a single bill for fixed and mobile.
Telkom has made the first move in this direction in the business market. But it needs to get these offerings — and at good prices — to consumers and soon if it’s going to arrest the decline in demand for new fixed lines while maintaining and growing its current user base.
The communications landscape is changing rapidly and Telkom needs to be allowed to reshape itself from a lumbering giant into an agile and lean operator that can compete on price and service, free from government intervention that only serves to bog it down and limit its ability to respond in an unforgiving competitive environment. — (c) 2012 NewsCentral Media