Telkom’s fight for relevance
With mobile networks increasing their coverage and reducing their broadband prices, Telkom has to do more to stay relevant. By Craig Wilson.
South Africa has an estimated 6,7m broadband subscribers, yet Telkom’s broadband digital subscriber line (DSL) products account for only 10,6% of this number. There aren’t even a million DSL connections in service — and that’s including businesses. For most South African consumers, mobile broadband is broadband.
According to research by World Wide Worx published in December, the number of broadband subscriptions has grown by 128% since the end of 2010. There’s no shortage of demand for broadband among consumers, but there is a distinct lack of affordable options, especially in fixed services.
Telkom’s DSL service costs R165/month for a 1Mbit/s connection, R299/month for 2Mbit/s and R425/month for 4Mbit/s. And that’s just for the basic broadband line rental. On top of that you have to add nearly R150/month for a telephony service, whether or not you want to use your line for voice calls, and a data subscription from an Internet service provider.
Telkom claims it loses money, on average, on every fixed line in service (calculated using telephone line rental only), and so making a telephone line an obligatory precursor to DSL is, it says, a necessity. That means before you’ve even paid for any data, a fixed-line costs more than R300/month at the very least, and that’s more than some mobile broadband packages.
This year, South Africa will have four commercial fourth-generation long-term evolution (4G/LTE) mobile broadband networks and, thanks to the precedent set by Vodacom, the cost of LTE data will be the same as it is for older-generation 3G data. And the cost of that data will continue falling for the foreseeable future.
It’s already possible to purchase 10GB of data from Telkom’s own mobile arm, 8ta, for less than R200/month. Alternatively, until February, the data hungry can get 100GB of Cell C data, valid for a year, for R2 499. If you consider that a year of Telkom’s cheapest line rental fees alone amounts to R3 760,44, it’s amazing fixed-line broadband subscriptions are as high as they are!
Of course, fixed lines have their advantages. For example, it’s not yet feasible to offer low-cost uncapped products on mobile networks because of a lack of available radio frequency spectrum. Uncapped has quickly become the norm for fixed-line services in South Africa, thanks mainly to MWeb’s championing of it. And uncapped is a necessary precursor to video on demand and other “over the top” services where operators like Telkom are going to have to compete.
Also, fixed lines provide consistency in throughput and reliability that trumps cellular alternatives. However, in a market as price sensitive as South Africa’s, quality will often play second fiddle to price.
Telkom has launched 8ta to compete in the mobile space — after it sold its 50% stake in Vodacom. The business is loss-making and will remain so for the foreseeable future. At the same time, the number of fixed lines in service continues to fall — it’s now below 4m for the first time in decades.
The pressure is building. The company needs to reduce its cost base — it’s overstaffed, for one thing — so that it can compete more effectively on price. But it can’t take the corrective action needed while government — with its desire to save jobs — remains a major shareholder.
At the same time, it needs to increase investment in its network. Already, it’s committed billions of rand to taking fibre closer to people’s homes and businesses and offering higher-speed connections — up to 40Mbit/s — as it moves to see off the threat of LTE networks, which are already offering real-world speeds, in some areas, of more than 40Mbit/s.
Given the scale of the investment involved, and the time it will take to complete, it’s worth asking whether Telkom would have been better advised to be more aggressive in future-proofing its network by being more aggressive in rolling out high-speed fibre directly into homes. It’s unlikely mobile networks will ever be able to offer the same performance capabilities of fibre connections, which can offer access speeds of 1Gbit/s or even 10Gbit/s.
Fibre to the home in South Africa is inevitable. Is it really worth pouring billions more into a decrepit copper network? Telkom needs to be playing a long-term game, and that means simply fibre, fibre and more fibre. If it doesn’t do it, someone else will eventually.
Telkom says it wants to encourage fixed-line broadband uptake. It’s going to have to work a lot harder at convincing consumers why they shouldn’t be considering mobile alternatives from Cell C, MTN, Vodacom and its own 8ta unit. — (c) 2012 NewsCentral Media