Minister adds four years to Telkom’s monopoly

COMMUNICATIONS Minister Ivy Matsepe-Casaburri has effectively handed Telkom another four years of monopoly in the landline telephony market, drawing criticism from analysts who say any further delays will hamper the government’s drive to reduce the costs of doing business in SA.

Matsepe-Casaburri told Parliament yesterday she was giving Telkom until November 1 2011 to unbundle the so-called “local loop”, which links the national telecommunications network to individual homes and businesses.

Although the minister said “the unbundling process in SA should be urgently implemented,” the reality is that Telkom will have at least another four-and-a-half years to further entrench its market dominance.

Telkom, 38%-owned by the government, has long resisted unbundling the local loop, arguing it was part of its infrastructure.

Critics have long complained about the lack of movement on unbundling and the resulting slow rate of rollout of fixed line telephone lines and broadband DSL accessibility.

Matsepe-Casaburri is due to receive today the report and recommendations of the local loop unbundling committee, which proposes a way forward for the unbundling process.

Analysts said the four-year completion target would give Telkom sufficient time to “establish its client base”, limiting the potential for rival, second network operator Neotel, to take advantage of the unbundling.

“It’s positive for Telkom. It prevents Neotel from entering the retail area aggressively,” said an analyst who did not want to be named.

Neotel has said it would start rolling out in residential areas regardless of local loop unbundling, through wireless technology. However, the analyst said the decision would still give Telkom plenty of time to wrap up its customer base in the market.

Irnest Kaplan, MD of Kaplan Equity Analysts, said it was mildly positive for consumers that the decision has finally been announced. Telkom would have been expecting the move and from Neotel’s perspective it depended on what plans it had in terms of local loop.

“Unbundling the local loop, is key to competition,” said another analyst. “It will just provide Telkom with more monopolistic advantages,” he said.

Together with the creation of state-owned broadband infrastructure company Infraco, which would provide low-cost, long-distance telecommunications transmission between cities, the unbundling of the local loop will contribute significantly to a lowering of telecommunications costs. But as long as Telkom has a monopoly of the “last mile” it will not be possible to bring down the costs of telecommunications.

Dave Gayle, director of business development at Storm, an internet service provider, said that the local loop could previously not be unbundled before other regulations opening up the sphere had been enacted. However, with other available or developing regulations being looked at by the regulator, local loop unbundling was becoming less pertinent for competition.

Neotel would be piggybacking on Telkom’s network while it rolled out its own network and would have the option of leasing the local loop at commercial rates from Telkom.

A Neotel spokesman said the announcement did not affect its strategy as it continued to build its infrastructure network as planned. “However, the quicker local loop unbundling happens, the better for all South Africans.”

It has been speculated that unbundling the local loop may see that aspect of the network being housed in a separate entity and could be made available to other companies.

The communications department said: “The unbundling of the local loop has been identified as crucial towards increasing innovation, increasing the quality and quantity of services, lowering the prices paid by the customers and increasing the number of available business opportunities”.

Matsepe-Casaburri said she recognised an urgent need for all operators to be licensed to have access to the local loop.


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Minister adds four years to Telkom’s monopoly