Competitive telecoms
This has to be welcomed. But the launch of Neotel was also a stark reminder of how many opportunities have been missed along the way. The most important of these was government’s inability to introduce competition to Telkom as soon as its monopoly ended, as promised.
Towards the end of Telkom’s legislated monopoly period — granted in 1997 as part of its privatisation exercise — it became clear that telecoms costs were getting out of hand. By 2001, President Thabo Mbeki was already making concerned noises about input costs throughout the economy.
Government decided to boost competitiveness through the “managed liberalisation” of sectors dominated by state entities — energy, transport and telecoms. In other words, it would open these sectors up to competition gradually.
It is now common cause that government has reversed its decision on energy and transport, retaining control of Eskom and Transnet. But telecoms has remained on the liberalisation watch.
This is in part because it became clear to government that Telkom’s high prices — amongst the highest in the world, particularly for broadband — have damaged the economy. And in part because the relentless growth of technology has meant that competition has started to seep into different parts the industry.
While Telkom has kept a firm grip on the fixed-line market, the rise of cellular phones, wireless broadband and voice over internet protocol have improved services and lowered costs in small pockets of the industry. Government has deregulated some of these services, notably VOIP, which has given this fledgling trend a push.
But we remain dangerously far behind the curve, and need to catch up. A recent report by telecoms consultant Paul Cole reckons the managed liberalisation policy has resulted in consumers paying 440 times more than they should for voice and data services. Foreign investors are staying away because of SA’s slow and expensive communications.
This is both a failure of government policy, and of the regulator, the Independent Communications Authority of SA (Icasa). Underfunded and crippled by a management crisis, Icasa has failed to create an environment within which competitors can build up any steam.
Neotel will no doubt make some impact as an alternative to Telkom over time, if only to keep the telecoms giant on its toes. But a duopoly, notably one where the incumbent is so strong and the newcomer is entering the game so late, has never resulted in real competition, particularly when the regulator is weak.
No, more dramatic action is needed if government is to meet Mbeki’s goal of lowering the cost of doing business in SA. A fully competitive market is the only way this will be achieved. We are not calling for a big-bang approach: it doesn’t have to, and indeed shouldn’t, happen overnight. Neotel should be allowed to bed down its services, and investors in the listed Telkom need to be given due warning.
But it should happen a whole lot faster. Government can start by unbundling the local loop: the copper cable that connects customers to the network. Once unbundled, other operators and internet service providers will have access to Telkom’s telephone exchanges, allowing them to offer services on the lines now controlled by Telkom.
Given Telkom’s infrastructure reach and its current dominance, a strong and resourceful management team will be more than capable of keeping it ahead of the pack.
Government has the opportunity to create a truly competitive, world- class industry. It should take care not to miss out — again.
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