Paying through the nose
It should have been a formality. What should have been a relatively minor change in telecom regulations will instead result in Telkom paying substantially higher licence fees.
The reissuing of telecom licences by the Independent Communications Authority of SA (Icasa) has come with a change in the formula used to calculate licence fees. Telkom’s licence fee could rise from about R30m to more than R727m — an increase of 2400%.
With the old formula it handed over 0,1% of the revenue derived from its local fixed-line operations each year but Icasa is now asking for 3%.
This figure might seem insignificant but as Kaplan Equity Analysts MD Irnest Kaplan points out, it becomes a big figure when based on licence-based revenue of about R24bn. This excludes things like VAT and equipment leasing.
Telkom is not letting the matter lie. It has made a submission objecting to Icasa’s draft licence fee regulation, saying that as it stands, it would contravene the Electronic Communications Act.
The act, which was introduced in 2006, was meant to open up the industry without discriminating against established companies like Telkom, as it required their licences to be converted in such a way that it would not leave them in a “less favourable position”.
Telkom argues that not only does the conversion discriminate against it, the regulations are not in keeping with international best practice that benchmarks licence fees at 1% or less of gross revenue.
Telkom is not alone in its anger. Its rival, Neotel, has also objected. “We have reservations over the licensing formula,” says Neotel MD Ajay Pandey
But Icasa is not changing the formula without reason. It defends itself in the draft regulations, saying: “The authority’s operating expenses are projected to increase by 24%/year over the next five years.” It says expenses are expected to rise 8%/year thereafter.
But Telkom should not feel too aggrieved. Unlike Neotel, it did not have to pay a R100m upfront fee when it received its licence in 1997.
Telecoms license fee discussion
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