ADSL and phone line bundles: is Telkom playing fair?

Telkom recently announced reduced prices for many of its ADSL and fibre-to-the-home packages, and has bundled the compulsory cost of analogue phone line rental into its capped ADSL “Do” bundles.

[Also read: Telkom cuts ADSL and FTTH prices]

Internet service providers in South Africa previously complained that while Telkom is able to offer a fully-bundled service like this, they are not able to do so.

“Historically the Telkom Closer 4 & 5 used to include ADSL Line Rental and no data, and the Do Closer Packages used to include Voice line, ADSL Line, and Data,” said MWEB CEO Derek Hershaw.

“So they have always had the all-inclusive Do Closer products which have it all.”

Telkom has a competitive advantage: Afrihost

Afrihost said no wholesale changes have been made to allow ISPs to bundle the compulsory voice line rental into their packages.

“We’re definitely not able to offer a similar product as Telkom does not currently allow ISPs to manage voice lines,” said Afrihost.

If Afrihost could offer such bundles, it would consider it, the ISP said.

It would depend on the wholesale pricing and whether it could add additional value to clients, said Afrihost, and noted that the convenience of such all-inclusive bundles offers a competitive advantage.

“It certainly offers [Telkom] a strong advantage for clients who may not want to be billed from multiple suppliers, and offers opportunities for bundling discounts that other ISPs do not have.”

Telkom behaving anti-competitively: Cybersmart

Laurie Fialkov
Laurie Fialkov

Cybersmart CEO Laurie Fialkov agreed with Afrihost, adding that with some hoop-jumping they could bundle the cost of the phone line by contracting for one from Telkom at retail rates.

“So the cost of the telephone line and the calls… we only have credit risk and no upside,” said Fialkov. The ISP would effectively become a telephone salesman for Telkom at no benefit to the company.

Fialkov said Telkom bundling the cost of a phone line into its DSL packages is anti-competitive, as the company controls the lion’s share of South Africa’s fixed-line phone market along with all of the country’s ADSL infrastructure.

Compounding the issue is the fact that Telkom requires all ADSL subscribers to pay for a normal analogue phone line service.

This means that ISPs signing up new ADSL users have effectively helped Telkom get more phone line users, or at least helped slow the decline in fixed-line phone users.

The monthly fee of Telkom’s residential phone lines has increased every year since 2002, with a surprise increase in April 2015 – pushing the price up to R189 per month.

[Also read: Telkom line rental prices: 2002 to 2015]

“If they weren’t in most people’s houses already, I would not have a problem with this product. For them to offer a reduced price for phone+ADSL and hide it in a bundle is completely anti-competitive.”

“This type of bundling was raised in a previous competition complaint, which [Telkom] lost.”

The only way to offer a similar bundle is for a provider to roll out its own physical network, but Fialkov said you would then still be competing against a company whose infrastructure is bought and paid for.

Comparing the copper-based DSL and phone line bundles to what ISPs are able to offer on FTTH, Fialkov said the least they can charge for installation is R1,500.

“Practically, it costs on average close to R5,000 to get into a house. So to recover the R3,500, we need to insist on a 24-month contract.”

To recover that money over the contract period (excluding interest) is R145 per month. “Then there is the small time delay of getting this infrastructure in the house.”

Telkom, on the other hand, already has the infrastructure and telephone number, which means they can offer almost immediate installation for free and have a base cost way below R145 per month.

“How exactly do you compete with that?”

Drop voice line rental altogether: Webafrica

Greg Wright, Webafrica
Greg Wright, Webafrica

Webafrica said it probably wouldn’t resell analogue voice lines given the choice, as they offer “limited benefits” to customers.

Instead, Webafrica said Telkom should offer naked ADSL. In other words, not force subscribers to take up a phone line to get the broadband service.

“The requirement which forces consumers to take a voice line when signing up for ADSL is anti-competitive in itself,” said Webafrica’s Greg Wright.

“Whether the package is marketed as all-inclusive or standalone is irrelevant, the underlying forced tie-up between ADSL and voice is the real problem.”

He added that in the event Telkom allows naked ADSL, Webafrica would seriously look at offering voice over IP.

“This would be a big cost saver for the consumer.”

Responding to Telkom’s competitive advantage

Afrihost, Cybersmart, and Webafrica all said they haven’t taken this matter to the authorities as yet.

While Afrihost said it was considering its options, Cybersmart and Webafrica said they have no interest in taking it further.

“We will not be doing an individual complaint because it is just too expensive to do so,” said Fialkov.

“Telkom has drawn out previous complaints to such lengths that even when they lose the damage is already done. They get slapped on the wrist with a fine and promise profusely not do it again – a promise that they have yet to keep.”

Wright said for Webafrica’s part, they are still expecting big market moves as a direct result of Telkom’s recent IPC price cuts.

“What really comes of this, only time will tell,” said Wright.

It’s not unfair bundling, it’s transparent marketing: Telkom

Telkom said the allegations that it is behaving anti-competitively are not true.

The retail arm of Telkom uses the same wholesale product, called IP Connect, as other Internet service providers, and the full price of the phone line rental is included in its new “Do” capped ADSL bundles.

Including the phone line rental price was simply a marketing decision to show subscribers the full price of the bundle, said Telkom.

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ADSL and phone line bundles: is Telkom playing fair?