Why Telkom can’t make its prices even lower

Telkom has stated that there are several barriers which prevent it from lowering its prices.

Telkom told the Committee on Communications and Public Enterprises in parliament that, despite it being “South Africa’s lowest data provider at R0.29 per MB”, there are steps which could be taken to further reduce prices.

“These include access to the sub-1GHz frequency band, the introduction of the wireless open access network, and subsidising broadband for poor communities,” it said.

“Rolling out infrastructure using sub-1Ghz is more cost effective than rolling out in higher frequency bands.”

Telkom added that increasing service level competition will bring cost reductions to the mobile industry, which is “characterised by the dominance of two vertically-integrated service providers”.

It said it has proven this with the establishment of Openserve.

Openserve has provided wholesale services to Internet service providers “who have benefited from reduced prices as a result of efficiencies that they can pass on to consumers”.

Telkom reiterated its support for the establishment of the Wireless Open Access Network (WOAN) as a tool to increase service level competition in the mobile space.

“Telkom believes driving service level competition in the mobile sector will increase retail competition by enabling the financial sustainability of smaller players and new entrants,” it said.

Spectrum allocation

The company said that any proposed spectrum auction in South Africa would not resolve connectivity pricing issues, and would only “entrench the existing mobile duopoly where Vodacom has 45.8% of the market and MTN has 32.7%”.

Vodacom and MTN have argued the converse, stating that access to more spectrum would allow them to lower prices and improve coverage – particularly in rural areas.

Telkom further proposed that the government subsidise broadband for poor communities in South Africa.

“The ECA established a universal service fund where mobile operators contribute 0.2% of annual gross revenue. These contributions may be used to subsidise broadband for poorer communities,” it said.

Now read: Octotel plans to pass 100,000 South African homes with fibre

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Why Telkom can’t make its prices even lower