A Tale of Two Monopolies

While it could be argued that Telkom and MultiChoice aren’t total monopolies, the two companies are South Africa’s giants in the telecommunications and broadcasting industries.

Telkom may face some competition in Internet service provision, cellular services, and international undersea cables, but it is uncontested when it comes to residential fixed-line services.

SA’s telecoms incumbent also controls the largest fibre network in the country, which spans over 144,000km of cable.

MultiChoice controls the vast majority of South Africa’s sports broadcasting rights and its only competition in the satellite pay-TV space is TopTV, a company on the ropes.

The wheel turns

A position of dominance in the world of high technology can be a precarious thing, however, and competition doesn’t always come from the place you’d expect.

Even Microsoft, whose dominance seemed unassailable, started facing competition not because its desktop operating system market share came under pressure, but because the market changed.

Global personal computing platform market share 1975-2012E (Mary Meeker, Kleiner Perkins Caufield Byers)
The wheel turns…

Despite Microsoft’s head-start in the tablet and smartphone space, Apple managed to come in and launch products that outsold that of its arch-rival (and its hardware partners).

Nokia, BlackBerry, and a number of computer hardware vendors have all felt the sting of this dramatic change in the industry and are scampering to try and catch up to the wave of change.

Although a gross simplification of the most recent shake-up in consumer computing, the lesson to take away is that in the technology world, the wheel turns.

Even in South Africa, the wheel turns

Koos Bekker, the head of Naspers (of which MultiChoice is a subsidiary) has even acknowledged this in a recent interview.

“We don’t fear another conventional old style TV service,” Bekker said. “What we fear is some sort of Netflix that sits out in the States and they offer what we offer on the Internet.”

Similarly, Telkom shouldn’t worry about a company trying to come in and roll out its own fixed-line “local loop” infrastructure to people’s houses. Not right now, anyway.

Koos Bekker
Koos Bekker

Mobile network operators Vodacom, MTN, and Cell C already offer competing services to Telkom’s. Although cellular voice and data are typically more expensive than a fixed-line service, the fact is that Telkom’s fixed-line subscribers are dwindling.

The onslaught of mobile telephony is also just the beginning of the new competition Telkom has to face.

A number of industry players have argued that fixed-line incumbents such as Telkom will face further competition from operators rolling out Long Term Evolution (LTE) technology.

This is because LTE needs fibre optic cables to be rolled out to base stations, which is the beginning of an FTTx deployment.

Add to this that operators like Neotel already offer fibre-based services to businesses (and has designs on an LTE offering), and Telkom could face stiff competition when it becomes economically viable for all these players to offer fibre-to-the-home.

Telkom MSAN installation - Andrew Heuvel
Andrew Heuvel, executive in charge of Telkom’s network transformation project, in front of an open MSAN

Telkom and MultiChoice respond to competition

Telkom has obviously not been blind to this and launched their own mobile arm, but analysts and industry bodies have argued that there just isn’t room in the market for four mobile players.

Under outgoing CEO, Nombulelo “Pinky” Moholi, Telkom has also started upgrading its ageing local loop with multi-service access nodes (MSANs), which promise much faster DSL speeds.

While it’s great to see Telkom rolling out MSANs and running high speed DSL trials, this type of investment should have happened a long time ago already.

That said, it’s worth looking further back than recent history to glean insights into the different ways MultiChoice and Telkom handled their positions of dominance. Considering that Telkom’s consumer mobile arm, 8ta, was launched in October 2010 and the first details of its MSAN plans emerged in July 2011, these developments fall firmly under the company’s recent history.

Prior to this, the company and its major shareholder, the South African government, fought tooth and nail to maintain its monopoly position rather than investing back in its infrastructure and reducing prices for consumers.

John Kotsaftis - DStv BoxOffice launch
John Kotsaftis launching DStv BoxOffice

Former director-general of the Department of Communications, Lyndall Shope-Mafole was even quoted as saying: “Why were we protecting Telkom? [It was] so that we could get big value for it because it was going [public on the stock market]. It had to do with bringing investors into a company that is South African.”

Earlier this year the Competition Tribunal imposed a penalty of R449-million on Telkom for alleged anti-competitive sins it perpetrated between 1994 and 2004. Telkom has appealed the fine, with the Competition Commission cross-appealing for a higher penalty.

MultiChoice is not innocent of monopolistic behaviour, but unlike Telkom it hasn’t been hauled before the Competition Tribunal and appears to have foreseen how its competitors could swoop in and try to steal its lunch.

It’s Netflix-like BoxOffice offering and plans for video on-demand (VOD) in its Android and iOS applications also suggest that the company is preparing for the competition Internet-based content services might present.

DStv has been rolling out new technology such as 720p channels, personal video recording decoders, pseudo (or “push”) video on-demand (VOD) services and online VOD.

Copper cable theft and sabotage - Telkom - Manhole and box
Copper theft and sabotage  of Telkom’s cables

Although one has to wonder whether the annual price increases and the so-called “PVR access fee” would be around if there was greater competition, MultiChoice has consistently improved DStv over the years.

Telkom, on the other hand, used its profits to pay special dividends and otherwise enrich their shareholders without ensuring the future viability of the business.

It buried its head in the sand for too long and tried to artificially force down the environment that led to its success, and now finds itself under siege.

Telkom and MultiChoice stand as stark contrasts of what two giants of the South African industry have done with their positions of dominance.

The wheel turns, and if the giants of today aren’t using their massive profits to prepare for it they could find themselves the underdogs when it does.

Telkom 8ta Hillbrow tower portrait
Telkom 8ta Hillbrow tower portrait

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A Tale of Two Monopolies