Eskom must learn from Telkom

Developments in South Africa’s electricity industry in the past few years echo what happened in the telecoms space more than a decade ago.

If the consequences are the same, South Africans can expect a much healthier electricity market with greater choice of providers and pricing.

Similar to Eskom, which currently rules over South Africa’s electricity industry, a monopoly dominated home Internet connectivity in the country in the early 2000s.

Before the proliferation of fibre-to-the-home (FTTH) connectivity, Telkom’s DSL Internet was the only reasonably affordable fixed-line solution available to households and many businesses.

Initially, many Telkom customers experienced connectivity problems, with lines not performing near advertised or disconnecting intermittently.

Following a public outcry, service levels improved somewhat. Telkom also rollout out higher-speed services such as 4Mbps and 10Mbps ADSL, and 20Mbps and 40Mbps VDSL.

However, prices remained high, and Telkom was slow to invest in improving its network. With no competition in the market, there was little incentive to up its game.

After many years of lobbying by consumers, Internet service providers, and other telecoms stakeholders, competition authorities intervened.

Following a lengthy investigation, the Competition Tribunal ordered Telkom to split its wholesale and retail businesses in 2013, signalling the beginning of the end for Telkom’s monopoly.

However, Telkom’s fixed-line strategy only changed after it was threatened by upstart private fibre-to-the-home players like Vumatel, Frogfoot, and MetroFibre.

BMIT estimated that around 4.5 million South African households had access to fibre by 2024, of which 2.76 million were connected or ready to go live after an order is place.

Excluding the contribution of Telkom’s wholesale division Openserve, there were more than twice the number of live fibre stands than the roughly one million peak of Telkom DSL customers in 2016.

There are dozens of FNOs and hundreds of ISPs offering thousands of FTTH packages with speeds ranging from 20Mbps to 1Gbps.

The broadband market functions better and has more affordable products than when Telkom was the sole infrastructure provider and had little incentive to improve its services or prices.

Eskom stepping into Telkom trap

Eskom has taken a similar path to the old Telkom. It has neglected investment, tolerated underperformance and waste, and forged ahead with a poor pricing strategy despite warnings.

Eskom’s only shareholder, the South African government, ignored warnings from energy experts and Eskom itself as early as the late 1990s that the country would need to build extra generating capacity.

The utility scrambled to begin work on what would become two disastrous projects — the Medupi and Kusile coal power stations — which were supposed to provide 9,600MW extra power by 2014.

While unable to provide reliable electricity supply, Eskom hiked electricity tariffs by 971% between 2007 and 2025.

Despite their budgets more than doubling, the Medupi and Kusile plants are still not finished — nearly two decades since they began construction. As a result, load-shedding crippled the country.

From a once proud establishment with cutting-edge stations and top-notch professionals with affordable tariffs, Eskom transformed into South Africa’s most hated company and biggest economic millstone.

The government was slow to respond to appeals from consumers and businesses for a new way, but ultimately, sense prevailed.

In his first State of the Nation address in 2019, President Cyril Ramaphosa announced that Eskom’s core divisions would be split into three separate entities — generation, transmission, and distribution.

This change was part of key reforms under the Electricity Regulation Amendment Act, which aims to enable a competitive electricity market with greater private participation in generation and distribution.

Eskom’s transmission division has already been spun off into the National Transmission Company of South Africa (NTCSA) and will become fully independent over the next five years.

Although it will be the sole company to control long-distance electricity transmission, technological advancements could threaten its monopoly position in future.

What fibre did for South Africa’s broadband industry, renewable energy and battery storage is enabling in the electricity sector.

Private power producers can build closer to their customers and bypass the transmission grid, especially when using solar. The levelised cost of wind and solar power has also come down substantially.

In some cases, renewable energy is cheaper to produce than fossil fuel-based power. This presents a major threat to a coal-heavy Eskom.

The lifting and eventual scrapping of the threshold for licensing private generation facilities has already spurred the registration of 12,737 MW of capacity between 2018 and 2025.

Due to Eskom’s extreme load-shedding, households and businesses adopted rooftop solar at scale — with more than 6,000MW installed in a decade.

Monopolies don’t go quietly

Like the old Telkom, Eskom will fight hard to protect its monopoly. It has already objected to licensing private electricity traders in the areas where its distribution business operates.

The power utility has also made significant changes to its tariffs, with a heavier focus on fixed costs to counteract the impact of declining electricity sales.

Telkom also complained about its “access line deficit” during the heydays of DSL, saying it was financially infeasible to unbundle analogue phone lines from its broadband service or reduce line rentals.

However, when Vumatel arrived on the scene and significantly undercut Telkom’s prices, the former telecoms monopoly had no choice but to adapt.

Similarly, once the electricity market truly opens up, Eskom will ultimately have two options.

On the one hand, it could punish its shrinking customer base with increased prices and try to keep up with its increasing operating costs.

This will exacerbate its death spiral, as households and businesses will increasingly find a range of alternative power producers and distributors knocking on their door.

The more logical plan would be to adapt — like Telkom — by adjusting prices, investing for future growth, and making difficult cost cuts, including reducing its workforce.

In this scenario, Eskom would have to consider aligning its tariffs to a level where it can compete with the private players and self generation.

Telkom also reduced its workforce by more than 70% between 2014 and 2024. While no longer the top dog, it is still a formidable telecoms player and has recently posted exceptional financial performance.