LLU and Telkom’s access line deficit: Icasa unconvinced

The Independent Communications Authority of South Africa (Icasa) said on Wednesday, 11 December 2013 that Telkom’s inability to control operational costs should not hold back local loop unbundling (LLU) in South Africa.

In an explanatory note to the draft LLU regulations, which was published on 6 December 2013, Icasa said that it disagrees with Telkom on the size and scope of the so-called access line deficit (ALD).

According to Telkom, it costs them more to provide a residential copper line than they make from line rental, introducing an access line deficit.

Icasa said that a former regulatory accounting system known as Chart of Accounts / Cost Accounting Model (COA/CAM) placed very little pressure on Telkom to seek new opportunities to enhance the value of its service proposition.

Furthermore, Icasa said that Telkom provided it with evidence that it has been unsuccessful in containing operational costs so as not to exceed accounting profit.

Telkom’s labour-related costs too high

Citing Telkom operator data and annual reports, Icasa said that Telkom employee costs per line have increased by 2% since 2000 yet it has reduced its permanent workforce by 28,000 (57%).

Icasa noted that Telkom does pay a substantial amount of money for services, which it said is generally linked to technicians using their own assets to provide technical and maintenance services to Telkom.

“The principle cost make-up of ALD is related to the cost of employees and labour-related costs,” Icasa said.

The regulator said that it is imperative that Telkom manage its labour costs in line with an efficient provision of services.

Icasa said that while Telkom’s reported increase of 125 active fixed lines per employee in 2002 to 191 lines per employee in 2012 remains far below its competitors.

Telkom access line deficit 2010

“It is evident that Telkom’s business model and approach to service provision needs to be adapted considering that the market dynamics have changed considerably since 2000,” Icasa said.

It acknowledged Telkom’s recent impairment of assets and the difficulties faced by “the shareholder” (government owns most of Telkom) in terms of employment sustainability.

“However, this social challenge faced by the entire ICT sector is not a justification for preventing the provision of access to any form of local loop,” Icasa said.

Icasa said that despite Telkom providing “copious” amounts of information about ALD, it was unconvincing.

“The Authority therefore determines that the purported ALD is of no relevance in determining access to the local loop,” Icasa said.

LLU should not cause financial harm

Elsewhere in the explanatory note, Icasa said that there is no intention that any licensee providing network access should suffer any financial harm due to LLU.

“In terms of access to any form of local loop (fixed line copper, fixed line fibre, and/or wireless access), the network owner has the right to set the price to ensure future sustainability of their own private network services and future investment commitments,” Icasa said.

The licensee seeking access on another’s network has to pay their own capital costs for setting up their access to the local loop and any associated usage fees.

“However, should the access seeker consider that the price charged is unreasonable, they may dispute these charges before the Authority,” Icasa said.

Icasa has previously said that it aims to finalise South Africa’s local loop unbundling regulations by 4 March 2014.

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