The Real Digital Devide

The non-liberalisation of the telecomms sector has been one of the government’s biggest mistakes. There has been an embarrassing series of flip-flop policy moves that has made a mockery of the Department. of Communications’ commitment to liberalise the industry. Initially the department  followed an industry-led suggestion to create two further companies but then bowed to demands from Telkom’s current partners, who hinted at undermining the privatisation if their monopolistic profits were threatened. More time was wasted in looking for a suitable empowerment company and haggling over the majority shareholding percentages. At the end of it all, we still have a state-created monopoly and no clear direction or timing as to when the telecomms market will be opened up.

Government must take full responsibility for the consequences of the policy choices it made. It decided on a policy of "managed" liberalisation instead of full-blown opening of the markets. It also decided to conditionally tie other parastatals (Eskom, Transtel and Sentech) into the SNO licence. Selected historically disadvantaged elite were scheduled to get the cream from another licence-restricted market. The resultant non-interest from potential telecommunications investors sends a clear message that mistakes have been made and that government should reconsider the onerous requirements it wished to impose on potential private investors.
An analogy might help clarify the importance of the distinction between privatisation and liberalisation. Imagine a horse race in which a single government-owned horse is running. It is unlikely that the punters will enjoy their day at the races if there are no other horses to bet on. The creature can walk around and still win. Matters are not improved if the government changes the owner of the horse by privatising it. And any parasites that may be feeding on the horse will have a legitimate complaint if they know that the new owner is likely to cut down on horse-feed knowing that it does not need to be in good running order. Only when the race is liberalised to allow other horses to compete does a proper contest take place. Only then are the horses, owners, trainers, jockeys, and everyone else involved with the animals spurred on by the magic of competition to out-compete each other and strive for superior performance.
Privatisation is therefore not the same as liberalisation. And managed liberalisation is not real liberalisation. If the government is in the position to pick which “horses” can race you will never know for certain whether the race is fixed.
Despite what government tells us, licensing is not necessary for purposes of ensuring that there will be more participants in the telecomms sector. In fact, Europe’s experience warned us of the danger of attempting to auction a limited number of licences. Governments sucked so much cash out of the bidders that there was nothing left for investment. The irrational exuberance that permeated government as well as the bidding firms does not excuse the fact that the governments lost sight of the fact that it is their task to create a competitive enabling environment that will result in superior telecomms for their citizenry. The sale of licences brings once-off rewards for the treasury but imposes unnecessary additional pricing and infrastructure development costs that are paid by citizens over many years. Citizens as users of services are the long-term losers.
The cost to South Africans of an uncompetitive market is very real.. Comparisons with overseas countries show that Telkom’s newly introduced ADSL service offers a 512 kilobytes per second (kbps) downstream service and a 256 kbps upstream. You will pay R2,469 for your ADSL modem and R400 for the installation. In addition, you will be looking at a monthly bill of some R680. Canada Telus will offer you over three times the bit speed – downstream rate 1,856 kbps and upstream 608 kbps – for just $40 Canadian (i.e. R266 and by the way, the modem is free, as is the installation). In America, where digital lines compete with broadband services, high bits-per-second products are available offering around 1.3 megabytes per second for around $40 U.S. (R422) per month to your business or your home. South African consumers are consequently paying at least four times the overseas price . Consider the competitive disadvantage faced by South African businesses when their major communications medium is four times more expensive than the price paid by their foreign competitors, and the further disadvantage of probably not having access to equivalent speeds.
However, options remain open to the government and a brave first step on the part of the Minister would be to accept that poor decisions have been made and that a different approach is now necessary. If 21st century telecommunication services are to be offered to South African businesses at competitive prices then markets must be fully opened up. Reverse the idea that there should be only one competitor to Telkom and that licences are necessary, let alone that such entry mechanisms need to be sold. Invite all comers, including overseas companies, to establish telecommunications businesses in South Africa, promising them no interference from government, and watch the benefits unfold. There will be increased investment, increased jobs, and lower prices.
We must appreciate that the real digital divide is not between South Africa’s urban surfers and the rural poor, who would probably prefer water in their pipes rather than data. It is between South African firms and firms in the highly developed countries. For all their creativity, SA firms will struggle to compete while political considerations take precedence over the economic efficiency that a vibrant communications industry would provide. It is time for government to act in the best interests of all its citizens by elevating long-term growth above short-term expediency in dealing with South Africa’s telecommunications policy.

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The Real Digital Devide