Telkom’s big, surprising copper network plans: sources

Telkom has plans to set up a legal entity known as a special purpose vehicle (SPV) to which it will sell its copper cable infrastructure, according to industry sources. One source with knowledge of the plan says that the company may make an announcement on this as early as next month (August 2013).

Rumour has it that the sale of the copper network won’t include any fibre, or civil infrastructure such as ducting, exchanges, or street-side cabinets. It would therefore seem as though Telkom is getting ready to allow others direct access to its copper, which is a form of local loop unbundling (LLU).

Industry speculation suggests that the splitting off of its copper infrastructure into a separate entity forms part of a recent settlement between Telkom and the Competition Commission to resolve complaints over anti-competitive abuses lodged between 2005 and 2007.

The settlement package includes an admission of guilt by Telkom, a R200-million penalty, a functional separation between Telkom’s retail and wholesale divisions, a transparent transfer pricing programme, and wholesale and retail pricing commitments for the next five years said to yield R875-million-worth of savings to customers.

Telkom did not immediately comment on its plans for an SPV, but previously told MyBroadband that the agreement with the Competition Commission is subject to confirmation by the Competition Tribunal.

It need not just be the settlement with the commission encouraging Telkom to take this step, however.

The National Development Plan released by the National Planning Commission (NPC) in August 2012 suggested the possibility of a “structural separation of the vertically integrated incumbent backbone operator”.

Access-line deficit

Telkom access line deficit 2010
Telkom access line deficit 2010

A concern that has held back the implementation of local loop unbundling in South Africa has been the so called “access-line deficit” (ALD); the loss Telkom says it suffers when provisioning an analogue copper-based service to customers.

In documents MyBroadband received citing information from 2009, Telkom said that it made a loss of R144 per month per line. This is because it cost Telkom far more (R256 per month at the time) to provide the service than they charge in line rental.

While it is stretching beyond what we know for sure and into the realm of speculation, the SPV does seem like a convenient way for Telkom to isolate the finances associated with maintaining its senescent copper network.

Telkom LLU
Telkom LLU

Local loop unbundling on its way?

With the copper network spun off into a separate entity, the industry speculation is that it will also allow any network operator to have direct access to the copper.

In simple terms, it looks as though Telkom is gearing up for LLU.

However, the Independent Communications Authority of South Africa announced last month that it only expects to publish the final LLU regulations on 4 March 2014.

While Telkom might let other operators use their infrastructure as part of a facilities leasing agreement, it seems unlikely that they would offer any other type of LLU-based service before the regulations are finalised.

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Telkom’s big, surprising copper network plans: sources