Telkom halts drastic price cuts

Johannesburg - South African fixed-line phone firm Telkom expects to lose less market share than first thought to Neotel due to its new rival's slow start, and said on Thursday it would stop "drastic" price cuts for broadband access.

Telkom executives told analysts it still expects flat to slightly lower revenue at its fixed-line business this year, but declined to say whether it would be able to offset falling voice revenues with new multimedia services next year and beyond.

Africa's biggest telecoms firm said the longer it took South Africa's regulator to smash its monopoly, and the longer it took Neotel to get off the ground, the better chance Telkom had of defending turnover at its core fixed-line business.

"The fact that the market has lagged on the competitive and regulatory fronts is giving us time to do more smart stuff on the retail front," said Steven Hayward, managing executive of Retail Marketing, in remarks broadcast on the web.

Tougher competition

Executives from Telkom, which is facing tougher competition from rival Neotel and mobile firms, were speaking at a presentation to analysts aimed at bolstering the case for its expensive next-generation network.

Chief Financial Officer Kaushik Patel said Telkom now expects to lose about 10% of its fixed-line market share over the next 3-5 years - at the bottom end of an earlier forecast for about 10% to 15%.

The comments helped push Telkom shares up 1.5% to R166, outperforming a 1.3% rise in the JSE Top-40 index of blue-chip stocks.

Neotel, which is run by a unit of Indian conglomerate Tata, was meant to roll out voice and internet services for consumers by March 2007, but has delayed the launch until mid year.

The government and regulator have said they will look at ways to unbundle Telkom's network into homes and offices, but still has not made any clear progress. That has given state-controlled Telkom - which South Africans love to hate - more time to improve its customer service and pricing.

Beefing up data

Telkom, which still dominates the landline market, said new services like internet TV and video calls made available on its next-generation network would provide new sources of revenue.

The company, which has rattled some investors with plans to build the $4bn network, expects to use the technology for 35% of services by 2011, accounting for more than 35% of total turnover.

It also hopes to get up to a fifth of its customers to sign up for broadband Internet services by 2011 compared to 6% now, boosting revenues, but said no more "drastic" price cuts were on the cards.

"It may come down over time but it will be gentle curves not the type of declines we have seen," said Hayward. "What we would rather do now is up the value (by offering higher speeds). There will be no more drastic price reductions."

While Telkom has been cutting prices for high-speed internet access, consumer groups say tariffs are still too high, inflating the cost of doing business and deterring foreign investors from Africa's biggest economy.