Communications Users Association of South Africa’s Ray Webber says there is evidence that competition may finally be impacting on the South African telecommunications market – as Telkom’s proposed tariff filing for 2007 indicates cost reductions in key areas.

“Telkom’s proposed tariff filing clearly indicates that prices are dropping where Telkom has competition, but increasing where they still essentially have a monopoly,” says Webber. “It’s clear that Telkom has needed to face up to the reality of competition, no matter how limited that has been. Hopefully the incumbent is finally being forced to rethink their pricing strategies. What is beyond doubt is that South African consumers and business have been overcharged for telecommunications services for years,” he says.

Although the complete tariff filing has not yet been received by CUASA, Webber says initial details indicate that:

• Broadband charges are dropping nicely (between 10 and 38%), which is great news and confirms that there is some competition in this market.
  
• The long distance call costs and the long distance minimum charge are dropping by 10%, which is great. Users should therefore see a 10% drop in their long distance call costs.
  
• The international call costs are dropping by an average of 9%, which is also welcome. However, unless International calls are a reasonable percentage of your call costs, the impact will be minimal.
  
• Local and mobile call costs remain as they are, so there will be no benefit/change.
  
• The local and mobile call minimum charges remain as they are, so there will be no benefit/change.
  
• The 6.3% increase in local call charges during Callmore time should not have a significant impact on your costs, unless your particular business makes many such calls after hours.
  
• ISDN installation and rental charges are increasing by 12%, which is a problem.
  
• Analogue line installation and rental charges are increasing by 12%, is also a problem.
  
• The data line rental costs which are dropping are welcome, and should reduce your data account fairly substantially (unless your particular business uses the data services which are increasing in price – Datel, Telex and VGLL).

“On the face of it the tariff filings seem to be a mixed bag,” says Webber. “What’s important to note is how pricing is dropping significantly in areas where competition has made inroads,” says Webber. “The sobering thought is that South Africa is still seriously out of pace with the rest of the world in terms of the overall affordability of telecommunications services. Much more competition is needed before South Africans in general and business in particular can effectively take advantage of the technologies and efficiencies offered in truly competitive countries,” he says.

"This year's golf day was our largest and most successful event yet, with over 50 four balls and a full compliment of sponsors," says event spokesman, CUASA's Nick Holtshausen. "Our goal was to raise R50 000 but in the end the event was such a success that we are able to donate even more to the home," he says.

"We'd like to thank all those who participated and made this year's event our best and most enjoyable to date. Special thanks to our event sponsors which include ABSA, Africa Analysis, BCX, Gateway Communications, Global Latitude, Motorola, MTNNS, Siemens Enterprises, 9 Twenty-four Business Solutions, T-Systems, Telepassport and Verizon," Holtshausen continues.

"The SAVA Golf Day has become one of those special events which those in the ICT sector always look forward to. It represents an opportunity to meet new industry players and old friends, a great round of golf and to raise much-needed money for the Johannesburg Children's Home," he says.

The Johannesburg Children's Home provides care and shelter for 60 children of all races between the ages of 3 and 18 years, where their own families have been disrupted to the extent that their parents are unable to fulfil their responsibilities. These children are placed in the care of the Home by the various regional courts. They have all experienced physical, sexual or emotional abuse or have been severely neglected or abandoned by their parents.

"We are really pleased that CUASA, our sponsors and individuals in the ICT sector have all had the opportunity to assist the Johannesburg Children's Home again this year. We look forward to another successful event in 2008," Holtshausen concludes.

The Communication Users Association of South Africa (CUASA) and one of its special interest groups, the South African VANs Association (SAVA), have issued a letter for concern to ICASA regarding the termination charges Telkom has proposed for calls to 087 numbers.

"The 087 number range is dedicated to private networks and therefore principally concern VANS who typically provide private network services for corporate clients," says SAVA Executive Representative, Paulo Froes. "In an internationally competitive environment, call termination to a private network would be charged at the same, or very similar rate to a local network standard rate," Froes continues.

"Telkom's proposed rates are once again outrageous in terms of international norms. And once again Telkom expects South African business and consumers to pay inflated prices for telecommunications services," he says.

Key points of the communication to ICASA are:

Concern with the High Level of Termination

Our understanding is that the termination rate is made up of two components. The first being the termination charge levied by Telkom which is 44 cents (exc. VAT) and the second is the charge that is paid to the VAN - being in the region of 7 cents to 60 cents. This therefore means that consumers calling an 087 number will effectively be paying between 59 cents and R1,07 for a call. This is extremely high when one considers that these are fixed line calls and not mobile calls. More than 40% of all consumer calls on fixed line are believed to be local, which are currently charged at 33 cents. Even in business almost 30% of calls are local. This VAN termination rate by Telkom will either drastically increase the cost of these calls, or simply nullify the intent to make telecommunications more competitive through the introduction of services such as Voice over IP.

Concern with the principle behind the termination charge

It is important to understand that incoming calls to a new VAN customer are not new calls, but are currently taking place today. A new VAN customer that takes up numbers in the 087 range is not creating new calls - at least not initially. Incoming calls have always been made to the VAN customer and will continue to made to the VAN customer. Therefore there is no incremental increase in costs to Telkom. In fact the opposite is the case, as the responsibility for the infrastructure to receive the call is now taken on by the VAN. There is therefore a violation of the principle of value creating in Telkom's termination charge, in that Telkom are increasing the costs to the consumer without any creation of value.

Concern with the structure of the termination charge

CUASA and SAVA understand that Telkom would prefer to have a simplified charging regime. However, all the recent changes in the South African telecommunications market have been aimed with increasing competition. Setting a single charge for all VANs limits the opportunity for VANs to compete with each other in the provision of voice services. When the EC Act regulations are put in place and the licenses converted, then it is reasonable to expect that this same charge will be levied for termination on all calls terminating on VAN's numbers. This is therefore a dangerous precedent to set as it means that a significant opportunity for competition between the VANs and between the VANs and Telkom will be lost, with the consumer being the ultimate loser. The recommendation is therefore that Telkom set the minimum call charge (see recommendations hereunder for a proposed rate) and that each VAN sets the additional rate for each 087 block of numbers individually with Telkom.

CUASA/SAVA Understands Certain of Telkom's Issues

Although CUASA and SAVA understand certain of the issues raised by Telkom, we firmly believe that more rigorous investigation into these issues is needed before they are accepted.

Telkom is concerned that an 087 number is effectively a single national number and therefore that it may be terminating mostly national calls while not earning the rate currently earned on a national call. Telkom's concern therefore appears to be a loss of current revenues that are earned on national calls. Based on a desktop analysis, the indication is that local calls make up the majority of all calls made in South Africa on the fixed line network. The current Telkom retail charge for national calls is 67 cents. This means that effectively Telkom are over recovering on their termination charges to the VANs at 44 cents, which is more than 65% of the current retail calls. This is further exacerbated when one considers that Telkom has been offering bulk discount contracts to their large customer that effectively provide between 15% and 35% discounts on the national call rate and that Telkom offers wholesale contracts to the VANs with national calls charged at 44 cents. This would therefore mean that potentially Telkom is earning 14 cents more for over 50% of all the calls terminated on an 087 number.

It should be further noted that as Telkom sets up both a long distance and a local call charge for calls passed from the VAN to the Telkom network and the 087 numbers being non-geographic, the VAN is likely to always carry the cost of the national backhaul. This surely removes a significant portion of motivation to charge such a high rate to the Telkom subscriber wanting to reach an 087 number.

The second issue that Telkom are concerned about appears to be that the 087 numbers could be used by VANs to provide premium rate services. Telkom currently strictly controls the provision of premium rate services and our understanding is that there are only 3 or 4 licensed premium rate operations in the country. CUASA and SAVA are however unsure what the actual danger is that Telkom is concerned about. South African consumers have evolved over the last decade to be astute buyers and are fully conversant with the charges that can be levied in the use of telecommunications services. This has partly been due to the growth of these services but also to the extensive use of value added services on cellular phones.

The third issue that Telkom may be concerned with is protection of its 0860 and 0861 national number service, where a Telkom business customer can secure a single number for the ease of use by its customers. Telkom currently charge upwards of R1 for this service and the fear may be that the 087 numbers could cannibalise these services. In CUASA and SAVA's opinion this is simply and indication that the 0860 and 0861 services have been significantly overcharged in the last few years and that Telkom has been earning super profits from them. It is also culpably unfair for the South African consumer to be charged more for calls to 087 numbers simply so that Telkom can protect its revenue from another service that it offers.

CUASA/SAVA Recommendations

• A detailed analysis should be undertaken of how many fixed line calls are local versus international
  
• A detailed analysis should be undertaken as to the actual cost of national calls that Telkom is charging large customers
  
• A detailed analysis of the actual incremental cost that is being incurred by Telkom by calls to 087
  
• This analysis can then be applied to understand the true revenue impact that is facing Telkom with the termination charge to 087 numbers
  
• The termination charge to 087 numbers should have a flat rate of no more than 28 cents (the current Telkom local call charge after bulk or wholesale discounts). It is worth noting that CUASA and SAVA estimate that the actual cost of providing a national call by Telkom is less than 10 cents. The VANs can then inform Telkom of the termination charge that they want to charge over and above the minimum charge from Telkom, and this can be based on a minimum bank of numbers with a maximum cap of R1.

Concern in terms of the Way Forward

CUASA and SAVA understand that the VANs have been working hard over the past months to have Telkom both recognise and enable termination of calls to 087 numbers. It is therefore critical that any process of investigation into the termination charge does not hold up the hard fought rights that the VANs now have. CUASA and SAVA would therefore strongly urge that ICASA enable an interim dispensation whereby Telkom enacts the proposed rates and that over the next 6 months ICASA then conducts the detailed analyses required to come to a more appropriate figure which is then implemented.

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