Is Telkom really trying to change its spots?

03 May 2015 - 02:00 By Duncan McLeod
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Telkom surprised the telecoms industry last week when it announced sweeping price cuts to its wholesale broadband services - which should lead to real reductions in retail fixed-line internet prices.

The cuts, which are said to go well beyond what the company agreed as part of a settlement with the Competition Commission for Telkom's anticompetitive abuses, are part of a plan to position its wholesale arm to service "exponentially increasing demand for copper- and fibre-based broadband services".

Telkom is cutting the prices of a range of wholesale services, effective from May 1. They include wholesale fibre broadband access and the company's IP Connect, which is used by internet service providers.

The price reductions to IP Connect are in addition to a series of cuts that have effectively halved costs in the past 18 months. IP Connect fees are a big input cost for internet service providers.

In 2013, Telkom and the Competition Commission reached a deal in terms of which the operator agreed to pay a hefty fine. It also agreed to "functionally separate" its retail and wholesale divisions and to implement wholesale price reductions. But Prenesh Padayachee, the MD of Telkom's wholesale services division, said the latest price cuts went beyond the settlement agreement.

So what's Telkom's game plan?

It would appear, from talking to the company's executives, that there is a genuine desire to separate the wholesale arm from Telkom's retail division and to pre-empt further regulatory intervention in this regard.

The company appears to be drawing some lessons from the way that BT (formerly British Telecom) agreed with UK communications regulator Ofcom 10 years ago to spin off Openreach, which provides access to BT's infrastructure on fair, equal and transparent terms to all service providers in Britain.

Telkom's change from that of abusive monopolist is nothing short of remarkable. Although internet service providers remain sceptical about whether the leopard has truly changed its spots - and they are right to be cautious - the language used by the company's management team has changed markedly in the two years that CEO Sipho Maseko has been at the helm.

Supported by a strong board, Maseko has made fundamental changes to Telkom's corporate culture and modernised the company to make it more competitive.

Perhaps nothing illustrates these changes better than Telkom's decision to move from the unwelcoming concrete fortress in downtown Pretoria that's been its home for decades to a smart, campus-type environment in Centurion.

It's the sort of work environment favoured by fast-moving technology companies, not lumbering telecoms incumbents.

Whatever the reasons for it, Telkom's change of heart is long overdue. For years, it has watched as consumers abandoned it for mobile alternatives. Some of that substitution would have happened anyway, but some of it was due to Telkom's poor service and high prices.

Although mobile networks have made great advances in delivering high-speed broadband to consumers, they are still no match for fixed lines.

The scarcity of radio frequency spectrum precludes cellphone operators from offering consumers the same affordable, uncapped or high-cap products that are possible on wireline networks. Even newfangled 4G/LTE networks aren't nearly as good at delivering online video services such as Netflix, the US company set to be launched in South Africa soon.

This has become apparent to the mobile operators, with Vodacom and MTN planning to spend billions of rands building fibre-to-the-home infrastructure and setting themselves up in direct competition with Telkom.

Perhaps it's this looming threat to its core business that has finally focused minds at Telkom.

Of course, South Africa would have been much better off today if the company had had this eureka moment 10 or 20 years ago and worked with the industry to grow fixed-line broadband instead of trying to crush the competition at all costs.

Still, better late than never.

McLeod edits TechCentral.co.za. Find him on Twitter @mcleodd

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