Telkom price hike will hurt business

Last week Telkom claimed its annual price increase on basic voice and data connectivity services would average 1.3%. Its licence requires its annual "basket of tariff increases" to be below the consumer price index which is currently at 5.6%.

The new Telkom tariffs‚ which take effect in August‚ see office-hour local calls - the bulk of most companies' phone bills - rise 9.5% from 42c a minute to 46c. Prepaid customers will see office-hour local calls jump a hefty 17% from 60c a minute to 70c.

Duvenhage, head of information and communications technology in Africa, says these price increases will not replace the revenue from the significant number of fixed line customers Telkom has lost in the past 12 months.

"Key to Telkom retaining existing customers is being able to offer a converged solution. Prices obviously have some impact‚ but the service provision - its convenience to value proposition - is more important‚ especially for enterprise customers‚ which Telkom has identified as key to its turnaround strategy‚" Duvenage says.

World Wide Worx's managing director Arthur Goldstuck says the problem with Telkom's annual rate increase is they do not take into account the fixed cost of having a Telkom line‚ which has increased every year for the past 13 years.

Goldstuck says "regardless of how well the accountants justify the continual rise in fixed line rentals‚ it represents the central weakness in Telkom's consumer strategy."

Call costs

The cost of a call to a mobile number "is equally damaging to their attempts to woo consumers"‚ he says.

"A Cell C pre-paid account makes a Telkom fixed line account look silly by comparison‚" says Goldstuck.

He says if Telkom wants to save its fixed-line business as an operation with both scale and scalability‚ "it must address the biggest obstacle in the way of accessing the consumer's wallet‚ and that is price".

According to Goldstuck‚ the price of installation‚ price of line rental‚ and price of ADSL rental represent a triple-play of obstacles in the way of building up the fixed-line business.

The increase in overall prices comes after Telkom agreed to reduce the prices of infrastructure related to the provision of fixed-line broadband service asymmetric digital subscriber line (ADSL)‚ following an agreement with the Competition Commission.

While not all basic voice and data prices are going up‚ the increase comes as mobile operators are also intensifying the fight for market share with the ongoing price promotions on both data and voice. On face value‚ some of Telkom's prices might be seen as lower compared with rates charged by mobile operators.

Expensive rates

Telkom's price adjustments will see a decrease in the tariffs for outgoing fixed to mobile calls of 3.1% to R1.30 per minute during peak time and by 2.7% to R1.05 per minute during off-peak time.

Telkom's managing director for consumer services and retail Manelisa Mavuso says Telkom is "committed to serving customers' best interests and to making telecommunications accessible to all South Africans".

Installation charges will increase by 6% while line rental for PrepaidFone also increases by 6%.

"The pricing may help them keep existing customers who make a large number of calls‚ but it provides no incentive to new customers. The pricing strategy guarantees that the landline business will continue to decline in numbers‚" says Goldstuck.

International calls are adjusted by 0% overall‚ however‚ tariffs to some destinations will increase‚ some will decrease and others will remain unchanged.

Goldstuck says international call rates from a Telkom fixed-line or from most mobile operators' cellphone accounts are cheaper than Telkom's fixed-to-mobile local rate.

"That tells us something about the structural contradiction in the call charges. The cost of international calls has already been slashed‚ but there is probably further room for movement‚ because the termination rate - what the local networks pay international networks to connect to them - is typically much lower than the local mobile termination rate or interconnect fee‚" he says.