Telkom (South Africa)

Telkom SA, Ltd.
Company type	Public
Industry	Communications Services
Founded	Johannesburg, South Africa, 1991
Headquarters	Pretoria, South Africa
Key people	Reuben J September, Acting CEO
Products	Telecommunications; Broadband Services
Revenue	2004: R43 billion ZAR (6.5%); ($7 billion USD) [1]; 2005: R43.1 billion ZAR ($6.9 billion USD)[2]
Number of employees	26,133
Website	www.telkom.co.za

Telkom SA Ltd. (NYSE: TKG, JSE:J653) is a wireline and wireless telecommunications provider in South Africa. Telkom is a semi-privatised, 39% state-owned company.

Telkom Market Position and Ownership

Telkom currently has a monopoly on both handling international connections to and from South Africa on the SAT3 & SAFE backbone lines, which account for the majority of international bandwidth in the Republic, and fixed-line communications. However, with the introduction in the form of Neotel, the second national operator of South Africa (which will provide public services from June 2007) the company is expected to face new challenges.

Telkom was managed by US-based SBC Communications (now AT&T) from 1997 to 2004. SBC has since sold its interest in the company, after reducing operational expenditure (reducing staff resources, etc) and increasing revenue by increased product prices, hereby increasing the share-price for greater ROI.

Infrastructure

At a 2002 estimate, there are close to five million fixed lines currently in use in South Africa, all of which are currently owned and operated by Telkom. According to the World Factbook, it is the 'best developed and most modern in Africa'. It consists of local copper loops, microwave and fiber optic loops, and wireless connections.

The first use of telecommunication in the Republic of South Africa was a single line telegraph connecting Cape Town and Simonstown. After Bell Labs' development of the telephone, the first undersea links were introduced, first connecting Durban and Europe, and soon after, the rest of the world. The network continued to develop organically in a heavily regulated market as international technology developed. At this point, telephone services were operated by the South African Postal Service.

In the 1960s, South Africa was connected to 72 nations and total outgoing annual international calls numbered over 28,800.

The routing and billing system were almost completely digital by the mid 1980s, which made way for the currently used systems of ATM, SONET, ISDN and others. Telkom SA, Ltd. was founded on 1 October, 1991.

Broadband Internet in South Africa

Telkom provides ADSL to subscribers, typically to inner-city and suburban areas in Pretoria, Johannesburg, Cape Town, and Durban. The roll out of the service continues slowly. Telkom is currently the largest provider of broadband in the country, with over 120,000 subscribers at last count in 2005.

The cost of ADSL services are separated into a line rental fee, a connection fee and an Internet Service Provider (ISP) fee. Telkom has an overt monopoly on the first two services, but the company allows local ISPs to repackage the third item. An installation fee is also applicable. There is a lengthy backlog in several ADSL installation departments caused by demand far exceeding supply, along with a severe shortage of subscriber slots in local DSLAMs and employees to install the service.

Different connection speeds on offer (associated with different connection fees) include 384/128, 512/256, 1024/256 and currently on trial 4096/384 kilobits per second of bandwidth for downstream/upstream respectively. In August 2006, Telkom announced that all DSL1024 users will be upgraded for free to a 4096/384 trial service. Total ADSL usage per calendar month is limited, with the limit depending on the ISP package used. Telkom's default ISP package limits the user to three gigabytes in a calendar month, with port prioritization and bandwidth shaping. Packages offering up to thirty gigabytes are available from other ISPs. An average ADSL subscriber in South Africa pays roughly R670 ($109 currency conversion) per month for access; the annual sum of this fee is around 11.8% of the national per-capita income.

In light of the high cost of entry many broadband users have settled for cellular alternatives instead. At R2 (USD 30c) per MB (or less when buying data bundles) GPRS, EDGE, 3G, and HSDPA services have become increasingly popular for email and light browsing. Buying data bundles of up to 2 GB is now more affordable than Telkom's entry level packages. Virgin Mobile currently charges data at 50c (USD 8c) per MB without offering data bundles plus reportedly under charges and offer V Rewards for higher usage customers. Virgin Mobile only offers GPRS and EDGE services through the network operator Cell C and no official 3G or HSDPA services.

Competition

Recent legislation passed by the South African government have lowered many restrictions on companies wishing to provide telecommunication access in the Republic. Competitors to the land-line monopoly have flourished, with special note given to providers of wireless broadband, who provide greater geographical penetration, by means of the technology used, than Telkom. Examples of these providers include Sentech, an extension of the state-owned South African Broadcasting Corporation, and WBS Co., a black owned enterprise. On the 31st August 2006, Neotel (Second Network Operator) announced the launch of its services as the second national operator, initially offering wholesale international services, with plans to expand to business & residential customers within months. Neotel plans to initially use CDMA-2000 wireless technology for the last mile infrastructure due to the government and ICASA's (the regulator) inability and unwillingness to unbundle the local-loop, leading some to suggest that it's not much more than a cellular operator instead of the much needed competitor to Telkom.

The three mobile telephone networks in South Africa, listed in terms of numbers of subscribers, are Vodacom (who both Telkom and the United Kingdom's Vodafone own large stakes in), MTN and Cell C. There are several service providers, such as Virgin Mobile and Nashua Mobile, who subscribers can use to access the networks. There are approximately six times as many cellphone subscribers than land line subscribers in South Africa (30 million versus 5 million), and since these networks route their calls over their own network, GSM providers have taken a large chunk of Telkom's business.

Another promising technology is Voice over Internet Protocol (VoIP), which may decrease the amount of calls made over the PSTN in the near future. Telkom's international calling rates are already far undercut by VoIP providers: A Telkom call to the United States will cost R1.40 a minute ($0.19 currency conversion); a call of the same duration made through Skype will cost only one tenth of that - R0.14. ($0.02 currency conversion)

Competition in broadband and telephony is diminished immensely due to the fact that Telkom owns the international links to the rest of the world - the vast majority of bandwidth and telephone calls are routed through them. Finally, although the Government are taking steps to liberalise the market, laws regarding telecommunications are still quite restrictive relative to the United States and other developed nations.

An example of restrictive legislation is the Draft Convergence Bill, which attempts to control the development of such commerce. Telkom is currently under much fire from the Independent Communications Authority of South Africa (ICASA), who accused it of excessive ADSL line charges.

Criticisms

The continuing monopoly of Telkom in South Africa's communications industry, and governments large stake in the company have been perceived as not being in the public interest. Call costs are high, and the regulator ICASA as toothless. The elderly minister of communications has a penchant for falling asleep during meetings and by her own admission "only hears about rate changes when her friends tell her". Telkom has a monopoly of all international calls originating within South Africa excluding VoIP, and of traffic over the SAT3 fibre that provides most of South Africa's international bandwidth. The indecision over the second network operator, to Telkom's advantage, is also not considered to be in the public interest.

Telkom has also attracted attention for improperly conducting itself in contract dispute with Telcordia resulting in a decision from the Supreme Court of Appeal against its favour in which the Judge described Telkoms legal team as conducting "verbal manipulation". [3]

On the 19th January 2007, a full page advertisement was taken out in The Mail and Guardian, a national South African newspaper. Money for the ad was donated by dissatisfied South African individuals and businesses. The page is used as a public outcry, detailing some of the things Telkom has done in hopes of bringing more attention to the current situation in South Africa's telecoms industry. The effort was organised by the Telecoms Action Group, TAG.

References

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