Telkom (South Africa)

Telkom SA, Ltd.
	File:Telkomlogo.png
Company type	Public
Industry	Communications Services
Founded	Johannesburg, South Africa, 1991
Headquarters	Pretoria, South Africa
Key people	Leapeetswe Rapula Radiala (Papi) Molotsane 2005-Present, 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 telecommunications provider in South Africa. Telkom is a semi-privatised, 39% state-owned company.

Telkom Market Position and Ownership

Telkom had 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, the company is expected to face new challenges.

Telkom was managed by US-based SBC Communications from 1997 to 2004. SBC has since sold its interest in the company.

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 heavilly 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.

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 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.

The four cellphone 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, Cell C and Virgin Mobile. 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 considered to be 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 is widely and heavily criticised by other industry players, journalists, academics and consumers as well as international telecoms experts such as Edwin Sutherland and William Melody. Since mid-2004, when Telkom began lawsuit proceedings against critic website Hellkom, the general public has become increasingly aware of what critics label Telkom's unfair, anti-competitive, abusive nature. By Oct 2006, criticism of Telkom had become so widespread that a new word was coined- "Telkom bashing".

Monthly Traffic Limitations and Port Prioritization

Perhaps one of the biggest criticisms of Telkom was its introduction of a monthly traffic limit or "cap". According to Telkom, this was a measure instituted in order for the South African network not to become "congested" with an overflow of information. However, the general feeling in the South African ADSL community is that monthly traffic limits were strategically put in place by Telkom in order to obtain the maximum amount of money from ADSL users. This is mainly due to the fact that Telkom offers extra bandwidth to users for a price. If the limit is exceeded during the course of the month, the ADSL connection is cut off until the end of the month. The user can purchase extra GBs after he/she is capped however. The average monthly traffic limit in South Africa is 3GB, an amount which can be used up in less than a day, even on a low-speed line. Another major criticism of Telkom was its institution of port prioritization or "shaping". This, also was a measure introduced by Telkom in order for networks throughout South Africa not to become congested with too much information. However, port prioritization was an idea conceived mainly to benefit businesses in which employees all shared the same internet connection. Employees who used "bandwidth hogging" applications such as Peer to Peer applications and graphically intense online games often slowed down the network dramatically preventing users who wished to browse web pages or check their mail to do so in a short space of time. Port prioritization solves this problem as it prioritizes certain ports to for certain applications. It works according to a protocol which includes all ports and applications generally used in conjunction with them. These ports are sorted into a list of sorts. At the top of the list appear web browsing and email. These ports and the applications which use them receive the most bandwidth from the network. At the very bottom of the list are Peer to Peer applications and online games. These receive very little if not no bandwidth from the network. Although it is the ideal solution for large companies there is no choice in the shaping matter. Personal connections to the internet also get shaped. This has caused an uproar in the South African P2P and online gaming community as one has to pay over exorbitant prices (roughly two times more) to get their connections "unshaped".

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