ICASA shackles Telkom ahead of competition

By Phillip de Wet for Telkom
Johannesburg, 13 Sep 2001

The Independent Communications Authority of SA (ICASA) today announced the changes to the fixed-line tariff regime it has put forward for government approval.

The major changes are an apparent blow to Telkom, as they run contrary to every major direction the company lobbied for last year.

Telkom would not immediately comment on the proposed regulations.

Fundamentally, ICASA says it plans to apply asymmetrical regulation to the market and limit price controls only to Telkom, leaving the second national operator (SNO), which is to be introduced next year, unfettered. The body says the limitation of controls to the incumbent operator "is in line with international best practice".

But Telkom has long asked for symmetrical regulation when competition is introduced, with equal obligations on all operators in the market.

ICASA also plans to increase the Telkom X factor, from 1.5% to 3%. The X factor is also known as the productivity factor, as it is the measure by which the company must improve efficiency to maintain its profit margins. If implemented, it would mean that Telkom will not be allowed to increase its prices by more than the consumer price index (CPI), less 3%.

Earlier this year, Telkom argued that the X factor should be reduced to zero, saying too high a factor could deter competition, investment, innovation and quality.

In its submission, Telkom called on ICASA to remove the "X" from its price cap calculation. The Congress of South African Trade Unions (Cosatu), on the other hand, called for the X factor to be increased to 5% in order to lower prices to consumers.

The authority also said it plans to reduce the price re-balancing factor Telkom is allowed to 5%. Currently the company can increase the rates on an individual service by CPI plus 20%, leeway which the SA Value-Added Network Services Association (SAVA) has described as a competitive weapon used to deliver body blows to those competing with Telkom.

ICASA last year expressed concern when Telkom increased its prices by the maximum margin it is allowed. At the time, the body hinted that it would not have approved the increases if it felt it had a choice in the matter and that Telkom would face more constraints in future.

As a monopoly operator, all Telkom tariff changes must be approved by ICASA.

Telkom claimed the maximum increase was required because of an unfavourable interconnect agreement between itself and cellular operators MTN and Vodacom. Negotiations on changes to that agreement are understood to have been concluded. Details are not known, as the agreement is considered secret, but the changes are thought to be in Telkom`s favour.

The tariff regime is subject to approval and publication by communications minister Ivy Matsepe-Casaburri. ICASA hopes she will conclude the matter by mid-October to allow Telkom time to examine the implications before filing its annual request for leave to increase tariffs in November.