Telkom price cuts welcomed

By Leon Engelbrecht for Telkom
Johannesburg, 14 Jun 2007

Telkom's proposed price reductions are welcome, but consumers are still paying too much for what they are getting, says MyADSL founder Rudolph Muller.

"The pricing itself, between R100 and R200, all-inclusive for broadband is not bad. But when one starts to compare what you get for it with international services, then we are still far in excess of a 1 000% more expensive if you compare per-megabits per-second and per-usage allowances," he says.

"If you take both those attributes into account, we are still exorbitantly priced. However, it is an improvement on the 7 000% overcharge South Africans currently face."

Telkom acting CEO Reuben September yesterday announced an overall price decrease of 1.2%. He said the proposed price reductions would "not only ensure more savings for existing customers, but will also attract new entrants to the broadband experience".

September noted Telkom could have raised prices 8.7%, but chose to do otherwise. "That we have kept our increases well within these limits and have filed for an overall price decrease of 1.2% on our basket services, clearly demonstrates our ongoing commitment to our customers.

"In addition, it reflects our determination to make telecommunications more affordable and accessible."

President Thabo Mbeki has, on many occasions in recent years, called for lower telecommunications prices, as has his Cabinet. To date none have walked this talk.

World Wide Worx MD Arthur Goldstuck says it is politic to talk about lowering telecoms prices, but if September was really serious, Telkom would have dropped the price of local calls - the minimum charge for which remains unchanged at 59.4c, as does the per minute rate of 38c.

Telkom might also not have increased the callmore local calls rate by a cent or raised analogue line rentals. "It is interesting spin to say prices came down when the only price that didn't is the one that affects most Telkom clients," Goldstuck says.

"The new pricing is more attractive than that in place previously, and it is a boon to the SME market as it cuts their cost of business. We've seen a massive migration from dial-up to ADSL because of this. But for the consumer, voice and dial-up is still too expensive.

"Cost is still keeping the consumer market out of ADSL.

"Telkom has had tremendous leeway in pricing structures for many years now, and what they've been doing is bringing down cost slowly but surely so that eventually, in a few years time, it will be at an appropriate level," he adds.

"By doing it gradually, they're giving themselves to strategic advantages - a high margin that keeps them very profitable, and they give themselves further leeway to cut prices when competition will require them to do so... No one knows how they determine their pricing, but what is clear is there are substantial margins."

'Savings' galore

September says the main beneficiaries of the proposed price drop will be DSL users. They will enjoy an average reduction of 18.2% and in the entry-level (up to 384Kbps access) of 38%. The new broadband offering - the entry-level Do Broadband - which combines DSL 384Kbps access and the Internet service provision - has also been cut and will cost R199 per month, including VAT (a 29% reduction).

Business customers of Telkom's data products will see considerable savings, with an average decrease of 12%. International private leased circuits have been reduced by 30% (cable) and 12% (satellite), Diginet (overall) reduced by 11%, Megalines reduced by 10%, and ATM Express reduced by 10%.

Muller says operators in Morocco offer two products in the R100/R200 bracket, "but their offerings allow unlimited usage". He adds: "While the price bracket is now what we should aim for, we now have to look at usage limits because, without this, a massive part of the advantage of broadband falls away."