No tariff cuts just yet

Johannesburg, 03 Feb 2009

The business process outsourcing (BPO) industry has a long wait ahead of it before it can benefit from lowered telecommunications costs from Telkom.

Phumela Salela, director of BPO at the Department of Trade and Industry (DTI), states Telkom has made price concessions, but the industry cannot benefit from these yet.

In July last year, it was speculated that Telkom was ready to announce reduced tariffs for the BPO sector - but no new tariffs were announced. Salela states that though the pricing hasn't been announced, Telkom has offered the BPO industry competitive tariffs - but there is still a lengthy legal process ahead.

“Because of the pricing, Telkom would have been seen as anti-competitive. So what we need to do is to apply for BPO to be designated as a sector so that we can qualify for the pricing that Telkom can offer us,” Salela explains.

Because the tariffs offered by Telkom were lower than those the state operator had offered value-added networks, legal processes had to be put in place in order to benefit from the tariffs, Salela notes.

“Cost is a key issue with BPO and the DTI, along with the Department of Communications and Telkom, are working on lowering the cost of telecommunications. Telkom has made the concessions, but now we are working on a number of legal requirements which have to be met. We are busy making the relevant consultations.”

Salela says this time around, the DTI hopes to have this matter resolved by the end of 2009.

Competitive hold

But the wait could be longer.

The next step in the process is the application by the BPO industry for designation as a sector by the Competition Commission. The commission explains that designation of an industry is required if participants want to be exempted from certain prohibitions in the Competition Act.

Exemption may be granted under Section 10 of the Competition Act if the anti-competitive agreements or practices contribute to “the economic stability of any industry designated by the minister”. These exemptions apply only to the restrictive agreements or practices which are prohibited by the Act.

An investigation will then be undertaken by the commission - and if it finds there are no anti-competitive agreements or practices being contemplated by BPO industry, the request will not be opposed.

But because the Competition Commission is a component of the DTI, the department cannot make an application for the designation of the BPO industry. Requests have to be tendered by BPO organisations.

Salela notes that the department is working with the industry, but declined to give details of which organisations are involved in the process. She states that first the industry has to reach consensus and “prove a case for why the BPO industry should be designated as a sector”.

An application to the Competition Commission has not yet been made by the industry.

Promoting BPO

In 2006, Cabinet signed off on a BPO incentive scheme which aimed at increasing foreign investment and creating jobs through the development of the BPO industry.

The department was expected to spend R2 billion over a period of three years on this scheme - and aimed to make SA the world's third-biggest BPO centre, after India and Philippines by 2008.

The DTI also announced it would work with Telkom to lower the cost of telecommunications in SA and promote the sector with the hope of creating up to 100 000 jobs. The DTI stated it would create 25 000 direct jobs and 75 000 indirect jobs by 2009 - but, says Salela, this has been pushed up to 2010 to “ensure realistic target measures”.

Salela says lowering the cost of telecommunications is essential to ensuring the country is a competitive destination for foreign investment.

“Lowering the telecommunications cost is very important because the majority of the cost in BPO comes from there. Labour is the second highest cost, followed by operating costs. We've assisted companies with their labour costs and now we are working on lowering telecommunications costs.”