Telkom rates hit new high, outrage expected

By Phillip de Wet for Telkom
Johannesburg, 12 Nov 2002

Telkom today filed its planned tariff increases for 2003 with the Independent Communications Authority of SA (ICASA), saying its regulated services would see an average price increase of 9.5% next year.

The increase would have been 11%, the maximum allowed, but under a deal brokered with ICASA earlier this year Telkom was required to forfeit R320 million of its future allowed increase, bringing the actual increase to 9.5%.

Private users will pay an average of 9.9% more on regulated services. Local calls will increase by just over 12%, long distance calls by 12.5% and calls to cellphones by 5.6%.

Similar increases will apply on the installation of new telephones and monthly line rental. Less affected are data services, with business Internet product Diginet increasing by 6.2% and basic ISDN services by 8%. The price of newly launched ADSL access remains unchanged.

Targeting inflation

Clearly ready for criticism that it is contributing to spiralling inflation, Telkom pointed to official figures showing that communications costs were responsible for only 1% of inflation over the last year.

"We are not the culprits in raising the CPI [consumer price index]," says chief of sales and marketing, Nombulelo Moholi.

However, the Reserve Bank`s monetary policy review released in April rate communication as the third-largest contributor to inflation among regulated prices, after petrol and electricity. The bank said communication costs contribute 3.61% of CPIX, the measure on which government inflation targeting is based.

The increases also give a clear indication of the unflattering view Telkom has of the second national telephone operator due to start competing with it next year. Although it has launched new products and moved to protect its large corporate customer base, the new tariffs show none of the "price erosion", generally expected to reach up to 10%, expected during next year.

Telkom says the increases are in line with new, tougher restrictions on it. However, a recent change in regulation allows it to increase prices based on CPI figures, rather than the projected inflation for the year in which the increases apply.

The CPI change between September 2002 and the same month this year has been calculated at 12.5%, and Telkom`s increases are limited to that minus a 1.5% "productivity factor".

However, in a settlement with ICASA on its price increases for this year, Telkom in June committed to forfeiting R320 million of its possible hikes for the next two years.

"We decided to forfeit the full amount this year," says Moholi, confirming that R320 million makes up the difference between the 9.5% actual increase and the 11% allowance. If that calculation is accurate, the company will see more than R2 billion in extra revenue thanks to the increases.

Learning from cellular

Telkom also announced a number of new services due to be launched in the next two years, many of which show that it has learnt some lessons from its cellular competitors.

A "BestFriends" package, with a subscription fee of less than R10 per month, will allow a 10% discount on five pre-selected Telkom numbers, including dial-up Internet calls. A service named SilverLine will package "free" talk minutes with line rental and free basic voicemail is to be available, free of charge and on request, for all customers. The company`s Ease-e-Bill electronic billing service is also to become available to consumers in January.

On Christmas day, from midnight on 24 December until midnight on 25 December, calls between Telkom numbers will be discounted by 25%.

"We said there would be more product innovation on our packaging side and our billing system now allows that," says Moholi of the new products.