Telkom trips over its puzzling ADSL pricing strategy
Years from now, Telkom will make a great case study of both the perils of monopoly and the benefits of healthy competition.
As a relative latecomer to the cellphone business, it had to be more nimble and competitive than the three existing players. As a result, its call and data rates are more attractive than the rest, and it continually simplifies its offering in a maddeningly complex market.
The reward for this agile approach became clear when it released its annual results this week.
Its mobile subscriber base leaped by 30%, to 5.2 million. While the total is still far short of its rivals, the growth rate far outpaced them.
Its trajectory also indicates that, in the next six months, Telkom Mobile will have a larger user base than the Telkom landline had at its 5.5 million peak in 2000.
Revenue from the mobile service grew 26%, also outpacing rivals, and ensuring Telkom as a whole did not go into decline.
On the other hand, the landline business is a poster child — or poster grandfather — for the ills of monopoly. The annual results to March 31 show the biggest fall in landline subscribers yet, with the 2.6 million base falling below half of the 2000 peak.
Telkom may well blame the migration to mobile, but that masks the fact that line rental has increased every year since 2000. In effect, the landline pricing policy has been a form of business unit suicide.
It has the knock-on effect of progressively eroding the potential base for ADSL, which is provided on the back of landlines.
And that is even without rapid migration from ADSL to fibre.
World Wide Worx’s annual SME Survey, which has been measuring small business connectivity since 2003, showed that ADSL penetration of SMEs had remained steady at 73% from 2009 to 2015, the year fibreto-the-home arrived.
SME Survey 2018 reveals that fibre has shot up to 25%, and ADSL declined to 57%.
Yes, fibre is more effective and cost-effective than
ADSL. But it shouldn’t be.
The line rental component adds R199 for a residential line and R299 for a business. This component is the true Achilles heel of ADSL — and a source of tremendous frustration to service providers trying to provide ADSL on behalf of Telkom.
“The line itself is an analogue service for voice,” says Jacques du Toit, CEO of Vox Telecom, a major ADSL reseller.
“People are saying: ‘What am I getting for the R199 — there is no value for it?’ Yet, ironically, the cost is going up every year.”
In fact, landline rental has increased every single year since 2000, correlating almost exactly with the decline in the user base. How, then, should ADSL be structured?
“Release the analogue portion,” says Du Toit. “More than half the customers don’t want to use it for voice anyway. Just charge that ADSL rental portion.
“Where fibre is replacing ADSL in metros, move that infrastructure to secondary towns and capture that market. It will take a good four to five years for all of us to get to the towns with fibre.
“Copper is paid-for infrastructure; they just need to maintain it.”
The landline business is a poster child — or grandfather — for the ills of monopoly