Computer Science Honours Project Short Paper
An Investigation Into the Optimum Way
Forward for the South African
Telecommunications Industry
by Luke Hardman
< g01h2946@campus.ru.ac.za >
Department of Computer Science, Rhodes University
20 September 2004
Supervisor: John Ebden < j.ebden@ru.ac.za >
Abstract
This paper aims to verify the hypothesis that the Telkom monopoly over the South
African telecommunications industry has had adverse effects on the South African
economy and business in general. The effects of telecommunications liberalisation on the
industry and the economic environment are examined with reference to various case
studies from around the world including Taiwan, the United States and an African case
study. The liberalisation processes of these countries are also discussed and analysed with
respect to the South African context. Also included are comparative prices and
evaluations of general internet and other value added services (such as ADSL) in
countries around the world. The conclusions drawn are that the monopoly has adversely
affected the economy and business in South Africa in general.
1. Background
The South African telecommunications sector has been dominated by the previously
100% government owned monopoly Telkom. In 1997 30% as well as all management
control was sold to Thintana, a consortium, made up of Telkom Malaysia and SBC
Communications. A part of this deal was the provision that Telkom be the exclusive
provider of basic telecommunications services to all South Aficans. This essentially
meant that Telkom, and the two cellular providers, would be the only companies allowed
to carry voice traffic, nationally or internationally. The result is that the South African
telecommunications users have “endured high costs, indifferent service and aggressive
attempts by Telkom (under SBC management) to limit the activities of Internet Service
Providers and Value Added Network Service providers” (CTUF Press Release, 2001).
The liberalisation of the South African telecommunications sector is now more important
than ever and the continuing monopoly are holding back the South African economy
(Anderson, 2004). Taiwan, due to its success in the liberalisation of its
telecommunications market forms a good basis for study and much can be learned from
their experiences that can help us gain the competitive advantage associated with a strong
telecommunications market (Cheng, 2003).
2. Case Studies
2.1 Taiwan
The telecommunications industry in Taiwan was controlled by a monopoly, the state
owned Directorate-General of Telecommunications (DGT) (Hsieh et al., 2003). This
along with mismanagement, mainly of profits not being reinvested resulted in a stunted
telecommunications industry (Taiwan’s Telecommunications Reforms, 1996).
The Taiwanese government saw the importance of liberalising the telecommunications
industry in developing their economy and catching up with other major industrialised
nations. In 1996 three telecommunications acts were introduced which effectively “paved
the way for industry privatisation, deregulation and – equally important to maintaining a
fair and competitive market – re-regulation” (Hsieh et al., 2003).
Since the passing of these laws the Taiwanese telecommunications industry has grown
rapidly with the introduction of stiff competition. Both cellular phone penetration rates
and internet usage figures have sky rocketed. Taiwan enjoys cheaper and more effective
telecommunications in all areas resulting in better business practices and a boost to the
Taiwanese economy. Figure 1. illustrates the large increase in broadband internet usage
since liberalisation which is a priority of the Taiwanese government.
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Increase in number of broadband users in
Taiwan
2500000
Figure 1.
Increase in
number
of broadband users was
ten fold in a 2 year
period.
2000000
Users
1500000
1000000
500000
0
2000
2002
Year
Source: Cheng, 2003
2.2 USA
For almost a century the telecommunications industry in the United States was controlled
by the Bell Telephone company (renamed AT&T in 1899). By 1984 AT&T was one of
the largest corporations in the United States. In that year it was forced by the American
government to split into several smaller regional companies which would become known
as the “Baby Bells”. This, however, did not cripple the company or any of its subsidiaries
(Belize North, 1999).
This split was at the insistence of the United States regulating body the FCC (Federal
Communications Commission). The FCC is an independent government agency and is
directly responsible to congress. It is the FCC that is responsible for regulating the
American interstate and international radio, television, wire, satellite and cable
communications (FCC Home Page, 2004).
Today America offers “services that are competitive and lower [priced] than anyplace
else in the world” (Belize North, 1999). Since the cost of using the internet is most
commonly a combination of the service charge paid to the service provider and the local
phone call to reach that provider internet usage in the United States is very affordable.
This has in turn promoted the use of the internet and e-commerce in general (Belize
North, 1999).
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3.2. South Africa
The South African road to telecommunications liberalisation has been a long, slow
process which began in 1991 with the formation of Telkom, which enjoys a monopoly
over the fixed line market, and the introduction of the two cellular providers in 1993 and
1994 (Laing, 2004).
After partial privatisation of Telkom it was decided by the South African government that
allowing the monopoly to continue would be most beneficial to achieving their goals of
more phone lines. This however proved unsuccessful and many of the new lines installed
to meet a quota were soon disconnected (Laing, 2004).
On the 2nd May 2002 Telkoms exclusive rights over services came to an end but we are
still waiting for the SNO to appear. This was awarded to a conglomerate made up of
Eskom, Transnet, Nexus and Communitel and Two Consoritum, to appear (Laing, 2004).
3.2.1. Recent Developments
Also of importance is the recent announcement by Minister Dr Ivy Motsepe-Casaburri
regarding deregulation of the VoIP protocol which effectively allows consumers to
purchase telephone, video, data and Internet services from more than one provider. It is
the opinion of Internet Solutions, a South African service provider that this “is the most
significant announcement since the passing into law of the Telecommunications Act of
1996” (Internet Solutions, 2004). This itself could facilitate cheaper calls and better
business practices.
If other operators like the Value Added Network Service providers (VANS) can apply for
licenses to offer a range of telecoms services, the question is raised whether or not the
SNO will even be a viable venture. Most involved in the market agree that the
announcement will not be a bad thing for Telkom but will benefit the market in general as
well as benefiting the telecommunications giant.
4. Results
The cost matrix below was produced using relevant internet service provider’s websites
in conjunction with the currency converter found on the website XE.com. All services
compared were the same wherever possible, if this was not possible the service closest to
that offered by Telkom was chosen for comparison.
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Cost Matrix
ADSL
Telkom SA
R1,000,00 pm
ISDN
Data/56K
R198,00 pm
R79,00 pm
Taiwan
R133.00pm
Installation = R40,
thereafter pay per
minute with minimum
of R20 pm.
Almost non-existent
USA
R251.00pm
Nigeria
R
England
R280.00pm
R129.254
R58, 146
R
R195,00
R316,33
R163.00
Figure 2.
As can be seen in the above Cost Matrix (figure 2.) charges for basic internet services are
markedly cheaper in most other countries than those offered by Telkom. The most
noticeable difference is the large variation in price of ADSL services. England, the most
expensive of the other countries analysed, boasts prices almost four times less than those
offered by Telkom. The cheapest, Taiwan, where the government is actively promoting
broadband services, is about eight times cheaper than our locally offered service.
The prices of ISDN services, however, are not nearly this bad and compare favourably
with countries such as England and the United States. Taiwan once again boasts
incredibly cheap rates with the monthly cost depending only on how much time one
spends connected to the internet with a minimum monthly payment of just R20 after
installation.
Our standard 56K dial up connection also compared favourably with the countries
analysed. This however is probably not an accurate representation as just the monthly
subscription is included. Our charges for calls are more expensive and our monthly costs
would approach those of England and Nigeria. Users in the United States, however, pay
only R58 per month and, with local calls in most areas being free, this is all they pay.
5. Conclusions
In the final analysis it is apparent that the Telkom monopoly has been holding back the
development of the South African telecommunications industry as well as affecting
negatively the economy and business in general. With the monopoly coming to an end
and the announcement of the SNO we can expect prices to decrease.
The announcement of the deregulation of the VoIP protocol which becomes effective in
February 2005 will also have large implication for the telecommunications sector as well
as the SNO and Telkom. This announcement could also result in extra input into the
South African Economy with businesses and call centres taking advantage of the new
regulations.
With government recognising the importance of liberalisation we seem to be on the right
track to achieving a cheaper, more efficient telecommunications industry. Much,
however, still needs to be done. Of critical importance are issues surrounding ADSL and
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other broadband technologies which have been shown to be far more expensive in South
Africa than the other countries studied. The South African government should consider
actively promoting broadband usage. It has been shown that this has worked in countries
like Taiwan where broadband usage has grown exponentially and is one the cheapest in
the world. This is important for businessmen and the public alike.
6. References
Belize North. The Bell Telephone Monopoly vs BTL, 1999. Accessed: 25 March 2004.
Available online: URL < http://www.belizenorth.com/bell_telephone.htm >
Cheng, K. Telecommunications Privatisation in Taiwan: A Beautiful Mistake?
University of Manchester, 2003. Accessed: 24 March 2004. Available online: URL
< http://www.devstud.org.uk/publications/papers/conf03/dsaconf03cheng.pdf>
Federal Communications Commission. About The FCC: A Consumer Guide to our
Organisation, Functions and Procedures. A Concsumer and Government Affairs
Publication. Acessed: 28 April 2004. Available online: URL
< http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-229127A1.pdf >
Hsieh,V., Hsu, V., Chen, E., Chaio, R., Weng, L., Su, P. Taiwans Telecommunications
and Broadcasting/Media Industries: The Legal and Regulatory Environment. Winkler
Partners, 2003. Accessed: 24 March 2004. Available online: URL <
http://www.winklerpartners.com/htmlffiles.english/Publications/articles /WP_Telecom
_Env2913.pdf >
ICASA Homepage. About ICASA, Overview, 2004. Accessed: 23 June 2004. Available
online: URL < http://www.icasa.org.za/Default.aspx?page=1009 >
Internet Solutions. News and Events: VoIP Policy Announcement. 14 Septmeber 2004.
Accessed:
19
September
2004.
Available
online:
URL
<
http://www.is.co.za/datafile/default.asp >
Laing, R. Special Report: The Mobile Decade. ITWeb Brainstorm, Vol. 3, Issue 6,
February 2004. Available on the attached CD Rom in PDF format.
South African Consulate General. News and Media, 2004. Accessed: 20 June 2004.
Available online: URL < http://www.southafrica-newyork.net/consulate/news.htm >
Taiwans Telecommunications Reforms. Background Briefing of the Telecommunications
Infotechnology Forum, 1996. Accessed: 24 March 2004. Available online: URL <
http://www.trp.hku.hk/tif/papers/1996/960304briefing.pdf >
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Verikios, G. and Zhang, X-G. 2001, Global Gains from Liberalising Trade in
Telecommunications and Financial Services, Productivity Commission Staff
Research Paper, AusInfo, Canberra, October 2001. Accessed: August 2004. Available
online: URL < http://www.pc.gov.au/research/staffres/ggflt/ggflt.pdf >
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