Is Telkom not missing out?

I had a thought the other day (no, it didn’t hurt) about Telkom and its approach to the South African telecoms market. I have been complaining (and once or twice I did the opposite) about Telkom for quite a while. For the most part I have ranted about their idiotic pricing structure for ADSL services in South Africa. For those who still don’t know how Telkom prices its ADSL offering, here is a primer. To subscribe to an ADSL service (you have the choice of a 192, 384, 512 or 1024 kbps), you pay the following:

• a once off installation fee of roughly R404;
• the monthly line rental of between R92 and R122 (depending on whether your line is a residential or business line);
• the monthly ADSL of between R270 and R680 (depending on the bandwidth option you selected); and
• your Internet Service Provider’s monthly charge for access to the service (here is there is quite a bit of variation depending on which bandwidth cap you choose).

Of course, you would also have to contend with a hard cap on your bandwidth each month and the fact that your service will probably be shaped (preference is giving to certain activities online such as email and web browsing as opposed to gaming and whatever else people do online). I think it is fair to say that the average cost of a 384kbps line excluding ISP charges can be around R800 per month. That works out to roughly $125 each month. To that you still add the ISP charge.

Anyway, it is pretty expensive and all you need to do is visit a site like Hellkom to see just how expensive it all is compared to other countries. The regulator, the Independent Communications Authority of South Africa has just published draft regulations which, if implemented, will slash many of the costs Telkom imposes and will force other changes (increased monthly cap and guaranteed minimum bandwidth). That is a big "if" though. I’m not holding my breath.

What I am actually working towards here is that surely Telkom is missing the boat? A while back I mentioned something called "the long tail" which I basically understand to be a reference to this phenomenon you often find in markets where the majority of revenue is derived from sales (for instance) of a small number of well selling items. In the music industry, for example, only a handful albums really sell well. The majority don’t sell nearly as well. The flipside of this is that there is a heck of a lot of items (the vast majority) which don’t sell as many copies/albums/whatever per item but if you can open up the market for those items, your overall sales be more than worth the effort of opening up that segment of the market.

What if Telkom dropped its prices and opened up the ADSL market to the "long tail" version of the South African telecoms market? There must be many people out there who have a computer and who could probably afford a basic ADSL service if it was just a bit cheaper. For example, if Telkom did away with the monthly ADSL rental charge (regarded by many as superfluous). You may well see the market expand dramatically thereby boosting Telkom’s share of the potential market.

Presumably someone at Telkom has run the numbers and has decided not to adopt this approach. Rather play it safe and safeguard Telkom’s profit of around R272 per second than work towards bridging the digital divide in South Africa that just keeps getting wider and continues to stifle local IT businesses. Just very narrowminded in my view.

The good news is that our second national operator was finally licensed yesterday and we can expect to see some real alternatives to Telkom by the middle of next year. I wonder if the move away from Telkom will be as dramatic as some have suggested.

Update:



For more views on Telkom, take a look at this post at tomorrowtoday.biz (a very nicely done site running WordPress).

I’m listening to Silent Scream from the album "Silent Scream" by Louise Carver

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