Saving Telkom: Free the local loop

29 Jul

First published on MyBroadband | 29 July, 2010

You have to feel sorry for Telkom. Nobody loves them, the press love to write bad news stories about them and even worse, nobody understands them.

One of the biggest problems that Telkom faces is the simple fact that not only do people keep stealing its copper cables and its customers keep abandoning their fixed lines but they can’t even charge customers what it costs them to keep the phone network up and running.

According to recent reports it costs Telkom double what they charge us in line rental to keep your phone connected on a monthly basis and it hopes that you spend enough on services such as ADSL or calls to your granny in Perth to make up the difference. With lovers of broadband it gets lucky, but people like my sister, who only has a Telkom line to open the gate at her complex, it’s probably a losing proposition.

So what is Telkom to do? One potential solution is actually very easy. Get rid of the problem.

No I don’t mean cut everyone off, but rather get on Icasa’s case to accelerate the process of local loop unbundling (LLU).

For those who don’t know what the local loop is, it is every part of the telecoms network from the local exchange to the phone jack in your house and LLU involves giving all telecoms operators equal access to this infrastructure.

Now there are a number of ways to get this done, firstly Telkom could set a price for access and other operators would have to pay it, secondly Telkom could create a special, independent, division to run this and it would set the prices that everyone – including Telkom – would have to pay for access to the local loop. Finally, and this is my personal favourite, Telkom would take its local loop infrastructure, spin it off into a separate company that would be responsible for installing, maintaining and repairing the entire local loop infrastructure.

At this point you may think that I have lost my mind, why would Telkom want to give up its most valuable asset and make it easier for its competitors to steal its customers.

Well it’s very simple, once LLU happens the real cost of maintaining the network becomes a matter of public record. Telkom, and all its competitors will now have to pay the full cost of running the network. At the moment if you use another ISP Telkom only gets a part of the revenue generated by your line. With LLU Telkom will only be subsidising the lines of its customers and will be able to choose which customers it subsidises and if its competitors want to buy market share by subsidising the access fee then they would be free to do it as well.

But more importantly Telkom would be freed up from worrying about silly little things like how to secure its copper cables and handling installations and fixing line faults.

There are a few issues that would need to be ironed out, though. Who would want to buy this and could they make it profitable?

How would Telkom get this past its unions, which would probably throw a temper tantrum of note when the word ‘restructuring’ is mentioned?

Would Telkom be willing to give up its stranglehold on the local loop and compete on an equal footing with the rest of the market?

What happens to all those people that Telkom is subsidising and who wouldn’t be able to pay the higher access fees?

The one thing that I think is clear is that with an independently owned and operated local loop the SA telecommunications market would be a better place for all operators and consumers, and yes even for Telkom.

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