Trade and Industry

Saturday, 15 June 2002

Competition Policy and Regulation: A Case Study of Telecommunications

  • Year: 2002
  • Organisation: TIPS; WITS
  • Author(s): Rossana Achterberg
  • Countries and Regions: South Africa

Rapid technological change has impacted on the provision of telecommunications in South Africa, as in other countries. The increasing capacity of fibre optic networks, the growing powers of computers, the growth of satellite communications and other broadband developments are major factors influencing growth. Data to support an "information society" is a major driver of technology, with data traffic volumes growing exponentially as business requires more information. The South African telecommunications parastatal (Telkom) is investing heavily in fibre using SDH (Synchronous Digital Hierarchy) transmission systems and technologies such as ATM (Asynchronous Transfer Mode) in attempts to match growth in demand. Wireless local loop systems such as Digital Enhanced Cordless Telecommunications (DECT) are also making a major impact on connectivity in rural areas.

Telkom was granted a monopoly license for five years by the government in 1997 with the explicit objective of extending telecommunications services in South Africa to facilitate broad-based economic development. In 1997 penetration rates were just 4 percent in rural areas, while in the country as a whole there were 11 telephones per 100 people. A regulatory body (SATRA) was established to monitor Telkom’s performance and service delivery milestones. As a result, the telephone monopoly has embarked on a mammoth internal restructuring exercise in an attempt to rectify its substandard levels of customer service and to improve communications support to historically isolated business units.

Section I of the paper examines the important telecommunications product areas. Vertical areas of operations are distinguished from the maintenance and extension of the network of fixed lines, the core telephone service and value added network services. Section II examines the corporate structure, ownership and control of Telkom. Section III assesses economies of scale in different areas, while Section IV examines vertical relationships and barriers to entry depending on control over access to the network drawing on an example from internet service provision. After outlining pricing trends in Section V, Section VI assesses Telkom’s performance against both financial and non-financial criteria, and reviews the impact of regulation.

In this way, the research aims to provide the foundation for discussing the role of the legislated monopoly over basic telephone services, and the implications for the future interface between competition policy and regulation when the monopoly ends.