The Independent Communications Authority of South Africa (ICASA) proposed a cap of 3.5% below inflation. Initially ICASA wanted a cap of 4.0%, promising minuscule increases, or no hike at all if inflation stood at 4%. Telkom had pleaded for a cap of 2%, arguing that each point inflicted lost revenue of R250m. ICASA said it had reached the compromise after "rigorous public consultation".

The reworked rules have been submitted to Communications Minister Ivy Matsepe-Casaburri for approval, and will still lead to an overall decline in telecommunications costs, ICASA said. At the moment, Telkom can raise the price for a basket of services by as much as 1.5% below inflation. For example if inflation is 6.0%, Telkom could raise its tariffs by 4.5%.

ICASA attempted to balance consumer demand for lower prices with the importance of having an efficient and financially viable major operator. Despite partial telecommunications liberalisation, Telkom retains a monopoly over voice services on the fixed-line network. The lack of competition makes it necessary that Telkom provide high quality services, so it must be able to afford to improve its performance, ICASA said.

When the regulations are approved, Telkom will file a new price list to take effect on August 1, rolling back the larger rate increases it made in January in the absence of the new regime. Recent research by the South Africa Foundation shows that Telkom's fees are as much as 400% higher than fees for similar services in 13 comparable countries. Its most extreme fees are for international leased lines.

Telkom's local calls in peak hours are 199% higher than the average in other countries, and its broadband internet services are 148% more.

"The South Africa Foundation's view that our tariffs impede economic growth are clearly shared by the president," she said. "Fixed-line costs have been our greatest obstacle – but cellphone costs are fast becoming a problem, too", Democratic Alliance MP Dene Smuts said.

Source: Business Day