Why Telkom is desperate to stop Vodacom and MTN from getting more spectrum

Telkom recently launched a legal challenge against ICASA’s plan to auction radio frequency spectrum that is to be used for 4G and 5G networks in South Africa.

It said there are many grounds of review, which include that 700MHz and 800MHz “digital dividend” bands are not currently commercially viable as they are still in use by broadcasters.

Telkom further argues that ICASA has not taken into account the lack of competition in South Africa’s cellular market.

It does not believe the regulator is doing enough to break the dominance of Vodacom and MTN in the market.

ICASA said it will oppose Telkom’s court application against its forthcoming radio frequency spectrum auction.

“This court application does not stop us from proceeding with the receipt of applications in this regard,” ICASA said.

Telkom’s legal challenge comes two months after it approached the Competition Tribunal to declare the suite of spectrum arrangements between Vodacom and Rain as a merger.

Telkom said the merger should have been notifiable in terms of the Competition Act because of the multiple agreements between Vodacom and Rain.

Telkom CEO Sipho Maseko later admitted that there is “in itself” nothing wrong with the Vodacom-Rain agreement and that they are challenging it in the context of spectrum.

What makes this complaint strange is that Telkom previously told the Pretoria High Court that neither the Competition Commission nor the Competition Tribunal had the jurisdiction to intervene in issues involving telecommunications operators because the industry had a regulator of its own.

This is a clear sign that Telkom is willing to use any avenue available to try to prevent Vodacom and MTN from getting additional spectrum.

Telkom trying to prevent competition and lower data prices

Anyone who has been following the South African telecoms market for the last two decades has seen this before – Telkom trying to stop competition.

The planned spectrum auction will put additional spectrum in the hands of mobile operators, which in turn will increase their network capacity.

Operators like Vodacom and MTN would not want to waste this additional capacity, and the easiest way to fill it up is to make data more affordable to give them a competitive advantage.

More spectrum will also limit Vodacom and MTN’s reliance on Rain and Liquid Telecom’s networks to serve their subscribers.

Reducing roaming will give them more freedom to cut data prices, as wholesale roaming rates create a pricing floor.

Giving more spectrum to mobile operators will therefore increase competition and lower data prices in South Africa. This is bad news for Telkom.

Telkom currently relies on its competitive data pricing to grow its mobile subscriber base. This is its main competitive advantage.

The company is known for poor customer service levels and its network quality is not a match for MTN and Vodacom. It can therefore not rely on customer service or network quality to attract new subscribers.

It is also still struggling to shake its monopolistic mindset. Maseko said the company is still grappling with its monopolistic past, which has hampered its ability to function in a competitive market.

The Telkom CEO said their staff was not trained to sell on price and innovation and to ensure their products were better than their competitors.

A more competitive mobile market with declining data prices is therefore a big risk to Telkom as it will struggle to adapt.

Lower data prices will remove its main competitive advantage. and it is not clear what Telkom can then offer to beat Vodacom and MTN.

To address this risk, Telkom has gone back to its old playbook of trying to prevent competition and keep prices high.

Telkom’s legal challenge against ICASA’s planned spectrum auction is, therefore, nothing more than trying to keep mobile data prices as high as possible for as long as possible.