A new report argues that the reason fixed-line telephony penetration has dropped and is not meeting the needs of poor South Africans is that Telkom operates in a vacuum, alienated from market fundamentals.

The report, Accelerating Shared Growth, Making markets work for the poor in South Africa, was launched in Johannesburg today.

It argues that markets are the best way of assisting poor people in South Africa, and would fast-track government's ambitions of halving poverty by 2014.

The report, commissioned by development agency ComMark Trust and written by South Africa's Centre for Development and Enterprise (CDE), disagrees with the generally held view that robust marketplaces are detrimental to the poor, who need to be protected from them.

ComMark executive director Paul Zille drives this point home: “Poor people, like us, do behave like discerning consumers …. Poor people do act in an empowered way and the market is able to respond.”

And that, the publication argues, is why fixed-line penetration, monopolised by Telkom, has dropped - going from 4,3-million in 1996 to 5,5-million in 2000 and then falling to 4,8-million in 2004.

“Telkom's efforts to broaden access to telephones have been disappointing,” states the report.

Between 1998 and 2001, the percentage of households with fixed-line phones declined by an average 1,4% across four income groups earning less than R2 500 a month.

Meanwhile, with Vodacom, MTN and Cell C competing for a slice of the same cake, cellphone ownership moved up 6,8 percentage points on the same basis.

In addition, mobile users have grown from a million in 1996 to 26-million last year.

And, the report says, thanks to competition, cellphone call rates have come down while Telkom's prices have risen.

“There is ongoing competition between the cellphone providers to capture users, and the users, in turn, regularly switch providers as cheap stand-alone starter packs become available.

By contrast, anyone wanting to access a fixed line can only choose one service provider.”

The telecommunications case study is one of seven that highlights the benefits of a market to improve the lives of the poor.

“Making markets work for the poor is founded on the principle that well-functioning inclusive markets offer the only lasting solution to poverty. But this approach does not leave the poor to 'pull themselves up by their own bootstraps',” adds Zille.

Instead, it calls for a system that builds on the current market place, taking into account any constraints that may be present.

The report argues that any developmental programme should not put into place once-off programmes that are not sustainable, instead seeking to channel aid through an existing market.

It also says that assistance should start at grassroots level, and consider where a particular community is in terms of its market.

It can then seek to identify what issues are excluding the poor, and how these people can be brought into the fold.

One should also look at regulatory issues, and address barriers to entry that will enable a system that lets the poor help themselves.

“Making markets work for the poor requires strong states to help the poor to help themselves, make existing markets work more inclusively of poor producers and consumers and make the benefits of well-functioning markets more widely accessible,” explains CDE executive director Ann Bernstein.