ICASA PROPOSES NEW TARIFF REGIME FOR FIXED LINE OPERATOR

Issued by: Independent Communications Authority of SA (ICASA)

13 September 2001

Johannesburg Thursday 13 September 2001 - The Independent Communications Authority of South Africa today announces its proposed changes to the pricing regime on services provided by the fixed line operator. The new regime, which will be applied to Telkom's next rate filing, was submitted to the Minister of Communications for approval this week.

The following changes have been proposed by ICASA:

• The limitation of the application of price control to Telkom, as the incumbent operator. This asymmetrical approach is in line with international best practice;
• The reduction of the price re-balancing factor from 20% to 5%. The Authority has noted that this factor could be increased on a case-by-case basis should Telkom provide cost information justifying such exception. "We are aware that the adjustment of s prices in the past by up to 20% has been a major concern to users. It is our view that a re-balancing factor of 5% will benefit the consumers and will not negatively impact on the realigning of charges to cost," the Authority said.
• ICASA is also proposing to increase the productivity factor from 1.5% to 3%. Again however the proposed regulations provide for a review of this percentage should Telkom be able to provide cost-based information to substantiate a reduced X factor. Divent views were expressed by stakeholders during the consultative process on this aspect ranging from suggestions that this factor be reduced to zero percent on the one hand and appeals that this be raised to 5% on the other hand. The Authority stated that the current level of X to which Telkom has been subject is not sufficiently demanding and that Telkom can improve its efficiency. It noted that there was limited information on the profitability of Telkom and thus that the Authority had had limited access to actual figures in determining the X Factor. "In light of this, based on our broad calculations, the Authority has proposed that the X factor be set at 3%," the Authority stated. Given the information available to us, we are confident that Telkom will be able to match this target."
• The Authority has proposed imposing a residential sub-cap as suggested in both the discussion paper and draft regulations. This would be set at the same level of 3%. "We understand that this is a more demanding target than the overall cap of 3%," ICAStated today. "However this is critical in order to protect residential users from the negative impact of price re-balancing. Whereas business users will quite quickly be able to reap the benefits of competition and customer choice arising from competition, the same cannot be said for residential customers."
• The proposed pricing control rules introduce, for the first time, the use of the actual CPI, instead of using an estimate as has been the case to-date. This, the Authority said, will benefit the industry and consumers as it provides more certainty.

The regulations follow a consultative process in which representations were received from a broad spectrum of interests including labour federations.

Issued by the Communications Department of ICASA.