Telkom briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE; LABOUR & PUBLIC ENTERPRISES SELECT COMMITTEE: JOINT MEETING
1 March 2000
BRIEFING BY TELKOM

Documents handed out
Telkom: Presentation to the Joint Committee

SUMMARY
The committee was updated on Telkom's operations, responsibilities and targets as outlined in their licence as well as restructuring.

During the discussion period Telkom noted that its exclusivity as a fixed line service provider runs out at the end of 2002, Telkom would want all operators to be treated equally. This notion of equal treatment includes an expectation of impartiality from the regulator.

With the new digitilisation technology that Telkom is installing, the ''nommer asseblief'' operators would no longer be required. Where possible, these people would be retrained to perform other jobs within Telkom. They emphasised that some kind of skills transfer would take place though it might be that not all people are able to be re-skilled.

MINUTES
Mr Andrew Barendse (Telkom's Senior Manager: Government Relations) commented that Telkom was pleased to have the opportunity to account to the parliamentary committees and that they were interested to hear from the members how Telkom's work was impacting upon their communities.

Overview
Ms Cassandra Gabriel (Senior Manager: Parliamentary Liaison) proceeded to give an overview of Telkom and its various restructuring efforts. They are currently in the process of digitilising their lines to bring them up to speed with modern technology. [See Appendix 1 for presentation]

Ms Gabriel noted that Telkom's five-year exclusivity period for fixed line service (granted to them in terms of the Telecommunications Act) runs out at the end of 2002. The reason for this exclusivity or grace period was to give Telkom an incentive to build infrastructure primarily in rural South Africa. What government wanted to see was development and delivery in rural areas. Government feared that bringing competition into the country at too early a stage would result in profit-orientated companies not providing services or building any kind of infrastructure in areas which were not profitable (such as rural areas).

Telkom is regulated by SATRA who set out the terms of Telkom's licence. The licence outlines the targets that they have to meet and if they default on these, then SATRA fines them per line. Ms Gabriel stated that there is no doubt that the ''other companies will come'' at the end of 20002 as a market exists here. Telkom hopes that all the operators will then be treated equally. Encompassed in this notion of equal treatment is impartiality when it comes to the regulator. In this regard, Ms Gabriel said that all the operators ''must have faith in the regulator's mediation''.

Discussion
(Q) Ms Taljaard (DP) asked the panel how they saw the role of Telkom in relation to other operators once the five-year exclusivity period was over.

(A) Mr Barendse replied that the Telecommunications Act created specific roles and functions which were clearly defined. They recognise that SATRA was created to enforce the policies in the Act. Telkom as an operator is passive in this regard. The government will decide what their position in relation to other operators will be. Mr Barendse added that he expected ''wide consultation'' in this regard.

(Q) Mr Mkhize (ANC) referred to the process of digitilisation that Telkom was going through for the purpose of upgrading their technologies. He asked what the impact of this digitilisation would be on jobs in Telkom.

(A) The panel replied that the new technology would allow them to do away with the ''nommer asseblief'' operators. However, where possible, these people can be retrained to perform other jobs in Telkom. The question which lay before them, however, was whether all these people were in fact reskillable. Telkom had been pursuing literacy programmes for those people who are not literate. They concluded by emphasising that some kind of skills transfer will take place, especially "for Blacks", and said that ''jobs must be created''.

(Q) Ms Botha (DP, Free State) asked if they had any specific policy on providing telephone services to farm workers. She also asked how they compared internationally in respect of the cost of calls.

(A) Telkom does not engage in any kind of preferential or exclusionary treatment as ''a customer is a customer''. Negotiations have to take place with the landowner to install telephones on private property. They have been able to negotiate with some farm owners to put public telephones on farm property. The panel said that Telkom has ''an active policy of pursuing this''.

Regarding the cost of calls, the panel said that they welcomed the impending competition so that they could compare their cost of calls to competitors. He said that people often compared Telkom to other countries, and that this was inappropriate, as South Africa had ''unique circumstances''. Telkom had conducted a comparative international study on the cost of calls and had discovered that their international calls were expensive while their domestic calls were cheap. It was acknowledged that when the telecommunications market is opened up, international calls is an area that their competitors could zero in on and try to ''beat them''.

(Q) What amount did Telkom spend on Black Economic Empowerment (BEE)?
As Telkom was perceived by the public as being unfriendly, unresponsive and ineffective, what were they doing to transform themselves into a more user-friendly organisation so that people did not ''run away from them'' when the competition comes?

(A) Twenty seven percent of their total spending goes into BEE.

Telkom was transforming itself into a customer-friendly organisation. Two specific areas were being addessed: accessibility and attitude change. In terms of accessibility, they have opened up many branches, including mobile branches in areas where access to the organisation was hard. They have also established toll-free call centres, which means that people can access Telkom without any travel costs.

Telkom awards bonuses and prizes to staff members who produce excellent service. Thus, they were ''incentivising''. They were also enhancing the quality of service through training and awareness. They have retrained all their staff and are trying to create a better environment for customers. When a customer called to receive information on billing, the call could be answered in all official languages. Transforming the organisation in this way, they said, ''is the passion of Telkom''.

SATRA has set out specific targets on the quality of their service which can be found in their licence. The targets are what their service performance is measured against. One specific requirement is that they have to repair a service within a specified time. If they miss the deadline, then they have to pay a fine to SATRA. It was precisely for this reason, that they recently paid SATRA a three million rand fine.

(Q) Mr Masithela (ANC) asked for a breakdown of the bursaries which Telkom has awarded. He wanted to know in which provinces they were awarded and what criteria were used to evaluate who deserved the bursaries. He noted that his concern stemmed from the fact that it was often students who had financial means who received these bursaries and not the very poor who really needed assistance.

(A) The panel apologised for not having the statistics with them, but assured the committee that they would look into the matter and make the information available.

(Q) A committee member commended Telkom on their good work in respect of BEE, and their contribution to HIV/AIDS awareness. She then raised the problem of people illegally gaining access to Telkom lines. By way of example, she said a friend of hers who hardly ever used his telephone had been billed R18 000 by Telkom. When he enquired into the matter, he was told that someone had been making calls to Nigeria from his line. She asked what Telkom's policy was in dealing with the problem and what was their approach to the victim of such a scam.

(A) A panel member said that they have a division called ''Fraud Alert'' which works on this problem. They have the ability to measure the number of calls on a line, and what they try to do is to look at trends on telephone lines. If there is an abnormal pattern, they call the customer and make enquiries. If the customer says that he is not making the telephone calls, they will embark on a full enquiry. An investigation will also be conducted if a customer contacts them with such a complain and if ''credit is warranted, then credit is passed''.

They noted that this problem also exists with public telephones as some people have found a way to clip into the telephone lines and bypass the billing system. They acknowledged that this is a ''high risk area''.

(Q) Ms Lubidla (ANC, Northern Cape) commented that she had heard complaints from constituents that they were being forced to switch to the system of pre-paid telephones. She asked for a comment on this.

(A) A panel member said that he was not aware of any such practice and that it was certainly not Telkom's policy to force customers to switch to this system. However, he offered the following as a possible explanation for the complaints:
Some customers have difficulty paying their bills. This results in their lines getting disconnected, then reconnected, then disconnected again, and so on. When customers experience such difficulties paying their bill, Telkom telephones them and offers some kind of payment plan, and if the customer refuses, they suggest that the person try the pre-paid service (so that they can control the amount they spend on their telephone bill). They do this because their policy is to ''try to keep a customer''. Thus they aim to avoid getting lines cut off. He indicated that it was their approach to try and sell this service and perhaps salespeople have been over-eager and switched customers to this kind of service without their consent. He said that he was not aware of this, but if it was happening, then they would deal with the matter.

Another problem they experience, slightly related to this, was the incorrect suspension of lines. This happened for example where people paid their accounts at the last minute, especially if they lived in deep rural areas. It takes time for them to receive the record of the payment and it could result in incorrect suspension. The panel suggested that the MPs ask their constituents, in such situations, rather to call the call centre as soon as they have paid their bill and give their receipt details. This would prevent incorrect suspension.

(Q) A committee member asked about their service delivery in KwaZulu-Natal, specifically to remote villages. He requested a breakdown of where services have been rolled out and where new lines have been installed. He indicated that he did not expect them to supply this information immediately.

Mr Barendse concluded by saying that they had tried to give an accurate account of what they have done pursuant to their mandate, and assured the committee that the information requested by them would be forthcoming.

Appendix 1:
Telkom: Presentation to the Joint Committee

The 1980's
PTT Administration: Commonly known as the Post Office
 Service provision to meet the economic needs of a white minority
 Combined administration inappropriate to meet the needs of a modern economy
 Govt. investigated the option of managing posts and telecommunications as commercial undertakings

1990: Post Office Amendment Act
 Separation of postal and telecommunications functions
 State-owned companies: the Post Office and Telkom SA
 Two tier management structure:
-Govt. controls policy and regulatory issues
-Management controls operations to effect policy

1994: New democratic government
New mandate: A better life for all South Africans
 RDP: Provide basic services through infrastructure development that stimulates economic growth.
 Policy-makers recognised telecommunications as:
a basic need
a precondition for social and economic development

The legacy of apartheid
New Government inherited massive social and economic disparities:

 White South Africa
- 94 in every 100 people had access to a telephone
- 87 in every 100 households had a telephone

 Black South Africa
- Only 53 in every 100 people had access to a telephone
- Less than 12 in every 100 households had a telephone

Ageing network and old technology led to:
- Unreliable service - high rate of faults
- Small range of old-fashioned products

The result?
Severe impact on customer satisfaction and South Africa's global competitiveness

New telecommunications objectives
 Delivering telecommunication services to millions more
 Restructuring Telkom - and other state-owned assets - as a transformation vehicle
 Maximising the value of Telkom for shareholders

New Telecommunications Act
 In 1996 Parliament translated these objectives into law
 This paved the way for a new telecommunications landscape and a restructured Telkom

Strategic Equity Partner for Telkom
Government sold a 30% stake in Telkom to a strategic equity partner to meet the following policy challenges:
 To access part of the capital needed to fund the rollout
 To access new technologies
 To obtain management and technical expertise

Benefits of the partnership:
Over R5.6 billion invested - largest foreign investment in South Africa's history
 R4.4 billion into Telkom's capital investment for the first year
 R1.2 billion into SA's general revenue fund

5 year exclusivity
Granted 5 years exclusivity in certain telecommunications services to:
 Meet government-mandated service delivery objectives
 Comply with corporate transformation objectives
 Maximise the value of the asset

Telkom's licence responsibilities
 Double the network by increasing subscriber access lines by 2.7 million
 1.6 million (62%) of these in underserviced areas - townships and rural areas
 By March 2002 Telkom's network will consist of almost 7 million lines
 This is by far the most extensive network in Africa
 By comparison:
- Angola has 56 000 lines
- Namibia has 101 000 lines
- Zimbabwe has 212 000 lines
- Nigeria has 412 000 lines
- Botswana has 86 000 lines

Promoting universal access
Telkom's rollout is presently the second most prolific in the world (Diagram not included)

Telkom's licence responsibilities (continued)
 Install 120 000 new public pay phones.
 Connect over 3 200 villages to the network for the first time.
 Identify and provide service to more than 20 000 priority customers, e.g. schools, hospitals, libraries and local authorities.
 All six roll-out targets were met and exceeded thus far.
 Over 1.3 million new access lines installed in total
 Upgrade existing analogue network to the latest in high-tech digital technology
 Replace 1.2 million outdated lines in five years
 Meet stringent service quality targets for business and residential customers.
 Faster installation and repair times

A fully modernised network will result in:
 Much more reliability
 Fewer faults, less customer aggravation
 Wider range of modern products available
 A focus of resources on other priorities, e.g. improving customer service

Promoting African connectivity
 Existing routes to 26 African countries
 SAT3/WASC/SAFE
- Providing for Africa's telecommunications needs for the next 25 years
- 40 African and international operators involved
- US$ 600 million

Transforming Telkom to deliver on its mandate
A Representative Telkom Board (Diagram not included)

Representation in management?
 1 black manager in 1993
 30% black managers in March 1999
 Target: minimum of 50% black management by March 2002

Women in management?
 13% women managers in January 2000
 Target: 20% women management by March 2002
- Women represent 23% of our workforce
- Target: minimum of 30% overall representation

Are we transforming the way we do business?
 Telkom is promoting black economic empowerment through purchasing of equipment and services.
 More than 371 black suppliers are now doing business with Telkom: 351 black SMMEs and 20 large black suppliers
 Total value of R4.7 billion spent on black suppliers in just under three years.

Telkom voted most "active trainer" in SA
 Deputies Programme
 Individual Development Programme
 Exchange Programmes to SBC and Telekom Malaysia
 11 744 employees in ABET programme
 Performance Based Technical and Customer Service Training
 7 826 employee bursaries awarded
 324 school grants awarded

How we earned the title...
 410% Increase in learning days
1997 - 267,150 days delivered
1998 - 320,580 days delivered
1999 - 1,315,554 days delivered
 88.7% of our employees received training
 On average, more than R 6,700 is spent per employee

Telkom's HIV/AIDS programme among the best
 We have the buy-in of our Board, our top management and labour.
 Ongoing awareness, condom distribution, and free, confidential treatment of genital and urinary tract infections (GUIs).
 Understanding the impact on costs and productivity - we're currently conducting an actuarial costing.

Partnering the Government in the fight against HIV/AIDS
 Up to now, Government has footed the bill for condom supplies to SA workplaces.
 As part of its social responsibility drive, Telkom will help alleviate this burden on Government.
 From 1 April 2000, Telkom will be purchasing condoms for internal distribution (approximately 5-million condoms for 2000/01).

Telkom's social investment
 Telkom Foundation to spend R100 million over five years
 Internet 1 000 project - leapfrogging development gaps
 7 800 science and technology bursaries
 12 Centres of Excellence involving at least 23 institutions for higher education

Thintana's social investment: R120 million over 5 years
 R20 million to the Tertiary Education Fund of SA (TEFSA)
 R25 million in grants to five previously disadvantaged universities
 R10 million on scholarships to University Telekom in Malaysia
 R20 million for Internet 2000 projects - aim is to place 3000 computers in about 200 schools
 R30 million to promote maths, science and technology training at the secondary school level

Information Technology & Engineering sponsorships
Telkom and Thintana sponsored students from disadvantaged backgrounds to study in Malaysia
 1998: 9 students sponsored
 1999: 21 students sponsored
 2000: 20 students shortlisted

Telkom's contribution to the economy

Financial results

Telkom, investing in South Africa

Source: Department of Finance