Public Hearings on cost of communications November 2012

Telkom’s contribution to lowering cost of comm’s 1.Launched first FMC bundle in the form of Telkom-Mix 2.Retained 68% of customers that took on the free 3-month broadband trial 3.Launched uncapped broadband customer value propositions 4.Improve entry level broadband product proposition 5.Increase basic broadband offering speed from 384kbps to 1Mbps 6.Launched Telkom Business Mobile & TBIZ uncapped offering 7.Telkom has reduced prices of Fixed-to-Mobile calls

Telkom has kept price increases below inflation Trends  Since 2005, communications prices have risen more slowly compared to other inflationary indices (Education, Food, Medical & Health care, Housing, Transport) and the gap continues to widen  Whilst Telkom’s costs have increased in line with inflation, Telkom’s price increases have been kept below inflation which also resulted in profit squeeze  Telkom has consistently demonstrated prudence in its pricing practices to the detriment of its own profitability  Telkom’s tariffs for line rental is below costs and loss making Telkom has kept price increases below CPI and below Price Control allowances

Telkom’s contribution to lowering cost of comm’s DSL 1.In 2011 Telkom upgraded DSL Faster (512 KB/s) to 1 MB/s at no cost to customers 2.Between August and November 2012 Telkom again upgraded DSL Fast (384 KB/s) services to 1 MB/s speeds as well as DSL Faster (1 MB/s) services to 2 MB/s 3.These upgrades are equal to a price reduction of 45.8% since the current (before upgrade) DSL Faster at 1 MB/s cost R VAT incl. while the new DSL Fast at 1 MB/s will only cost R VAT incl

Telkom’s contribution to lowering cost of comm’s Wholesale business Telkom reduced the prices of wholesale products during 2012/2013: 1.IPConnect -30% 2.SAIX Dedicated Access-10% 3.SAIX ADSL Usage-20% 4.Metro Clear-57% 5.Ethernet Express-57% 6.IPLCs (legacy Half circuits)-20%

Telkom’s pass-through of MTR reductions Telkom’s Fixed-to-Mobile retail prices have come down!

How MCOs have profited from Telkom through high MTRs Telkom would pay approx 10x more to MCOs than it received from MCOs Asymmetry and ICX revenue was used by MCOs to build networks and offer low on-net calls to increase fixed-mobile substitution Over 2002/2010 period this ‘overpayment’ amounts to approx R34bn

Shortcoming of current Call Termination regulations 1.Current call termination regulations set the interconnection charges that operators can charge one another 2.In respect of mobile operators, the MTRs include the cost of both access and transport segments of the network to the POI 3.Telkom’s FTRs however do not include the cost associated with the access network This is a result of differential treatment arising from the regulatory accounts 4.Telkom believes the levels of current FTRs are unfair and discriminatory 5.Is backward looking and ignores the convergence of service offerings and the convergence of the underlying costs of networks

Challenges that Telkom Fixed-line is facing … 1.Declining voice revenue 2.Access Line Deficit (Telkom is subsidising line rentals) 3.Inappropriate termination rate regime 4.Asymmetry in termination rates 5.Legacy regulatory obligations 6.Extensive capital investment required to renew & expand network 7.Cable theft

Conclusions 1.Telkom supports principle of cost-oriented termination rates 2.Call termination rates must allow for full cost recovery 3.Current MTRs means that 8ta’ is already under-recovering costs 4.New entrants (like 8ta) should be given higher asymmetrical MTRs to allow them to compete with incumbents 5.Current FTRs are set at wrong level and are discriminatory 6.Propose simplified and converged MTR / FTR 10

Thank you