Economics Tele-Communications

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Telecommunications is one of South Africa’s fastest growing sectors and is one of the most advanced networks in Africa. The market is divided into three primary sectors; fixed lines, mobile networks and broadband. The structure of the industry will be described in an attempt to illustrate core economic principles, primarily related to market structures.
Some people may argue that the fixed line market is an oligopoly, since the entrance of Neotel in 2006. However, in 2012, Neotel only held 6% of the market while the other 94% held by Telkom (Mawson 2012). Telkom’s dominant market share indicates that the market is still operating as a near monopoly; it cannot be a pure monopoly due to the fact that there is another competitor that is a close substitute and it does not function effectively as a duopoly due to Telkom’s dominance. Furthermore, one may consider it a regulated monopoly due the role ICASA plays as the regulator.
Despite the new competitor and the fact that Telkom was losing customers due to mobile industry growth, Telkom used its monopoly to the best of its advantage: since 2000, its operating profit margin increased from R1.54 billion to just over R9 billion in 2007. In order to achieve such profit margins, the costs clearly must be high which was the case as South Africa is currently one of the highest in the world and studies have indicated Telkom's pricing as disproportionate (Ponelis & Britz 2008). Telkom had 4.8-million fixed-line subscribers in 2003 and only 3.9-million by 2012. In 2003, its network carried nearly 33-million minutes of telephone calls. By 2012, it struggled to carry 19-million minutes. Furthermore, fixed lines only accounted for 40% of their market share. Despite this, the declining market did n...

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