The supreme lock-in

Telkom`s SupremeCall bundles have received little attention, which is surprising, because they are the first attempt by the telecommunications utility to offer a package specifically catering for the small and medium business segment.

While attention has generally been focused on either the cost of a connection for consumers, or the special deals Telkom creates for its top 300 corporate users, the middle part of the market has generally been neglected. This created an opportunity for least cost routing (LCR) providers who found a specific niche that enables them to arbitrage the cost of a call through the cellular networks and find a way for the smaller companies to save.

The introduction of the SupremeCall bundles mirrors the latest courting of the consumer market with residential packages called Telkom Closer.

Essentially, SupremeCall bundles, or packages, come in various sizes to meet various company wallets. For instance, the smallest is the SupremeCall 1000, which costs R1 000 per month. The size and expense of the bundles is indicated in the name, with the largest package being SupremeCall 20000 at a cost of R20 000 per month. On the face of it, SupremeCall packages can offer substantial savings. On the opposite page is Telkom`s example for the SupremeCall 1000. These savings can increase with the larger packages.

In this example, taking a local call made during standard time, the break-even point is at 93 seconds.

Steven Hayward, Telkom`s managing executive for retail marketing, says Telkom Closer has sold 150 000 packages to consumers, and about 1 000 SupremeCall packages have been sold to business since the latter`s launch just over a month ago. "SupremeCall is part of Telkom`s strategy of reducing call rates. These packages combine the need to meet regulatory approval, while giving customers flexibility through the packages. The regulator controls the maximum retail rates that we can charge for our voice services, but has no influence on our bundles as these are always set below the filed retail rates," he says.

According to Hayward, medium-sized companies have not had much apart from Telkom`s Cellsaver packages, but SupremeCall offers them a true per second billing option, allowing a saving of up to 25% on their usage.

Tania Higgins, CEO of independent pricing analysis firm Data Room, says: "There is no doubt that SupremeCall offers real savings for users. However, there are a lot of other considerations as the market is deregulating and to tie oneself in with a monopolistic organisation may not be wise."

Higgins did an overlay of more than a million call records to test what kind of savings could be achieved.

On the SupremeCall 1000 bundle, the average saving was 23.21%, with local peak calls showing a saving of 23.75% and off-peak falling by 67.63%. In this bundle, national peak calls could show a saving of 13.81% and off-peak could tumble by 52.82%. Peak mobile calls would drop by 24.73% and off- peak calls by the same percentage.

For the high-end SupremeCall 20000 package, the average saving could be as high as 28.49%, with local peak calls falling by 27.07% and local off-peak calls dropping by a massive 67.63%. National call costs during peak times would dip by 15.63% and the off-peak calls would shed 54.44%. Calls to mobile phones on this package would fall by 28.49% in peak time and by 28.35% in off-peak periods.

According to Higgins, the savings are generated by the per-second billing, no minimum charges and no installation costs. But the percentage on savings will vary depending on the customers` call durations, whether they are peak or off-peak calls and types of calls.

WHAT THE COMPETITION THINKS

Is SupremeCall a serious threat to the alternative telecommunications providers who offer LCR and voice-over-Internet Protocol services?

Telkom`s Hayward certainly thinks so. "Such packages are part of Telkom`s strategy of becoming more customer-centric, retaining customers and growing revenue in the face of increasing competition. While our offerings are based on customer needs, we also develop them with a competitive mindset," he says. Hayward goes on to say that LCR models present a lot of challenges. Over and above the operational and quality pains, gains and savings going forward are not necessarily sustainable. "Very often a customer using LCR will only make savings on a very specific call set and only at certain of its sites/branches and not across the board," he says.

The LCR and alternative telecommunications operators have done their analysis of SupremeCall and their response varies from "not a problem" to "we are watching this carefully".

Anton Potgieter, Telepassport CEO, says his company has not come across any of its customers switching to the SupremeCall bundles and his analysis shows his firm can continue to offer better savings.

"There is no contest on cellular call charges. The cheapest SupremeCall rate is 179 cents per minute, whereas a Talk500 is either 143 cents for Vodacom to Vodacom call, or 146 cents per minute for an MTN to MTN call. On the international calls, our rates beat theirs easily," he says.

Orion director Jacques du Toit says: "Telkom is offering 41 seconds talk time on cellular for the same price as 60 seconds talk time from Orion. Cellular is the bulk of the LCR market offering savings."

Kevin Jacobson, Storm`s voice business unit manager, says the SupremeCall rates decrease as the package size increases.

"The claimed savings are completely dependant on the length of calls and, therefore, cannot be deemed accurate. Although the cellular rates will work out cheaper than normal Telkom alternatives, for example, their lowest cellular rate is 179 cents per minute, which they claim to be roughly 28% lower than their normal tariffs, this still allows one to save in excess of 28% over the SupremeCall rate with the use of Storm alternatives," he says.

All the service providers` analysis warn about locking in for 12-month contracts that have penalty clauses for dropping the service, the inability to buy more than one package per site, and then paying a month in advance for the service.

RECOMMENDATIONS

Data Room`s Higgins recommends that customers examine the options carefully. "I would be hesitant to tie myself into a 12-month contract. The market is deregulating fast and there are possibly better products on the market, although the SupremeCall does offer tangible, no-hassle savings over normal rates. However, when examining the alternatives, I would look at installation costs, service level agreements and contract periods," she says.

Andrew Dean, managing executive of independent telecoms analysis firm Nebula, says customers should examine SupremeCall and its competition in the context of per second billing, the rate benefit versus that of an extra discount and the ability to negotiate with the supplier. "The structure of SupremeCall makes it difficult to get out of the contract if it is not delivering the expected savings and it will impact a company`s cash flow as it is paid in advance," he says.

Telkom`s Hayward says the present structure of SupremeCall is being reviewed and it is just the first iteration of what it could become. "We are looking at changing the billing structure and enhancing the offering to include packages of more than R20 000 per month," he says.