The complex debate around telecommunications liberalization has already been faced in the developed world, and the issues now confront almost every developing country. The dilemmas are not unique to South Africa, but the current situation in this country illustrates the complex issues at stake and how real people are affected by the decisions of the government.

Recently in South Africa, there has been a lot of news coverage about the privatisation of Telkom and the number of competitors that will be allowed. First, Government said it would allow only a Second National Operator; then it considered permitting a Third National Operator, only to revert back to its original decision. The business community reacted strongly against Government's decision. They said high phone prices, which also set a hurdle for the use of information and communication technology (ICT) like the Internet, will leave South Africa's economy trailing behind the rest of the world.

The general public has mostly been silent on the issue. But should they be? Bridges.org -- an international NGO based in South Africa which aims to help people in developing countries use technology to improve their lives -- argues that they should take notice, because high phone prices together with the lack of access to ICT is exacerbating existing divides within South Africa's society. Once again, only the privileged are able to afford powerful technologies that give them advantages. Jesse Jackson referred to this situation as "the digital apartheid" - surely we have had enough of that.

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The adage "knowledge is power" has never been more true than in the Information Age. Modern information and communication technology (ICT) makes it possible for all kinds of information -- from business transactions to scientific research to entertainment -- to fly through cyberspace at the press of a button. The South African Government accepts that ICT is a powerful tool that can be used to streamline the economy, and it has adopted policies to pursue economic growth through the use of ICT. Yet, high telephone call costs directly hamper the effective use of ICT, because most people and companies in South Africa still use the telephone to connect to the Internet.

Telkom's monopoly perpetuates the high prices of telephone, Internet, and related services. In the USA, most people pay low monthly fees for telephone and Internet services. But under the Telkom monopoly, South Africans pay for telephone use by the minute, including when they are surfing the Internet, which makes Internet access prohibitively expensive for most people. A typical small business in South Africa might lease a permanent line to the Internet with 64Kb of capacity for about R6 000 per month. In Los Angeles a leased line that is roughly 20 times faster can be leased for R400 per month. Moreover, technology applications like "Voice over Internet Protocol" (VoIP), which would enable cheaper communications, are controlled, and in this case prohibited in all but very few cases, by Telkom. VoIP routes a phone call via the Internet at a fraction of the normal cost. Yet, due to the effective ban by Telkom, if a company or person uses this technology in South Africa, they could be prosecuted.

Why would the government allow a telecommunications monopoly that forces high prices on citizens and hampers the economy, and what is the cost to society? In the mid-1970s the USA started liberalizing its nationalised industries, including its telecommunication utility company. During the next decade, much of the developed world followed the example. But because of sanctions, foreign companies were not allowed to invest in South Africa and the state companies could not be privatised. To ensure that the country could maintain basic services, the apartheid regime bolstered its utility monopolies, including Telkom, Eskom and Transnet. But these companies were often run inefficiently and services were focussed on delivering to the white minority, and the rest of the country received bad services or no services at all. The backlog that this created is evident from South Africa's 1999 October Household Survey data which indicated that just 7.3% of African households in non-urban areas have a phone (including cell phones) compared with 85.6% of white minority households, while in urban areas 31.8% of African households have a phone, compared to 87.6% of white minority households.

So why did the new Government not immediately liberalise Telkom's monopoly when it came to power in 1994? When the new Government came to power, it started building houses and providing electricity, phone lines and other basic services to previously disadvantaged communities to get rid of the service backlog. The Government was concerned that if the state-owned utility monopolies were immediately privatised, the new owners would focus solely on making profits and low-population areas would be left out because of costs of rolling out new infrastructure. In addition, the trade union COSATU and the South African Communist Party (SACP) come from a socialist tradition and do not view privatisation as the salvation of the South African economy. They argued that privatisation means selling off of state assets to foreigners, and that the managers of these privatised companies will eventually put profit before people and cut jobs.

The Government was in a bind. It had to provide basic services to previously disadvantaged communities, but needed money to do that. Privatisation was seen as the best vehicle for attracting foreign revenue that would pay for these services, but it was not popular among COSATU and SACP which between them represent a significant proportion of the voters. As a compromise, the Government adopted a policy for managed liberalisation -- to slowly privatise the state utility companies over several years. A 30% equity share in Telkom was sold to the Thintana Consortium of Malaysian Telecom and American SBC in 1997. However, Telkom's monopoly was extended in order to give it the market advantage to complete the roll-out of infrastructure in rural areas and other disadvantaged communities. The 1996 Telecoms Act gave Telkom a monopoly over fixed telephone lines for five years, but also stipulated specific service delivery obligations, such as providing 2.8 million new connections within the five-year period.

Where does that leave the South African telecommunications sector now? Although Telkom has not met all its deadlines, it has now fulfilled most of its service obligations. The business community says there is now no longer any justification to perpetuate Telkom's monopoly, or for that matter, a duopoly. But the pressure on the Government remains. There are sound arguments for fully liberalizing the telecommunications sector now, but many remain strongly opposed.

To appreciate the Government's quandary, one has to look at who is exerting pressure on both sides of the debate. The telecommunications policy announced in March of this year set out a plan to continue managed liberalization by introducing a Second National Operator. Then in July, the Government succumbed to pressure from the business community and international leaders and considered appointing a Third National Operator. Now it has reverted back to its original position and said that it will only allow one other competitor.

Ironically, those in favour of less competition came from two directly opposite sides. COSATU and the SACP are increasingly upset about the way the ANC-led Government is privatising state companies, and they threatened to withdraw their voter support in the next election. On the other side, the Big Business owners of the South African telecommunications sector threatened the Government, because more competition will give them less chance to make profit. M-Cell (the holding company of MTN, the primary wireless provider) threatened to withdraw its proposed investment in the Second National Operator if a Third National Operator were allowed. And because the Government has a significant shareholding in M-Cell, such a move would have dented the state coffers. In addition, the Thintana Consortium threatened to sell just as many Telkom shares into the market as Government, once Telkom was listed on the Johannesburg Stock Exchange. If the overseas conglomerate released its shares onto the market at the same time as Government's, the value of Telkom shares would have plummeted and the Government's hopes of realizing about R18 billion from selling its share would be smashed.

So, partial liberalization has hindered full liberalization that would have allowed more competition and lower prices. Moreover, an overseas conglomerate from the developed world threatened a developing country government in order to protect their share price. None of this helps narrow the digital divide. The South African business community has expressed its deep dissatisfaction about the latest decision, because it will make local companies less able to compete in international markets. This might be considered a partial success for COSATU and the SACP, since they would argue that more competition would mean a greater threat of job losses. Others would say that increased competition in a fully liberalized telecommunications regime would mean that more jobs would be created.

But what about the general public? Those struggling to pay their telephone bills may be relieved. Who knows, once the market becomes fully liberalised, the rate at which telephone lines will be cut off for non-payment may even be faster than under Telkom's present monopoly? But there is another factor to be considered. If there was more competition, the price of local calls would be lowered and more people would be able to afford ICT such as the Internet.

Most people agree that ultimately ICT will have a positive impact on people's daily lives. At last year's G8 Summit, protestors mocked international efforts to channel technology towards the needs of the poor. "We can't eat computers," complained the leader of a group campaigning for debt relief. "People are dying." To underscore the point, members of the group set fire to a laptop computer on an Okinawa beach. However, this year's Human Development Report, commissioned by the United Nations Development Programme (UNDP) argues that ICT can actually make major contributions to reducing world poverty, because it can overcome barriers of social, economic and geographical isolation, increase access to information and education, and enable poor people to participate in more of the decisions that affect their lives. Many agree that ICT must be an integral part of any solution to the economic and social problems of developing countries.

Expensive telephone prices are one of the main perpetuators of the digital divide in South Africa, and the existing gap between the have's and the have-nots will continue to increase until more people are able to access and use ICT effectively. If the telecommunications landscape is merely being transformed from a monopoly into a duopoly, there is a real danger that by taxing small business with higher charges and banning efficient technologies like VoIP simply to support Telkom, South Africa might be set back for years. Not to mention the advantages of cheaper access to telephones, the Internet and other innovative uses of ICT which most South Africans might never experience if prices stay high. It comes down to a question of the digital divide. Privileged people become more privileged because they can afford to use ICT and benefit from it exponentially, while poor people who cannot afford high access charges lose out. So, the high price of telecommunication services not only perpetuates the digital divide and therefore the existing divides within South Africa's already fractured society; it also hampers efforts to enter the global economy. Time will tell whether this latest decision by Government has been a case of being penny-wise (read R18 billion) or pound-foolish. But by then, it might be too late.