Structure of the telecommunication industry
Telecommunications involves an exchange of information, over a long distance, by means of electronic methods. (Rouse, 2007) In South Africa, there are three distinct forms of telecommunications, namely fixed landlines, mobile networks and broadband communication. This network industry, known as telecommunications, is an industry in which high initial fixed costs and exhibiting increasing returns to scale are presented. (Theron & Boshoff, 2006; p.2). In this industry, as network effects are realized, the average cost may decline over a long period. The high initial capital costs will be recovered over a period of time. (Theron & Boshoff, 2006; p.2) In this essay, these three forms of telecommunications will be discussed in depth, in accordance to their market structures, their nature of competition, their pricing and lastly their strategic decision making.
The first part of the telecommunication industry is fixed landlines. The fixed landline in South Africa is Telkom. Telkom is seen as a pure monopolist business, because their market structure only exists of a single seller, which means the market for their goods and services is dominated by themselves. The demand for their goods and services in the entire markets is the demand for the firms individual output. In this case, Telkom is the firm supplying fixed landline services to all the consumers of South Africa. Telkom has no competitors or close substitutes, and is seen as the sole provider in the whole country. Telkom has a blocked entry condition towards any competitors thus proving that Telkom is seen as a pure monopoly. According to Van Gorp, Telkom was able to set high prices which affected the South African mobile operators, the Internet providers and also other African countries because their traffic is routed via South Africa, due to alternative routes. (Van