Telkom, South Africa's fixed-line telephone monopoly, is courting further controversy with a new year price hike in defiance of the country's telecoms regulator.

The Independent Communications Authority of South Africa (ICASA) gave Telkom a deadline of 1300 GMT on 19 December to back down on the tariff increases.

ICASA wants Telkom to keep to an inflation-minus-1.5% agreement which expired in May 2000, and is ready to take the company to court to enforce it.

The regulator says the 5.5% hike proposed by Telkom in November is illegal. A hearing could take place as early as 28 December.

Making a mark

ICASA is learning to flex its muscles ahead of liberalisation of the landline telephony market late next year, when a second licence is due to be awarded.

It also sees the need to keep Telkom in line.

The tariff regime was meant to make Telkom - now 30% owned by Telekom Malaysia and US telco SBC - more efficient, and prevent it from exploiting its monopoly in the run-up to a stock market listing due in March.

It is also intended to ensure telecoms services are accessible to the poor.

Standing fast

But Telkom sees things very differently.

"The new regulations are defective, and Telkom is willing to engage with ICASA with a view to remedy these for future application," the company said in a statement.

It insists that the tariff regime is out of date, that it has made efficiency savings and that it is entirely within its rights to raise prices.

Moreover, it blames the hikes partly on the apparently inexorable slide in the value of the South African rand over the past few months.

The weaker currency means higher costs, particularly for international calls, says Telkom.

Inflated estimates?

The problem for ICASA, though, is that Telkom could well end up both keeping its price hikes and obeying the tariff rules.

The latest monthly figure for inflation in South Africa is 6.3%, outside the government's 3-6% target.

And most economists are betting on inflation rising sharply in the New Year, as the effects of the rand's decline feed through to the price of imported goods.

By the end of January the rate could even advance beyond 7% - which would leave Telkom's prices looking much less controversial.