In what could be a financially damaging blow to Telkom, government says it will ask the Independent Communications Authority of SA (Icasa) to consider declaring the submarine telecommunications cables that link SA with the rest of the world an essential service.

If Icasa does this - and it seems likely that it will - it will open the way for Internet service providers (ISPs) to have access to these cables, known as Sat-3/Wasc/Safe, at much cheaper rates.

ISPs complain they are paying as much as eight times what they should to lease access to these cables. They say this is contributing significantly to the high cost of Internet access in SA.

Telkom won't disclose how much revenue it generates from selling access to the undersea cables - it says this information is confidential - but the figure is thought to be substantial. Telkom, with a 13% stake, is the largest of 36 shareholders in the cable system, which stretches 27 450 km from Europe, around Africa, to the Far East. The cables cost an estimated USD650m to lay . Telkom contributed D85m of that.

But it now appears that government is taking seriously the complaints by ISPs that Telkom is exploiting them.

"We are still debating whether to do this through legislation or through regulation," says Pakamile Pongwana, deputy director-general in the department of communications. "However, we are able to declare it an essential service through regulations."

Pongwana says Icasa has already taken part in preliminary discussions with government about how to tackle the issue.

It appears that Icasa could draft the necessary regulations under sections 44 and 51 of the Telecommunications Act. As an essential service, Icasa would be able to set the prices for access to the cables and regulate these according to Telkom's costs. ISPs claim that at the moment Telkom charges for access to the cables at the highest level the market will bear.

Sentech, the state-owned broadcasting and telecom provider, argued in parliament last year that Telkom's monopoly over the cables was limiting its ability to provide affordable, high-speed Internet access to consumers. It said that Sat-3/Wasc/Safe was a strategic national asset that was funded by taxpayers. At the time the cable was initiated, Telkom enjoyed a statutory monopoly and was majority-owned by the state.

But any move by Icasa or government to have the cables declared an essential service, or to amend legislation, is likely to be met with strong opposition from Telkom.

Telkom says it is a public company and that the cable is its asset. "It would be an unfortunate precedent to nationalise this cable landing, as it would discourage Telkom from any further investments in projects of this nature," it says.

At least one telecom analyst echoes this concern and warns against hasty decisions by government or the regulator. Declaring the cables an essential service could raise concerns among foreign investors that government is interfering unnecessarily in the market.

"I would be very wary of setting the wrong precedent here," says Andre Wills, a telecom analyst at Africa Analysis. The last thing SA needs, he says, is to be perceived as a country that is prepared effectively to nationalise private assets. At the very least, it could jeopardise planned telecom investments in the region, Wills says.

Telkom says access to the capacity in the cable could be classified as an essential facility only if it met certain characteristics. But, it says, it doesn't meet these characteristics for various reasons, one being that satellite links are available as substitutes.