In many countries a basic monthly telephone subscription entitles the subscriber to free local calls. In other words, a subscriber pays a flat fee, and can make any number of phone calls within that area without paying any additional amount.
The cost to the telecommunications company of connecting those calls is covered by the monthly fee. This makes sense, since the majority of the costs needed to make local connections are the costs of installing and running the network, a cost which does not vary dramatically from call to call, day to day or month to month.
It makes thing simpler for the consumer, who can calculate her likely monthly bill more easily. The phrase “free local calls” is somewhat misleading because the subscribers is paying for the telecommunications service,it is only how the subscriber pays has changed.
So why would favouring a flat rate billing for local calls constitute a promising policy move?
Flat rate rate billing generates incentives for telecommunications companies to add new subscribers to their networks. The economics have changed, and telecommunications companies no longer profit from billing subscribers for the number and duration of calls, instead telecommunications companies profit from increasing the number of people making use of the network. There is thus good reason to both recruit new subscribers, and to invest in the local connections which enable new subscribers to join. In South Africa this translates into an incentive to roll out networks in areas where they haven’t previously existed, such as townships.