Uncapped ADSL price war not sustainable, says Neotel

Rudolph Muller

Rudolph Muller is the editor at MyBroadband and covers telecoms and broadband news. Rudolph comes from an academic background, but left the University of...

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MWEB caught many broadband providers by surprise when it launched its affordable uncapped ADSL solution in March.

Many ADSL service providers were quick to respond to MWEB’s uncapped services, and iBurst and MTN have also increased the value proposition to their broadband subscribers.  Vodacom and Neotel have however been quiet about these developments.

Neotel has now said that it does not believe that the current price war is sustainable by its participants who are all low-margin resellers of Telkom’s ADSL services.  “There is likely to be significant consolidation or even failure of some players if Telkom continues to capture most of the margin on these services,” Neotel said.

Neotel said that this situation is why it is calling for the implementation of Local Loop Unbundling (LLU) – or even the unbundling of Telkom – which has resulted in a more sustainable broadband environment in other countries.

Neotel said that it is however continuing with its own fibre rollouts.  “In the absence of LLU or similar, we are continuing to deploy fibre to enable high-end fibre broadband services, which will be increasingly important as broadband demand grows,” said Neotel.

Neotel added that it supports ‘anything that drives up broadband subscriber numbers and usage in South Africa’, and feel that they have contributed to the recent ADSL price cuts through SEACOM and their national high-bandwidth Internet backbone.

“We are perhaps finally seeing the fork in the road between fixed broadband and mobile data services in South Africa. We have always maintained that these are distinct services, and that the growth of mobile data as a substitute for broadband in South Africa was for the same reasons we see this in other developing markets,” said Neotel.

“Wireless platforms are inherently unable to match wireline platforms in an uncapped environment as speeds and subscriber numbers grow rapidly. This is an issue for all 3G providers globally, but is more acute in market such as ours, where 3G has been a broadband substitute.”

Price not a key differentiator for Neotel’s broadband offerings

Neotel said that they don’t see the price war as being directly between broadband (specifically ADSL) and wireless (3G) services – which includes Neotel’s CDMA based broadband offerings (NeoConnect and NeoFlex).

“Users have opted for wireless high-speed Internet services instead of broadband (e.g. ADSL) for many reasons, including mobility, availability, copper theft, lightning, delivery time, service, convenience as well as price. Price alone was not, and will not in future be the key reason to choose wireless over wireline. In fact, many users have a clear need for both wireless (mobile) and wireline (fixed) services,” said Neotel.

Neotel added that it has every intention of remaining highly competitive in the (mobile) wireless high-speed Internet as well as the voice (home phone) market, but we don’t believe that this means having to track ADSL pricing or pricing models.

“In particular, it would be irresponsible to move away entirely from capping in a wireless network, since this is one of the key methods of managing load where there is limited access capacity, something that is not the case in wireline networks (such as Neotel’s optical fibre network, which is to be used for forthcoming fibre broadband products),” said Neotel.

Neotel prices to drop?

Neotel would not comment on whether it plans to cut its broadband prices which remained unchanged since it was launched in 2007.  This is despite lower international and local bandwidth rates.

Neotel pointed out that they did reduce pricing on their wholesale and enterprise products.  “There have been substantial price drops in international and national capacity in particular, as well as voice,” said Neotel.

“In the consumer market, although we have not made any major adjustments to data pricing (which we believe remains the lowest wireless unit pricing per download, especially out-of-bundle), we recently reduced our voice pricing on fixed to mobile calls substantially (to R1.20 + VAT per minute), and are still the market leader amongst carriers in pricing of all call types.”

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