The first reductions in pricing to Telkom’s IP Connect (IPC) wholesale ADSL product from a recent settlement with the Competition Commission will be announced soon, but it is likely to only be a single-digit percentage reduction according to four different industry sources.
Other wholesale products, such as those Telkom uses to sell access to its local network and international circuits, will also likely see a drop in prices, sources said.
These products are used by Internet service providers (ISPs) and other licensed operators in South Africa, with the IPC product being of particular interest.
Any ISP that offers its own ADSL product on its own network, such as Mweb, Internet Solutions, Vox Telecom, MTN Business, and Cybersmart, need to buy IPC from Telkom to do so.
IPC saw a 30% reduction on 1 April 2012 following public hearings on local loop unbundling during November 2011.
The exact percentage of the new price cut has not been confirmed yet, and the ISPs that MyBroadband asked for comment said that Telkom has not given an indication of what the price cuts may be, or when they would come through.
Telkom and Competition Commission settle
The price cuts are said to form part of the Telkom’s settlement with the Competition Commission to resolve complaints over anti-competitive abuses that were lodged between 2005 and 2007.
The settlement package includes an admission of guilt by Telkom, a R200-million penalty, a functional separation between Telkom’s retail and wholesale divisions, a transparent transfer pricing programme, and wholesale and retail pricing commitments for the next five years said to yield R875m savings to customers.
Over the 2014, 2015, and 2016 financial years Telkom will be forced to reduce prices of wholesale services implicated in the complaints and used by ISPs to deliver their IP VPN and Internet access services.
“Telkom will also ensure that any price reductions are not reversed in the 2017 and 2018 financial years,” the Competition Commission said.
The price reductions will apply to undersea cable international lines, national high bandwidth transmission lines, access to ADSL lines via the IP Connect service and Diginet leased line access.
It will also apply to retail products, including Telkom’s VPN Supreme and Internet Access.
According to the Competition Commission the price reductions are weighted more heavily in favour of wholesale services (at least 70%), with the aim of bringing about a more competitive market.
Effects on consumers might be muted
It is not clear at this stage whether an IPC price cut below 10% will have much effect on the retail market in South Africa.
While most consumer ADSL packages benefited from a 30% drop in IPC costs on 1 April 2012, a prominent counter-example was Mweb’s 4Mbps and 10Mbps home ADSL products.
This indicates that a cut in wholesale prices does not always translate to a drop in retail prices.
It also makes it seem unlikely for a sub–10% reduction in IPC to have a big impact on retail prices.
Telkom was asked for comment on whether the rumours around the upcoming IPC price cuts were accurate, but could not immediately provide feedback.