Why broadband is expensive in SA

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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A recent Business Times column by Alan Knott-Craig Junior titled “Why broadband is expensive in SA”  aimed to give readers a better understanding and perspective of what is happening in the local broadband industry.

In this column Knott-Craig Jnr makes various claims, including:

1. Wireless broadband is very competitively priced in relation to international standards,
2. The problem with reducing broadband prices is that “Telkom has a de facto monopoly on fixed lines under South Africa’s soil, one of the key cost components for any wireless broadband network”,
3. Until the arrival of SEACOM there was only one legal way to send data from SA to the rest of the world: SAT3, the undersea cable part-owned by Telkom,
4. Wireless broadband is expensive because the biggest variable expenses (local and international connectivity) are controlled by Telkom and are exorbitantly priced.

Knott-Craig Jnr’s solution to expensive local broadband is simple:  “Bring down the cost of local and international links and the cost of broadband will drop across the board.”  Knott-Craig Jnr further said that one of the most effective ways to improve broadband in any country is to allow other companies to use these existing lines, that is Local Loop Unbundling.

“The root of our problems is that Telkom’s primary objective is the maximisation of profits. Without an effective regulator, they have been able run amok. If Telkom were still 100% government-owned, you would not need to regulate it,” said Knott-Craig Jnr.

He proposed a potential solution where government buys back Telkom and gives management new targets, including 15-million ADSL connections by 2011, an average national ADSL throughput of 4Mbps and “cost plus” pricing for SAT3 and local transmission.

Telkom hits back

Telkom has hit back at Knott-Craig Jnr, saying that there are a number of inaccuracies in the piece that warrant immediate clarification.

“Firstly, the contention that Telkom enjoys a de facto fixed-line monopoly contradicts the obvious movement towards the liberalisation of the telecommunications landscape. That Telkom has embraced and welcomed this competition is also well recorded in media comment around this issue over a number of years,” Telkom said in a press statement.

“It is also incorrect for the columnist to claim that ‘wireless operators are forced to use Telkom for their short-and-long haul transmission’. The reality is that operators have had the right to self-provide since September 2005 and Telkom is, therefore, no longer the sole provider of all their network capacity requirements.”

Knott-Craig Jnr’s comments with regard to international connectivity are also inaccurate, Telkom said:  “For example, from a Telkom perspective, between 2002 and 2009, there has been an IPLC (International Private Leased Circuit) price decrease of 90% since the inception of the SAT3/WACS/SAFE cable system – S3WS for short. This means that Telkom has enabled the market to pass on price reductions to their customers.”

“Interestingly, a similar situation exists with regard to transmission links and transmission line costs. Over the last year, for instance, Telkom has significantly reduced transmission line costs enabling all mobile cellular operators (MCOs) to make substantial savings during this period.”

Telkom said that of further concern is that a day after the publication of the article, Alan Knott-Craig [Senior] distanced himself from it in an email to Telkom wherein he stated: “This is to confirm that I neither wrote nor contributed to the Article in the Sunday Times of yesterday which related to broadband tariffs as I recall. I was as surprised as I am sure you were to see an article with my photo and name appear in the paper. The editor has apparently undertaken to print an apology/correction next Sunday.”

It is however likely that former iBurst MD Alan Knott-Craig Junior wrote the article, and that the newspaper erroneously published it under the name of Alan Knott-Craig [Senior], the former CEO of Vodacom.

“Telkom remains firmly committed to enhancing affordable telecommunications access to all South Africans and, as a good corporate citizen, we will continue to work with all relevant role-players in order to achieve this,” Telkom concluded.

Why is broadband expensive in SA?