Where does South Africa really stand regarding broadband prices?

According to some media reports South Africa’s broadband prices are looking good. Is this true?

June 18, 2007
Where does South Africa really stand regarding broadband prices?

The 2007 Africa Competitiveness Report, which was released recently, places South Africa seventh on the list of African countries with the lowest broadband prices.

This information gave rise to some media reports suggesting that South Africa is not doing too badly when it comes to broadband prices. This is however far from the truth, especially if we broaden our horizon and include international fixed line broadband services.

But even on the continent SA is not a leading figure. South Africa is ranked below countries like Morocco, Egypt, Madagascar, Senegal, Botswana and Mauritius which should cause alarm bells to ring.

Another cause for concern is that the 2007 Africa Competitiveness Report does not seem to take monthly usage allowances into account when doing pricing comparisons, a flaw often encountered with broadband benchmarking.

Accurate comparisons

Most broadband providers, including Telkom, differentiate on price between the various broadband offerings based on two factors, namely speed and the monthly usage allowance.

It is necessary to take these two factors into account when doing any international broadband pricing comparison, which makes an index based on ‘Cost per Mbps per GB’ a suitable measurement.

Applying these criteria show that South Africa’s ADSL offerings are extremely expensive when compared to international standards.

The fastest broadband offering in South Africa is Telkom’s DSL 4 Mbps service. This service is priced at R 675-00 per month and allows for a 3 GB monthly usage allowance which means the service costs R 56-25 per Mbps/GB.

In Morocco – Africa’s leading broadband provider – the fastest current offering is a 20 Mbps ADSL service, priced at R 770-00 per month and allows for unlimited usage.

In Australia broadband users pay R 901-00 for a 20 Mbps service with a 60 GB usage allowance, while the price of an unlimited 8 Mbps service from BT in the UK costs R 353-00 (it should however be noted that the BT offer includes a wireless home hub, free off-peak phone calls, 250 WiFi minutes and costs only R 269-00 for the first three months).

The average per Mbps/GB price for these three countries is R 0-71, 79 times less than the price in South Africa.

The fact that South Africa’s incumbent operator’s premier broadband offering is over 7900% more expensive than countries like Morocco, Australia and the UK does not paint a positive picture.

Mobile broadband

Unlike the local fixed line sector, South Africa’s mobile broadband prices are very competitive when compared to international standards.

Vodacom currently charges R 389-00 for a 2 GB package on their 1.8 Mbps HSDPA service, which equates to R 108 per Mbps/GB. MTN’s offer of R 399-00 for 2 GB of HSDPA traffic means that their subscribers pay R 111 per Mbps/GB.

This may seem high when compared to international fixed line offerings, but if one looks at similar mobile broadband offerings in countries like Australia, the UK and New Zealand the picture looks far rosier.

In the UK a 1 GB mobile broadband service from Vodafone costs R 638-00 while a similar service in New Zealand retails for R 323-00. In Australia a 2 GB mobile broadband service, also from Vodafone, costs R 842-00.*

The average Cost per Mbps/GB for these three international mobile broadband offerings is R 256-00. When compared with Vodacom’s R108-00 and MTN’s R 111-00 per month, it becomes clear that South Africa’s competitive wireless broadband environment has resulted in aggressively priced mobile broadband services.

It is further interesting to note that while South Africa is nearly 8000 % more expensive than Australia and the UK in the ADSL space – using the per Mbps/GB criteria, local mobile broadband prices are nearly 80% cheaper using the same criteria.

Fixed line versus mobile broadband

According to the latest OECD broadband statistics, 98% of all broadband connections overseas are fixed line services, while South Africa shows close to a 50-50 split between wireless and wired connections.

This ‘unbalanced’ situation in South Africa can be attributed to the current monopolistic fixed line industry where ADSL prices are high and service levels are generally low. The wireless broadband environment – in comparison – is fiercely competitive which resulted in relatively low rates and high service levels.

Local wireless broadband services can compete effectively against ADSL on both speed and pricing, which has caused many South Africans to opt for a wireless offering in preference of ADSL.

In most developed countries the low cost and high speed of fixed line broadband services makes it nearly impossible for mobile broadband providers to compete against ADSL, Cable or Fiber-to-home offerings.

Mobile broadband services are generally used as a complementary service for the sake of mobility rather than a primary broadband connection.

The world has become a single marketplace with the advent of broadband, and while an African comparison may be interesting it does not accurately show where South Africa fits into the worldwide broadband picture.

A massive digital divide has already developed between the developed world and Africa, and unless local fixed-line broadband offerings fall in line with international standards this divide will merely expand.

* It should be noted that month-to-month data-only prices were used for the mobile broadband comparison for the sake of accuracy, and that there are savings that accompany 24 month contracts or bundled offers.

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