Broadband for lower than R200?

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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iBurst Managing Director Alan Knott-Craig Jnr recently said that the base price for a broadband service is around R220. “Anything below a price of R220 will mean that a provider will find it difficult to show profits on its service offerings,” Knott-Craig said.  But is Knott-Craig accurate in his cost estimation?

This cost for a broadband service is based on a variety of input base costs, including the cost of building an access network, costs for spectrum and other license fees, backhaul bandwidth which includes international bandwidth, general network investments and operations, support and helpdesk costs, marketing costs and in some cases customer equipment costs.

Economies of scale dictate that the ‘cost per user’ on a network will decrease as the number of users on a network increases.  A network will have to ensure that it has enough bandwidth throughout its network to support all the users – which can add additional costs and complexities – but these costs are typically far less per user than the initial investment to provide broadband services.

This raises the question as to how low broadband prices can go when networks start to attract hundreds of thousands or even millions of subscribers in South Africa.  This is not an easy question to answer, but industry experts seem to agree that the figure sits somewhere around the R 200 mark.

According to Neology CEO Matthew Austin South Africa’s geography and demographic means that the network investment needed to provide broadband services locally far exceed European and Asian countries.  This in turn increases the cost which consumers have to pay for a broadband service.

Austin says that the base cost for a broadband service most likely sits in the region of R 200 to R 220.  This costs leaves very little margin for operators and ISPs to play with, Austin added.

SEACOM, an international submarine fibre cable system which will be operational by mid-2009, is set to significantly reduce the cost of international bandwidth in South Africa.  SEACOM has been punted in the press as a potential solution to South Africa’s high broadband prices, but many industry experts have cautioned that it will not immediately result in cheap broadband offerings.

The price of international bandwidth is only one of the base costs of providing a broadband service, and lower international bandwidth costs are likely to mean higher bandwidth allowances rather than significantly lower broadband costs. 

Bandwidth costs are however one of the most expensive aspects of a broadband service in South Africa, and high end consumers are likely to see significant savings on their monthly broadband bill after SEACOM’s bandwidth prices start to filter down to the consumer market.

The base cost of a broadband service may well be around R 200 per user but the good news is that lower international bandwidth costs and increased competition in the telecoms market should mean South Africans get more for their money.

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