Telkom bandwidth prices hard to explain

Industry players accuse Telkom of “Internet apartheid” with bandwidth pricing which does not make sense

By - November 28, 2012 Share on LinkedIn
Telkom money

An industry player has recently explained that Telkom charges more for a link between Johannesburg and Cape Town than what a link costs between Johannesburg and London.

The clincher is that the cheaper Johannesburg and London link includes the Johannesburg – Cape Town link. This means it is cheaper to transit local traffic internationally, and the only reason this is not done is due to the adverse impact of higher latency.

“18 years after the fall of apartheid, internet apartheid is alive and well in South Africa. The primary ring leader is Telkom,” he explained.

This is not the first time that Telkom’s perplexing pricing has come under the spotlight. As far back as 2007 industry players have bemoaned Telkom’s monopolistic transit rates.

Former Communications Users Association of South Africa’s (CUASA) Chairman and MTN executive Edwin Thompson said in 2007 that Telkom’s pricing makes no sense.

“A Telkom STM-1 (155Mbps) line from Johannesburg to London is ludicrously expensive to rent at R1.7-million per month. The much shorter connection offering the same bandwidth to Cape Town costs a full R100 000 more – at R1.8-million per month,” said Thompson.

The following diagram illustrates Telkom’s strange national and international bandwidth pricing (2007 figures).

Telkom bandwidth prices

Telkom bandwidth prices

This pricing from Telkom meant in the past that the liberalization of the international bandwidth market did not have as much of an impact because Telkom was still controlling a key piece of the connectivity puzzle.

The situation has changed slightly since 2007 with more national fibre infrastructure and increased competition, but curiously this pricing conundrum still seems to remain.

Telkom explains

Telkom provided the following explanation for the apparently strange bandwidth prices.

The use of distance as a baseline for price comparisons on telecommunication services can be deceiving. As such, cost components and economies of scale would be more accurate for comparing different rates. The reason for the discrepancy between the prices of a national circuit versus an international circuit lies in the different network configurations that are used.

The access piece of a national circuit, is the most expensive part of providing a service, especially if it is a high bandwidth service where Telkom has to trench and a fibre cable has to be installed specifically for the purpose.

A national circuit would typically include two access portions – the portion between the nearest exchange and the customer’s premises. Further to this, the national network consists of multiple transmission rings for automatic protection while the undersea cable systems are not as sophisticated as terrestrial systems or in some cases even subject to manual restoration processes.

There are far more infrastructural and maintenance resources needed to offer a national network service compared to an international network service.

It is important to note that over the years Telkom has done much to rebalance national and international pricing and that South Africa is not unique to this phenomenon of national versus international pricing as it is found in many other countries as well.

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