ADSL prices too low?

saffakanera said:
At the heart of the problem lies Telkom. Always Telkom, its never NOT Telkom.
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+1

ISPs deserve some credit for dropping their prices but the bastards at Telscum haven't budged an inch
 
M-web is an easy target for blame, but really it's all rubbish. Starting an ISP was next to impossible long before M-Web entered the picture with their uncapped offerings (they just made it "more impossible"). Before M-Web ISP's such as Cybersmart, Axxess, Web Africa, etc. were all to blame for dropping the ADSL market pricing to (what at the time) was considered rock-bottom. It was impossible to enter the ADSL market and compete with these players on price and still have a business a year down the line; those companies had far larger economies of scale, were in business when ADSL was a lot more expensive and profits were higher, and were therefore capable of growing their businesses in a sustainable manner.

Now these ISP's are experiencing the same hurt that those smaller guys who came and went experienced. They're no longer on the benefitting end, with larger ISP's (who have essentially got even more resources than they do) now taking over. M-Web isn't doing anything different than what the "mid-range" ISP's have been doing for years. Suddenly the exact same practices have become "bad for the market".

Is it bad for the market? I'm not so sure, but it's definitely bad for the currently established ISP's. If I was in the ISP business (and thank god I no longer am) I would be equally upset after M-Web moved in and essentially started stealing a lot of my customers. ISP's who went and invested heavily in very expensive infrastructure, hedging their bets that the market would support "increased value" instead of "reduced cost", were suddenly blindsided by rapid reductions in cost and increases in value, well beyond what their initial business model was based on. Some of these players have been limping along since then, unable to really respond because they just can't afford to do so.

I think what we're going to end up seeing is some consolidation again in the ISP market. It got to ridiculous levels where nearly *everyone* was opening their own "ISP" (banks, shops, etc.), and what the market REALLY needs is 5 or 6 really big players (instead of 100's of smaller ones) who have sufficient economies of scale, and sufficient clout and bargaining power when it comes to regulations, getting Telkom to reduce pricing, etc. (a spread out ISP market is far more beneficial to Telkom than a consolidated one).
 
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When Afrihost came along last year and offered "cut throat" pricing I predicted that it would lead to a "price war" and that it would not end well for the smaller ISPs. Some are already struggling and some of the more "established" ISPs will follow them to obscurity in the coming months.

This will lead to consolidation in the ISP market, which Tharaxis correctly points above, that will leave the remaining (larger) ISPs in a better position to challenge Telkom.
 
Okay , so after years us the consumer getting carrots , and the isp's living large , things have changed, completely. We had companies selling local bandwidth ....... sad and they milked it and us. They enver wanted SA to go uncapped, NEVER! It was not in their best interests, keep the people paying , do nothing, dont rock the boat.. Now it has changed, they are STILL trying to sell capped accounts. They are blaming mweb for taking away their cash cow... How about they take a look at themselves and ask what can we do, to better this?

The answer is ... Nothing , they are doing their best to try and revert it back to the way it was before . If these guys would wake up and realise that they are fighting a loosing battle it might help them. Take on and join in the fight against telkom! Who are they going to keep on blaming? Join the rest is moving forwards, or are you hoping that this all fails and that then you can negotiate a better deal with telkom?
 
Tharaxis said:
M-web is an easy target for blame, but really it's all rubbish. Starting an ISP was next to impossible long before M-Web entered the picture with their uncapped offerings (they just made it "more impossible"). Before M-Web ISP's such as Cybersmart, Axxess, Web Africa, etc. were all to blame for dropping the ADSL market pricing to (what at the time) was considered rock-bottom. It was impossible to enter the ADSL market and compete with these players on price and still have a business a year down the line; those companies had far larger economies of scale, were in business when ADSL was a lot more expensive and profits were higher, and were therefore capable of growing their businesses in a sustainable manner.

Now these ISP's are experiencing the same hurt that those smaller guys who came and went experienced. They're no longer on the benefitting end, with larger ISP's (who have essentially got even more resources than they do) now taking over. M-Web isn't doing anything different than what the "mid-range" ISP's have been doing for years. Suddenly the exact same practices have become "bad for the market".

Is it bad for the market? I'm not so sure, but it's definitely bad for the currently established ISP's. If I was in the ISP business (and thank god I no longer am) I would be equally upset after M-Web moved in and essentially started stealing a lot of my customers. ISP's who went and invested heavily in very expensive infrastructure, hedging their bets that the market would support "increased value" instead of "reduced cost", were suddenly blindsided by rapid reductions in cost and increases in value, well beyond what their initial business model was based on. Some of these players have been limping along since then, unable to really respond because they just can't afford to do so.

I think what we're going to end up seeing is some consolidation again in the ISP market. It got to ridiculous levels where nearly *everyone* was opening their own "ISP" (banks, shops, etc.), and what the market REALLY needs is 5 or 6 really big players (instead of 100's of smaller ones) who have sufficient economies of scale, and sufficient clout and bargaining power when it comes to regulations, getting Telkom to reduce pricing, etc. (a spread out ISP market is far more beneficial to Telkom than a consolidated one).
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Well put.
 
Tharaxis said:
I think what we're going to end up seeing is some consolidation again in the ISP market. It got to ridiculous levels where nearly *everyone* was opening their own "ISP" (banks, shops, etc.), and what the market REALLY needs is 5 or 6 really big players (instead of 100's of smaller ones) who have sufficient economies of scale, and sufficient clout and bargaining power when it comes to regulations, getting Telkom to reduce pricing, etc. (a spread out ISP market is far more beneficial to Telkom than a consolidated one).
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Amen brother. +1
 
If Mweb has found a way to make some profit out of "low" prices and position themselves competitively then so can others!

If the other ISPs cannot match up to Mweb then laissez-faire economy is just getting rid of the deadwood that is stuffin' up the industry. This is going to force better service, not make it worse! This is exciting time for the consumer and the happier Mweb and the like can make the consumer, the more money there is in for em all.

Stop being a lady's blouse and harden up! Service needs to get better in this country!
 
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Tharaxis said:
ISP's who went and invested heavily in very expensive infrastructure, hedging their bets that the market would support "increased value" instead of "reduced cost", were suddenly blindsided by rapid reductions in cost and increases in value, well beyond what their initial business model was based on. Some of these players have been limping along since then, unable to really respond because they just can't afford to do so.
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That quote screams SCREAMER to me! (Excuse the pun).
 
SoftDux-Rudi said:
It seems to me that everyone on this thread knows how to run CyberSmart, or for that matter Telkom much better then their own CEO's - who by the way have been very successful at what they do. So why don't you all start your own ISP's with ADSL below R10/GB - do you actually know what ADSL per GB costs, even at the highest wholesale price? Do you have staff, rent, insurance, transportation, medical aid, retirement, etc etc to pay? Then I'd like to see everyone here who thinks he's better than any ISP who's actually done all of this and did it successfully is an idiot to rethink your position.

We are not America - go live there for 2 years and see what it's like. You'd be lucky to get a T1 if you pay enough for it.
Nor are we Hong Kong - would you want to live on a R400/pm salary just to get 100Mbs connection at home? Sure, traffic jams are different since they can't afford cars, but hey that's your choice :)


Stop whining about other's failures and do something about it. Or shutup, it's getting old
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We are doing something about it: We are supporting MWEB.
 
To play devils advocate, lets look at it from the perspective of a smaller player (or even worse, someone wanting to enter the market). Due to M-Web's large amount of users on uncapped, they have more purchasing power and greater economies of scale, therefore their bandwidth is comparatively cheaper than my bandwidth (lets for arguments sake model it on the per GB model). So lets say I as a small or new player pay R30 per GB, while M-Web pays R15 per GB.

Now, the problem comes in that when a prospective customer compares me to M-Web, how on earth am I supposed to provide a comparable service when my cost to do business is roughly double that of them? As a result, more often than not the customer will go to my competitor, because I can't afford to offer something equal or better to the larger (and far more visible) player. That said, this isn't something unique to M-Web (they've just made it even harder), it's been an issue for years now.

What *should* be happening is that smaller ISP's should gain some form of government subsidy, to help them weather the storm and grow their customer base, so that at some stage they can actually independently compete with the larger guys (or, as I said, perhaps even more beneficial in the long run would be for the market to start consolidating - at least for consumers, not maybe small ISP's), but I don't forsee subsidisation happening any time soon.

Personally, I think that if you're wanting to start your own ISP you should consider either a completely different line of business or alternatively a padded room, because doing so would be financial suicide.

For the current ISP's out there:

I would suggest making moves to strategically join with larger ISP's, drawing on the strength's of both.

For example IS should merge with one or two (comparatively) smaller players such as Axxess, Web Africa, OpenWeb, etc., but not just so they can essentially get rid of a competitor. Rather the idea should be to (sincerely) restructure the way they deal with broadband and internet access and incorporate many of the forward-thinking ideas and ideals those companies embody (a greater focus on performance, a better consumer-level experience throughout, more rapid development cycles, a greater respect for the "modern internet", etc.) and should begin selling to consumers directly. IS doesn't understand the consumer and consumer needs because that's never been their target. They're big and slow and don't put out particularly good products for the consumer space as a result. I think a faster, leaner, meaner and more modern IS would be a great thing.
 
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blah blah...issue is line rental pricing and not data pricing!!!

The battle has moved on, stop using data pricing as a reason and/or excuse, ISP's need to fight the line rental pricing battle, line rental costs (courtesy of Tosskom) are ludicrous, seriously so when one compares, and this is where the next 'big push' should be, I have no idea how or what options there are in this regard but line rental pricing HAS GOT TO come down :twisted:, cos at the moment the data pricing is of negligible consequence on overall costing....
 
Rubbish. There is no difference between the ISP industry and the retail industry. In the retail industry nobody has the same buying power as the big boys (makro/game, Mr Price, Edgars, Pick and Pay, Shoprite etc).

Must new entrants into that market also be subsidized until they can compete? Of coarse not!

Like any new business ISP's must simple have a proper business plan and ensure they have enough start up capital to cover cash flow until they have the necessary economies scales to make a profit.

The problem is that it used to be to easy. Everybody was opening up ISP's because the unnaturally high ( and in all likelihood, colluded) prices ensured a profit from day one.

Now everyone has become lazy and expect profit from day one. It simply no longer works that way.

The bottom line is therefore adapt or die . . . there is no way that SA consumers will return to capped overpriced internet.

Go MWeb!





"What *should* be happening is that smaller ISP's should gain some form of government subsidy, to help them weather the storm and grow their customer base, so that at some stage they can actually independently compete with the larger guys (or, as I said, perhaps even more beneficial in the long run would be for the market to start consolidating - at least for consumers, not maybe small ISP's), but I don't forsee subsidisation happening any time soon."
 
Cybersmart started the war??

Hold on, correct me if I am wrong, but wasn't Cybersmart one of the first four ISPs to start offering R29/GB ADSL? Now at that point I thought Laurie was great, but now complaining about cheap internet destroying the market when he was one of the instigators of this change is a bit rich. Valid point on quality for price, maybe this is something the ASA needs to look in to as there is a big difference between business grade and home user services, hence the pricing differential. The advertising however tends not to reflect this, in fact ads often promote using the service in a manner that actually goes against the AUP (like multiple conccurrent users etc).

On redundancy add some EASSY and later WACS and ta da, redundancy at a reasonable price. And don't try to tell me MWEB and Afrihost are running at a loss.

+1 on the idea to create a service where you can choose your redundancy, shaping, contention etc and have a customised service and price according to your needs- that would be phenominal! I think QoS options would be great too- with all the VOIP offerings available it would be nice to get some decent service between the VOIP client and the VOIP provider. FNB Connect sadly is pretty rubbish over my ADSL line:(
 
From a cost perspective the ISP (and telecoms) industry is VERY different from the retail industry, the infrastructure costs are phenomenally higher. This is why many companies in developed countries within the tech industry *do* tend to have government subsidisation (and in those countries where they don't there are increasing calls for it), purely because running costs for starters are so high. In the retail space you don't see many new players competing with those big boys (many whom became big when there were a lot less big players to compete against), and those that *do* go into that industry generally try and cut out a niche "boutique" spot for themselves, they make money, but seldom become billion-dollar empires. I can tell you now that should Walmart enter South Africa (which is seeming likely) there'll be a fundamental shift in power in the retail space. Suddenly players such as Pick 'n Pay and so on will have to compete with a company that has so much global power that they can push prices down to near insignificant levels.

You say all they need is sufficient startup capital so as to cover negative cashflow until they have reached the economies of scale so as to make a profit, but in the IT industry it's very easy to quickly burn through that capital long before you've reached profitability. I know of ISP's out there that have been in the market for years and STILL don't make a profit on certain core services, they only survived because the market was fundamentally different 5 years ago.

It's very easy to pass judgement and make wide ranging statements from the perspective of a consumer, but as someone who has actually been in the industry I can say it's not as straightforward and "simple" as you think it is.
 
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