Fair pricing - I think not!

sliktrik · May 2, 2004

Just been doing some research to see what other ISP's [around the world] are charging for services that are based on the same equipment sentech is using [from ipwireless - http://www.ipwireless.com] and I have come to the conclusion that sentech may not actually be telkom, but they certainly act like them and they definately price their products like them.

SA price for wireless modem R3500
US price for wireless modem $125

SA price for 512k package R1429 per month [from nowire]
US price for 512k package
1. $75 /month - montana
2. $60 /month - hawaii [modem $10/month]

[all for a one year contract]

Now I doubt that we will even get a reply from sentech - but you should be ashamed of yourselves for offering a monopoly service under the guise of free and fair competition

Perdition · May 2, 2004

At this point in time it isn't really fair to compare Sentech to IPWireless providers in the US. Firstly SA is subject to some pretty exorbitant import duties. I agree they probably have room to drop the price of the modem but it is very unlikely it will get anywhere near $125.

Secondly international bandwidth in SA is very expensive due to Telkom's monopoly on terrestrial bandwidth. In the US bandwidth is insanely cheap due to under utilisation of the current infrastructure and REAL competition. Sentech are currently using bandwidth purchased from IS who in turn purchased their bandwidth from Telkom and thus in order to remain profitable they need to structure their packages accordingly.

Lastly they are a business and their goal is to make as much profit as possible. At the moment the are offering a product that is arguably better than ADSL in many ways and at a better price... seems like fair competition to me. Until such time as Telkom lowers the price of ADSL or another broadband provider enters the market (not much chance) Sentech have no real reason to drop their prices.

regardtv · May 2, 2004

Also there is the fact that at the end of the day someone has to pay for the roll-out of the services....

Who knows things may get cheaper but I'm not holding my breath....

All in all compared to Telkom costs I'm rather happy with their costing... I'd obviously want 128K priced at R449 and 256K at R649 ... but that's just my pipe dream...

I don't need 512K like noone since I need less porn - I have a fiance afterall ;-)

R

************************************************************
The views expressed on this site are my own and NOT those of my employer.

gripen · May 2, 2004

In that same line I would like to see 512K at R849 and 1Mbps at R999 and also a lower end 64K at R299. The modem should cost R1500 upfront. Contracts for prepurchased modems should be minimum 6 months (at a slightly higher price say 10-20% more).

I reckon when they hit 10000 users & their initial contract with Berco is paid off (prepaid) & all the modem excess (ie. cost price + X = R3500 --- X is the excess) & towers are nearly paid off or suitably profitable THEN everyone incl. contracted folk should be adjusted to the above rates. Subscriber numbers will explode! But..

Like you said.. a pipedream.

Ditch · May 2, 2004

Comparing SA packages to US packages is a bit silly, since (as pointed out) bandwidth is much more expensive here due to (a) competition and market bandwidth surplus in USA and (b) local Telkom monopoly over-charging by creating artificial bandwidth scarcity (see this interesting link for more info: http://www.ee.co.za/VectorForum/~forum.asp?action=view&primaryKey=421). That isn't Sentech's fault.

Overall I think Sentech's pricing is quite fair. Obviously SA price levels are not quite on the same level as developed countries, but we can't expect miracles, and it's a huge step in the right direction.

These figures are probably a bit off since I can't remember where I got them and they're a bit vague to me now, but I seem to remember reading that Sentech spent approx R300mil capital to launch MyWireless (with roughly half that going to 3G licensing fees alone). So ignoring running costs and costs of installing additional subsequent infrastructure (e.g. the new towers going up now), you can do a bit of math and work out how much Sentech needs to charge vs. number of customers just to first break even and then get some sort of ROI within a few years. I applaud them for taking that risk and being willing to 'invest' in the development of SA telecomms.

My own opinion, I think pricing will become cheaper within the next two to three years, given that by then the SNO will probably (hopefully) finally be entering the market too, and Sentech will have more customers which = more income to grow and compete with Telkom. If Telkom is feeling pressure from SNO and Sentech, they would probably consider lowering prices and improving their services.

gripen · May 2, 2004

Im willing to bet the none of the incumbents will reduce their prices. Why? Its called the MTN factor. Yes, Vodacoms calls did come down with the introduction of MTN but that was due to their establishment as a SP. Telkom is already established and all their hardware is paid for. I bet that the SNO will probably come in at 0.75-0.8 times Telkoms prices but since Telkom has the infrastructure there will be no knee jerk reaction. They may hold off increases or even drop prices by 5% but I dont think it will be as wonderful as everyone predicts. ADSL will not go under R1000, local calls wont be free, internet wont be dirt cheap.

What bothers me is that international bandwidth is steadily decreasing in cost yet we see no reduction in consumer pricing. In the next two years, international bandwidth should become cheaper for Telkom etc as the SAT-3 cable gets paid off and so on. Yet, we wont feel it. They will IMHO always exploit the fact that we are "Far away" from US/UK and they will exploit our willingness to pay lots for little (ie. Telkom ADSL). Australia is further away than us but they have xMbps internet to the home.. explain that?

Sentech's prices are reasonable yes but only because we are so used to getting raped by Telkom that we almost expect it from Sentech. Their product works well I say. However, we have perhaps been convinced that it is expensive etc. Now I know that infrastructure doesnt come cheap but still - the prices should or must come down within 1 year. Maybe if they spent less cash on TV adverts and rather investigated lower cost advertising then we could get more towers quicker. I'm sure it burns every subscriber being blasted with each R30000 ad since each time you think "So this is what we are paying for". I think its enough for now.. I'm sure that Sentech will get a decent ROI pretty soon but they must strengthen their business model and customer relations.

Like we said, the prices above are pipe dream. Never did we moan about the prices being high (at least not me) but it was rather a "wish-list" of sorts. By paying the fees for my connection I am accepting the price and saying to Sentech "okay, I think your price is good, here's your money".

BTW: sliktrik, please compare apples with apples, rather compare with the Tanzania offering, NZ's whoosh etc and report back. I know that the whoosh offer sucks - its worse than sentech. They want to limit you to 10 * 700MB a month or 7GB a month. Any cap is a bad cap. Wireless is expensive in america and (unlike SA) is *only* for those that cannot get xDSL/Cable which is a small minority. Thats why you see hawaii. $50+ is a ripoff for access in the US. You can get any broadband 512k for under $30 a month. But we're not comparing apples to first-world-internet-access (again).

sliktrik · May 2, 2004

The replies touched on a couple of issues:

Price of the modem : as far as I am aware [and I have been in the IT
industry for 10 years] the import duties on modems fell away in 2002
and at R3500/$500, assuming a retail margin of $100 they are still way overpriced when you consider that we are pretty much on a par with the rest of the world when it comes to computer equipment pricing.

Bandwidth : I was under the impression that sentech had access to their own bandwidth via satellite [if I am mistaken I apologise], in any case there is so much spare capacity on SAT-3 it is scary, but because of out ill-advised laws telkom gets to manage it - and as one of their directors said - we didn't ask to put in this position [but the lunch with the minister did help] but as long as we are, we are going to make hay while the sun shines.

Roll out of services : as anyone who has started a business will tell you, a roll-out is an opportunity cost, school fees for setting up your business, only the very unwise businessman passes these costs on to their customers - it is always better to have a compelling offering that people will be prepared to pay for and you gain return on investment by having people sign up and stay signed up.

If the package had been priced at a rate that was internationally competitive, and they sign up process wasn't such a pain in the arse, sentech would be seeing far more people signing up and telkoms lame duke adsl service and relic services such as isdn, analog dial and diginet wouldn't stand a chance.

I am not sure I agree with the argument that we cannot compare mywireless to wireless offerings in the US where it is limited to people who can't get DSL connections - surely this would make it more like our monopolistic and protectionist market than any other and allow us to compare the pricing. Regardless of caps and lower connection rates one has to start somewhere when you are trying to figure out whether or not we are paying a fair price for a service.

Don't get me wrong I am not slating sentech or mywireless - I'd just like to know why they chose to set the prices so high, I travel quite extensively and am quite used to have a T1 line in my office in the US and free 10mb broadband in the hotels I stay in and it always depresses me coming back to SA, knowing that telkom, the cell networks, other 'service' providers and government ignorance are holding south africans back from so many opportunities.

The opportunity exists for lower pricing, but with a lot of if's. if the minister of communications got a brain and got out of telkoms profit, if being a network operator was not dependant on having a licence but on a minimum level of investment in people, money and infrastructure and if sentech trusted their business model enough to put pricing in place to attract customers at a rapid rate.

Sometimes playing devils advocate is so much fun!

clivedoubell · May 2, 2004

What concerns me somewhat is that Sentech is a "parastatal", just like Telkom, and just like the future (maybe) SNO will most probably be. There is no REAL competition where parastatals are concerned, after all they have the same main shareholder, the government. It is in the government's interest (and counter to the consumers interest) to keep it that way in order to satisfy their inherent desire to control everything.

What I am worried about is how this will affect the Quality Of Service in the future w.r.t. MyWireless. Sentech is buying a blob of internet bandwidth from IS, and is now selling this bandwith to the subscribers. At the moment the subscriber base is probably very small, so there are no real bandwidth problems yet, but as time goes on and more and subscribers gets connected to MyWireless there will come a time when there will be so many users that significant network congestion will occur, where the bandwidth requirements will exceed the available bandwidth, specially at peak times, very much the same situation that currently exists with MWEB. [Maybe it's happening allready). Now I wonder what Sentech will do when this happens, will they buy more bandwidth from IS (more costs), or will they follow the same strategy as MWeb, and just keep on getting more and more subscribers (more income). Personally I'm not holding my breath.

Clive

hArTh · May 2, 2004

http://www.ee.co.za/VectorForum/~forum.asp?action=view&primaryKey=421

[}

] <- Thinks everyone should read the above link and note the shear arrogance of the Telkom replies.

[

!][

!]

BTTB · May 2, 2004

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Australia is further away than us but they have xMbps internet to the home.. explain that?<hr height="1" noshade id="quote"></blockquote id="quote">

Good point.

<hr noshade size="1">You can take Telkom out of the Post Office but you can't take the Post Office out of Telkom.

gripen · May 2, 2004

MWEB needs to pay off all their TV ads. Sadly, Sentech seems to be going the same way. However, I do believe that they will buy more bandwidth as the need arises. Thats why I always say that its a good thing to get more and more subscribers to Sentech. I have heard that (and my figures are totally wrong) they strive for a 15:1 contention and currently its at 20-25 (for example) also when it gets to 35:1 they will buy more bandwidth whether it is over satellite (which apparently Sentech has easy access to and of which there is plenty) or fibre I dont know.

<blockquote id="quote">quote:<hr height="1" noshade id="quote">
Wally Beelders, Telkom:
....
What went almost unnoticed in Jan 2002 with the focus on local call cost increases was that the cost of international leased lines dropped by 25 %. International leased lines are a major cost component for the ISPs and the decrease will have affected the ISP portion of the cost of Internet access.
<hr height="1" noshade id="quote"></blockquote id="quote">
--> Telkom passing the buck as usual..

<blockquote id="quote">quote:<hr height="1" noshade id="quote">
Dr. Angelo Roussos, Sentech:
...There must be a recognition by regulators in all African countries (including South Africa) that such infrastructure (together with national longhaul infrastructure and facilities) is of importance to the country (and Africa) as a whole, and that such infrastructure cannot be the domain of a single entity, either at a competitive level, or at a level which compromises national economic interest.
<hr height="1" noshade id="quote"></blockquote id="quote">
--> this I like to see since its coming from Sentech [

]

Guys remember also that SNO and xNOs will buy their bandwidth FROM Telkom since Telkom owns our share of SAT-3. So why or how could a SNO bring us properly priced broadband? The only thing to remember is that at least the COL is lower here than in US/UK. Unless you earn a good salary in those countries..
Ok it seems that SNO may go via Telecom Namibia but I dont think Telkom will let that one slide past the rules. Telkom must carry a portion of all traffic so they will overcharge anyway.

Unfortunately, I think the situation can and will change only when the current stock of Telkom decision makers retires, migrates elsewhere or are replaced. When people who have actually battled with low speeds end up in the upper echelons of Telkom, things will change. Its a simple concept.. R1000 * 10000 people = R10mil while R250 * 40000 people = R10mil which means that 30000 people now have more access (maybe at a slightly lesser speed) and Telkom makes the same money.

With all this 10 years of democracy mumbo jumbo who ever mentions that Telkom is STILL running as it was in the apartheid era (from the consumers point of view). Nothing has really changed in 10 years - privatisation or no privatisation. All the excuses mean nothing anymore. But I dont directly use Telkom so I shouldnt moan too much.

Interestingly, by my calculations.. $670mil paid over 5 years for 120Gbps = $11mil a month. So for one month 120Gbps costs $11million. For a 1:1 128kbps section, thats $11.73 per 128kbps share. Now assume contention of 5:1 (very good).. thats a cost price of $2.35 a month for 128kbps. Now explain how we get to (650-150(modem)-200(infrastructure)) R300 a month for the international bandwidth? I think their excuse sucks.

Please flame me if my figures are wrong. But $2.40 or R17 a month for 128kbps is NOT expensive international bandwidth.

mbs · May 2, 2004

<blockquote id="quote">quote:<hr height="1" noshade id="quote">With all this 10 years of democracy mumbo jumbo who ever mentions that Telkom is STILL running as it was in the apartheid era (from the consumers point of view). Nothing has really changed in 10 years - privatisation or no privatisation. All the excuses mean nothing anymore. But I dont directly use Telkom so I shouldnt moan too much.<hr height="1" noshade id="quote"></blockquote id="quote">
You should, even as an indirect user. And this is precisely what I've been saying all along - Telkrap is the problem, and their strategic management and operational decision-makers should be brought to book. Their actions have been nothing more than reminiscent of the state machinery pre-1994, with their public service mandate being absolutely secondary or of no concern to them at all, never-mind issues of privatisation, competition or de-regulation...

Perdition · May 2, 2004

Excellent article, it's great to see everyone opposed to Telkom embraces competition and is acutely aware of the effect Telkom's monopoly on bandwidth is having on the economy. I believe that if regulations were adjusted to allow other providers to land undersea fibre in SA you would see a consortium of SA internet providers hop on the bandwagon almost immediately... however there is probably more chance of me having a litter of kittens than that ever happening [

]

Turtle · May 2, 2004

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by greedyflyza
Ok it seems that SNO may go via Telecom Namibia but I dont think Telkom will let that one slide past the rules. Telkom must carry a portion of all traffic so they will overcharge anyway.
<hr height="1" noshade id="quote"></blockquote id="quote">
I thought that was one of the most interesting bits of info at that URL, i.e. that it would have been cheaper for the SNO to license SAT-3 bandwidth from neighbouring Telecom Namibia than from Telkom locally! (SAT-3 is co-owned by a number of countries). That is highly telling.

Businesses and consumers are the ones suffering here, perhaps it would help to organize and be a bit more vocal about the problems, e.g. create petitions, put some pressure on the government to speed up regulations reform to promote competition, issue press releases etc. to create more public awareness. Put the 'spotlight' on government a bit for their 'fumbling' and holding back of telecomms growth. Rapid telecomms growth is critical for any country that wants to take part in and be successful in the (cliché warning) 'new economy', most other countries realise this. Discussing it on this forum isn't going to change anything, but doing something in the real world might.

clivedoubell · May 2, 2004

The saddest of all is that there is a Competition Commission in SA that is supposed to monitor uncompetitive behaviour. Oh please. Where is there a better example of uncompetitive behaviour than Telkom. And the CC just poohs poohs along and does nothing.

It's like having a constitution that says that there will be no discrimination on the basis of race, sex and bla bla bla. And the next clause saying that the previously disadvantaged will be benefitted, which immediately implies discrimination on the basis of race, and sex.

Unfortunately this is the non-sensical society we live in. No matter what who says, Telkom's monopoly is protected by legislation. And it is in the ruling parties interest to keep it that way, as many of the senior positions in telkom is held by ruling party members. And when the SNO comes along it will be exactly the same.

So either love it leave it.
Clive

Deon · May 2, 2004

If one looks at global demand and supply and price structures according to those, as pointed out in the thread here the prices locally do not meet international rival prices which is not surprising.

Looking to china where housholds have televisions and other "affordable" appliances yet no running water. In Egypt and other Nothern African states an airconditioner is cheaper than a fridge yet here it is the opposite; WHY?

I can survive without an airconditioner here, yet I cant without a fridge if I have a home, there you cant survive without an airconditioner, the anicdote "you buy your car for the aircon" becomes "you buy the house for the aircon"....

The customer base or realistic customer base who can buy and use this product is relatively small in South Africa because the rest of the countries people are not interested in computer parts and advancement of the telecoms industry they are rather fighting for the advancement of basic services.

So the price structure and other factors which influence how much you pay for your Sentech becomes relative to the odd 10% of the population that can

1. afford it,
2. Have a PC,
3. Know what the internet it,
4. Want the product,

So in closing if you want the product and can afford it, you have to basically 'cough up' what is asked because this is a new service and as new much development needs to still be done on the towers and sites AND it is not a basic need and in a country where the BASIC is still being fought over in places you pay for luxuries such as broadband..

Personally I dont think they ask too much, I think in Rand not in Euro, Dollar or Pound..... Compared to Telkoms product offerings these are better and more versatile and cheaper and the company is more approachable ( I dislike "your call is important to us, you are number 500, you will be hepled next year sometime ).

sliktrik · May 2, 2004

The simple solution to all of this is for someone in ICASA/government to show some conviction and take the clause
out of the telecommunications act the limits access to international
connectivity to telkom, until that happens we are going to remain a backwater and as damaged from a business perspective as we where in the bad old days of apartheid, when no-one would touch us.

The minister of communications could solve this quickly and simple, but seems either to scared of vested interests, inept, just plain blind to the fact that we are in the 21st century or all of the aformentioned.

While the government owns the major part of telkom, vodacom, the SNO through eskom/transtel and ICASA refuses to do anything about it we are doomed. Having played golf with a board member of telskum I can tell you they are not going to change until forced and they will fight it tooth and nail.

If only there was a legal option - where the government could be brought to open the market to players who want to invest but don't necessarily want to get into bed with them.

Luke7777 · May 2, 2004

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by sliktrik
..where the government could be brought to open the market...
<hr height="1" noshade id="quote"></blockquote id="quote">
should that read "brought" or "bought" ? [}

]

Nickste · May 2, 2004

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Having played golf with a board member of telskum <hr height="1" noshade id="quote"></blockquote id="quote">

*Nickste pictures sliktrik arriving with his l33t Big Bertha, only to be told that he can only use his putter, and he can only hit the ball 10 meters [

]

Nick Smit
broadband@nicksmit dot za dot net

gripen · May 3, 2004

sorry but we do not like people high up in Telkom [

!]

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