Tough for ISPs to compete against Telkom in ADSL ISP space

Telkom is making it very tough for Internet Service Providers (ISPs) to compete against its own ISP, TelkomInternet. Are they behaving in an anti-competitive fashion?

Telkom’s decision to act both as a wholesaler and a retailer in the ADSL environment has drawn a great deal of criticism from rival ISPs.

The Internet Service Provider Association (ISPA) laid a complaint at the Competition Commission late last year, accusing Telkom of anti-competitive practices like margin squeeze in the ADSL retail market.

In their complaint ISPA stated that the problem with ADSL provisioning is not isolated to individual issues like margin squeeze, but to the market structure as a whole. Many ISPs take exception to the way the ADSL product is structured as it gives TelkomInternet an unfair advantage.

Unfortunately this complaint, like the ICASA ADSL Regulations, is also dragging on without any positive outcome after nearly a year.

“ISPA isn’t able to provide any specific feedback right now and we assume this is because of the Competition Commission’s workload,” ISPA said.

Telkom holds all the cards

Currently all ADSL subscribers are forced to purchase both a telephony service (standard line rental) and ADSL access from Telkom. This means that competition only occurs in the ADSL ISP portion, the third and final component needed for this service.

But even this portion of the service is not free from Telkom’s influence. The ADSL ISP portion is also controlled by Telkom as most ISPs are merely resellers of Telkom SAIX bandwidth.

The alternative to this scenario, Telkom’s ADSL IPConnent product, was supposed to give ISPs a viable means to bypass Telkom’s heavy-handed ways.

Unfortunately the costs involved in using this product mean that companies using it, like Internet Solutions and Verizon Business, struggle to effectively compete against SAIX on wholesale ADSL provisioning.

Telkom truly do have their finger in every pie and their undue influence on this vital industry has resulted in inflated prices.

The impact of a monopoly controlling all facets of a certain product is well known and is the reason for antitrust laws in many developed countries, but one problem which is often overlooked is how Telkom is using the ADSL product structure to benefit TelkomInternet.

TelkomInternet unfair advantage

All prospective ADSL customers must purchase their ADSL service (access and line rental) from Telkom.

This situation is far from ideal and may be seen as unnecessary and part of the reason for exorbitant prices for ADSL. But to add fuel to the fire, Telkom is also using this situation to market their retail ISP, TelkomInternet.

On the Telkom ADSL website only one ISP is listed, namely TelkomInternet. It is unlikely that Telkom will allow other ISPs to list their services on their ADSL website, and unless this is allowed Telkom should remove all references to their own retail ADSL outlet in the name of fair competition.

Telkom is also using its snail mail to punt TelkomInternet by slipping in flyers of their services when billing customers, a practice which warrants further investigation from the Competition Commission.

Once again this channel is used exclusively to punt TelkomInternet, giving this particular ISP access to customer information that no one else in the industry has.

Solution

It is not easy to address the problem of anti-competitive behaviour adequately without opening up the telecoms sector to true competition, but a few suggestions bantered around previously may assist in partially leveling the playing field.

A suggestion was made that Telkom should be split into two entirely separate companies acting completely autonomously. While this may be a good idea in theory, it is very unlikely to occur in practice.

Another unlikely option is to ban Telkom from acting as a wholesaler and retailer.

But again that entails splitting up a tremendously profitable financial entity which will not happen without a great deal of effort and energy from the Department of Communications and other interested parties

The best option in the current telecoms environment is for Telkom to allow ISPs to resell the full ADSL service.

This means that customers will be able to purchase ADSL as a one price service from their ISP without ever having to deal with or pay Telkom.

This solution will not only serve to create a more competitive ADSL environment, but also make the ADSL product pricing easier to understand.

Telkom has already hinted that it may allow ISPs to resell the access portion of the service, but that is not good enough.

Unless an ISP can resell the full ADSL product, they will never ‘own’ the customer.

If a customer can however approach only their ISP for the full ADSL product, they will be the only company with ‘access’ to that customer, making that subscriber their own.

Currently all ADSL customers effectively belong to Telkom as this is where they have to purchase most of the ADSL service, consigning ISPs to fight over the scraps of selling monthly bandwidth.

Unless the model changes there will never be true competition in the ADSL arena.

It is however highly improbable that Telkom will let go of the stranglehold they have on the ADSL service, and intervention from either ICASA or the Competition Commission will most likely be needed to remedy the situation.

Unfortunately ICASA seems to be paralysed by a lack of leadership. ICASA’s chair, Paris Mashile, recently stated that there was insufficient evidence that ADSL pricing was too high, effectively undermining all the work done by previous councilors and ICASA employees.

Hope for consumers and ISPs may rest with ISPA’s Competition Commission complaint but only time will tell if either body is able to effectively reign in Telkom.

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Tough for ISPs to compete against Telkom in ADSL ISP space