Telkom ADSL wholesale under fire
Telkom has long been blamed for anti-competitive practices in the telecoms market, and the latest accusations are aimed at its wholesale ADSL model.
Looking at some basic pricing models quickly highlights the difficulties facing many ISPs trying to take on Telkom/SAIX in the ADSL wholesale market.
Telkom’s ADSL wholesale division, SAIX, is selling shaped ADSL bandwidth at prices generally ranging between R40 and R50 a GB. This is typically what most smaller ISPs resell to their subscribers, but what if an ISP decides to provision its own bandwidth?
IPC costs
Any internet service provider looking at competing against SAIX in the wholesale market must use Telkom’s IP Connect (IPC) product, typically raging in price from around R22 085 for a 2Mbps ATM connection to R368 334 for a 126Mbps ATM connection.
These prices may vary according to negotiations, but some sources have indicated that Telkom is not very willing to significantly reduce its IPC costs.
If one considers a best case scenario for a wholesale ISP where its full IPC connection is used for 16 hours per day – a very unlikely scenario – the per-GB costs are an eye-opener.
For a 2Mbps ATM IPC service the effective per-GB cost for 16 hours of full daily usage is around R78.00 while the cost for a 126Mbps ATM IPC service is approximately R21.00 per GB.
SAIX currently sells local-only ADSL bandwidth at around R10 – R12 a gigabyte. This makes it impossible for any ISP – independent of the size of its IPC link – to compete against Telkom’s wholesale arm on price. “Smaller guys have no chance at all,” commented one ISP.
It should be noted that the IPC cost is for “local traffic” only and that other costs like getting traffic to the other ISPs over Telkom-supplied connections, international bandwidth costs and general service support and development – something which is likely to double these rates according to some ISPs.
One of the larger ISPs indicated that they were currently budgeting for approximately R50 a GB for IPC costs, R25 a GB for local costs and R20 a GB for the international bandwidth – bringing their total per-GB cost to R95 without any support or margin on top of this price.
So while Telkom/SAIX is selling bandwidth for rates of around R40 per GB upwards, ISPs using Telkom’s IPC service for wholesale ADSL products must look at rates of nearly double that just to cover the cost of its IPC connection.
Anti-Competitive?
This pricing begs the question as to how SAIX are able to provide per-GB bandwidth at rates far below the IPC costs. The answer is simple – SAIX is the only wholesale ISP which does not have to pay any IPC costs.
This is seen by many ISPs as anti-competitive behaviour by Telkom and forms part of a Competition Commission complaint lodged against Telkom by the Internet Service Providers Association (ISPA).
ISPA’s Ant Brooks explains: “The key problem with IPC remains that Telkom itself does not pay an IPC cost to connect to its own ADSL network. Because there is no separation between ‘Telkom the infrastructure provider’ and ‘Telkom the provider of SAIX wholesale services’, it is anyone’s guess how the underlying costs for the ADSL network are allocated internally by Telkom (if at all).”
“It is also of concern that both the ISPs using the IPC service and consumers seem to be paying for much the same thing with the current ADSL offerings,” Brooks says.
“Consumers pay for local traffic (either as part of a bundle, or as just local traffic) over their ADSL connections. One would assume that this is supposed to cover the cost to connect that customer to the networks of other South African ISPs.”
“ISPs also pay Telkom to connect into the ADSL cloud via IPC. This charge is theoretically supposed to cover the cost of carrying customer traffic to that ISP.”
Brooks said that based on the current ADSL pricing model by Telkom he has to question what exactly each party is paying for. “Why do consumers have to pay local traffic charges to Telkom if their ISPs are also paying for Telkom to carry consumer traffic to them,” asks Brooks.
Telkom mum on the issue
Telkom was asked for feedback about the IPC pricing and why SAIX does not have to pay IPC fees, but Telkom spokesperson Nabintu Petsana only said that “Since the IP Connect product is sub judice (due to the fact that it forms part of the Competition Commission complaint currently underway), Telkom can not discuss this matter in public.”
Telkom has also previously blocked questions by ISPA at an ICASA ADSL hearing on this matter, arguing that the matter can not be discussed as it was “sub judice”.
Competition Commission feedback was expected on Telkom’s alleged anti-competitive practices in the ADSL market, but Telkom challenged the commission’s jurisdiction on telecoms matters arguing that it should be regulated exclusively by the Independent Communications Authority of SA (ICASA). Telkom argued that the jurisdiction of competition authorities was subordinate to ICASA.
At an ICASA ADSL hearing Vincent Maleka, the legal council leading the Telkom panel, explicitly stated that the Competition Commission was the right body to address “competition” related issues and not ICASA.
ADSL Wholesale pricing – give your views
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