When we will see dramatically cheaper broadband
Over-hyped expectations around the 90% drop in prices we were suddenly going to see with the arrival of the Seacom undersea cable are now somewhat more “grounded”
If we’re not going to wake up on Thursday (when the $600m cable officially lights up) suddenly paying 50c or even R1 per MB (from the current R2) for mobile data (this we know, Seacom will not mean a massive drop in prices), when might we?
Wayne de Nobrega, CEO of Altech’s recently acquired ISP business Technology Concepts, believes that real and meaningful decreases in prices will be some way off.
That said, De Nobrega says “In the next two years, we’re probably going to see more change than we’ve seen in the last ten years.” This is from a capacity, pricing, and even user-experience/satisfaction point of view.
“Everybody talks about convergence between voice and data – I think the reality of that convergence is much more real today than it was a year ago,” he says.
The beauty of what’s happening, by the driving down of prices we have seen and will continue to see is that the internet “is going to become more accessible to a bigger audience”.
He admits that there are some limits on a national level, specifically on the Johannesburg to Cape Town link. Price, too, is an issue.
With international pricing having come down, “we’re already very close to the price of national bandwidth,” he says.
But, there are a number of projects which will improve capacity (and pricing) on a national level. He lists Infraco’s plans, as well as the Neotel/MTN/Vodacom national backbone.
With this capacity, adds De Nobrega, we’ll see the prices differences between international and national charges “balancing out again”.
However, the arrival of Seacom will not suddenly herald cheap or affordable internet access, he says.
De Nobrega uses ADSL access as an example: “Your DSL connects into a Telkom exchange, and that goes through a Telkom backbone.”
“Now, as a service provider, let’s say I’ve got a Seacom connection coming into my data centre and I need to take you and bring you into my data centre… I’ve got to have an IP Connect between Telkom and myself,” he says.
“That IP Connect will cost me R390 000 for a 140Mbps line.”
“That cost is probably more than what I’m paying for that capacity on the Seacom cable,” he says matter-of-factly.
De Nobrega stresses the importance of these other components when considering bandwidth pricing.
“If I’m on a contract on the SAT-3 cable and let’s say the price (for argument’s sake) is R100, and the price on Seacom is R10. I might have 70% of my bandwidth going through on the SAT-3 because I’m contractually bound to it still and I’ve got 30% going through at R10,” he describes.
“Well, the average price is going to be closer to, say, about R70.”
But (and this is a big “but”), over time, we are “going to see that pricing [on SAT-3] coming down as the contracts change,” says De Nobrega.
“Telkom will address this pricing issue, they have to. Otherwise, when the contracts come up for renewal, they’re going to end up with a cable doing nothing,” he laughs.
The contracts signed between internet service provides and Telkom for connectivity on SAT-3 typically last for five to ten years, according to De Nobrega.
“Now it’s not five or ten years we signed last year,” he adds quickly, “From an ISP perspective, a lot of those contracts will be closing off over the next two to three years.”
De Nobrega explains that that whenever there is a need to increase capacity, he can dilute his investment by bringing more and more Seacom capacity online.
“Its not that on July 23, we turn the switch and suddenly everybody’s got a price point that’s acceptable,” he says.
“But it is the catalyst, the start of this entire process of driving down the price points.”
“The big price change will be when Eassy comes on as well,” says De Nobrega, “so you’re talking a year from now”.
He adds, however, that we will see a steady, curved drop in pricing over the next 12 months until we hit a “price point where we say ‘wow, this is acceptable’.”
When do you think we will see cheaper broadband?
Moneyweb
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