SAT3 pricing conundrum
The Communications Users Association of South Africa (CUASA) recently warned that unless local network pricing anomalies are addressed, the liberalisation and introduction of new international landing points will prove pointless.
"The sad fact is that while a Telkom STM-1 (155Mbps) line from Johannesburg to London is ludicrously expensive to rent at R1.7-million per month, a much shorter connection offering the same bandwidth to Cape Town costs a full R100 000 more – at R1.8-million per month,” said Edwin Thompson, Chairman of CUASA.
Thompson explains that it boils down to the anti-competitive scenario that even if a company could supply themselves with a full circuit on SAT3, the associated cost of carrying traffic from the SAT3 landing site to either Johannesburg or Cape Town is so high that it becomes more affordable to just buy everything from Telkom.
“Telkom is controlling how the network is structured – so no surprise then when one notes that all South African bandwidth is routed through Telkom's international bandwidth hub in Johannesburg. Even internet connections from Cape Town-based ISP's are routed to Gauteng first, before being rerouted back to the Mother City," says Thompson.
This view is shared by South African Value Added Network Association (SAVA) chairman Paulo Froes: "While everyone is concentrating on the liberalisation of the SAT-3 landing point and the laying of new undersea cables, they seem to have forgotten about a key piece of the connectivity puzzle – Telkom throwing a spanner in the bandwidth works again," he says.
"Clearly, Telkom has introduced local pricing structures which will negate any benefits which may come from the liberalisation of the SAT-3 landing point, or any other landing point connecting the country to international and fairly-priced bandwidth," says Froes.
Telkom responds
Telkom however disputes these arguments, saying that the use of distance as a baseline for price comparisons on telecommunication services can be deceiving. “Cost components and economies of scale would be more accurate for comparing different rates,” said Lulu Letlape, Group Executive for Corporate Communication at Telkom.
“The STM-1 (Johannesburg to London), with monthly rental of R1.7 million, is only the South African half of the circuit. On the other hand, the STM-1 (Johannesburg to Cape Town) is R1.6 million, thus R100 000 less. The R1.8 million figure, quoted in the press release [by CUASA], in question, seems to be based on the old tariffs for domestic services,” Letlape said.
Telkom’s Letlape argues that the access piece is, in many cases, the most expensive part of providing a service, especially if it is a high bandwidth service where a fibre cable has to be installed specifically for the purpose.
“Further to this, the national network consists of multiple SDH rings for automatic protection while the SAT-3 cable system has manual restoration. There are far more infrastructural and maintenance resources needed to offer a national access network compared to an international network.”
“Therefore, the picture, as painted by CUASA, is untrue as a domestic service would typically include two access portions – the portion between the nearest exchange and the customer's premises,” Letlape said.
Telkom said that it is in the process of rebalancing national and international pricing, but that it should be noted that the same phenomenon of national versus international pricing is found in other countries.
Neotel entering the arena
Neotel said that its negotiations to gain access to the SAT3 landing station are progressing well. The company previously indicated that it will leverage the VSNL shareholding in SAT3 to provide its clients with more affordable bandwidth on the cable, and that access to the SAT3 landing station will complete the picture.
Neotel has also announced that it has signed an agreement with SEACOM to land this cable in South Africa which will further reduce international bandwidth rates and bring much needed competition to the international fiber arena.
For the time being Telkom however maintains its monopoly on SAT3 and the accompanying national bandwidth, and it remains to be seen what effect the Minister’s promise will have that all exclusivity provisions contained in the SAT-3 agreements shall be declared null and void in South Africa in November.
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