The wholesale broadband pricing conundrum
Over the last decade Telkom, Vodacom, MTN and Cell C have enjoyed protection from government through the department of communication’s managed liberalisation policies.
This is something which Vodacom’s ex-CEO, Alan Knott-Craig, said attracted investment to South Africa and allowed them to roll out world class networks across the country.
“One of the reasons SA has such a strong and successful ICT industry, is because managed liberalisation has resulted in strong players such as Vodacom, MTN, Telkom and even Cell C, that have created a backbone that makes it possible for smaller players to enter the market,” said Knott-Craig.
“We compete on quality, but even as we build our latest super-fast data highway, we open the door for operators to run services on our infrastructure,” Knott-Craig claimed.
A closer look at this claim however reveals a potentially uncompetitive environment making it very difficult for smaller players to compete in any real way.
Telkom’s wholesale ADSL product
Telkom has long been criticised by internet service providers (ISP) for the high cost of their IP Connect product, claiming that it is virtually impossible to compete against Telkom Internet on pricing by using this wholesale ADSL solution.
MyBroadband reported earlier this year that any ISP looking at competing against SAIX in the wholesale market must use Telkom’s IP Connect (IPC) product, typically ranging 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.
For a well utilised IPC link the per-GB cost for a 2Mbps ATM IPC service is around R78, while the cost for a 126Mbps ATM IPC service is approximately R21 per GB. SAIX currently sells local-only ADSL bandwidth at around R10 – R12 a gigabyte.
This makes it difficult for any ISP – independent of the size of its IPC link – to compete against Telkom 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 such as 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.
Mobile providers worse
Industry sources now indicate that while Telkom’s pricing may well be on the high side, its network is quite "open" when compared to players such as Vodacom, MTN and iBurst.
MyBroadband has been shown a wholesale agreement from one of the cellular providers, and here there were both speed charges – comparable with Telkom’s IPC product – and volume charges. The volume charge alone was over R 1500 for 10GB of traffic.
With all wholesale charges taken into consideration it will cost an ISP more than R200 per GB to carry traffic over the mobile provider’s network. This cost, however, excludes all charges on the ISPs side, like local and international bandwidth costs, support charges and profit.
Considering that Vodacom, MTN and Cell C charges under R200 per GB to retail customers – which is an all inclusive cost – ISPs will find it challenging to use the current wholesale model to launch any truly competitive retail offering.
According to unconfirmed feedback iBurst’s wholesale model for carrying traffic over the provider’s network is even worse – costing ISPs around R2.50 per MB for all traffic.
iBurst was contacted for comment regarding its wholesale model, but the company did not provide any feedback by the time of publication.
Vodacom and MTN respond
Vodacom said that it had two products available to resellers of its HSDPA service, which is either a discount if it chooses to resell its normal packages (retail minus), or the reseller can opt to purchase bulk data on a reverse billed APN, and create its own data packages.
“Alternatively, dealers sell Vodacom standard products and customers contract with Vodacom directly. The dealer in turn is remunerated through ongoing revenue,” the cellular provider said.
MTN also indicated that it sold packaged solutions through its existing reseller model which operates through MTN Service Provider Channels (MTN SP, Autopage, Nashua, iTalk etc).
“They in turn utilise their dealers, service centres and franchise stores to sell these price plans or bundles. Although MTN cannot guarantee speed, it is rapidly expanding its comprehensive GPRS and EDGE footprints into 3G and HSPA coverage to provide thousands of customers with one of the best user experiences from a mobile perspective,” the cellular provider said.
Standard resale options are however not of value to ISPs who are looking to provide "Value Added Network Services" as it does not allow them to switch their own traffic.
Control over their own IP traffic is one of the main reasons why VANS licensees are fighting for fair wholesale pricing and self-provisioning: something which will allow them to do ‘clever’ things with their IP traffic and allow them to compete against the larger players,
Self provisioning a solution
Considering the high wholesale access costs and potential limitations it is clear why self-provisioning is such an important step to drive down the access pricing of broadband in South Africa.
While Seacom will have a positive impact on the international bandwidth portion of providing a broadband service, this is not a very large component of the cost in the models described in this article, and will therefore not have a massive impact on the total cost of a broadband service.
Self provisioning will however enable ISPs to provide last mile access to consumers using technologies like Wi-Fi or Fibre, bypassing the need to pay high prices to current network operators to carry traffic over their network.
Wholesale broadband pricing discussion
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