The real cost of backhaul bandwidth
SEACOM’s arrival in South Africa broke the Telkom controlled SAT-3/SAFE monopoly by giving operators and service providers an alternative in the international bandwidth market. SEACOM’s per-Mbps pricing is lower than SAT-3, but other costs associated with carrying bandwidth to consumers is often underestimated.
It is widely documented that Telkom charge more for a link from Cape Town to Johannesburg than the cost for a link from London to Johannesburg – via Cape Town – highlighting the pricing issues associated with national bandwidth.
The SEACOM example
Carrying bandwidth in South Africa – both inner city and nationally – is still expensive and constitutes a significant portion of the total cost of provisioning broadband and telecoms services. One of the best examples to explain the cost of backhaul bandwidth comes from SEACOM.
A significant expense of bringing SEACOM’s bandwidth to consumers is the backhaul transmission from the SEACOM Point-of-Presence (PoP) in the Neotel data centre in Midrand to a place like the Johannesburg Internet Exchange (JINX) in Rosebank where bandwidth can be effectively distributed.
The logical option is to use Dark Fibre Africa (DFA) who lease a fibre pair to service providers which they can then ‘light’ to serve their needs. Depending on the equipment used by a DFA customer, the potential capacity of a fibre pair is over 1 Tbps. This high potential bandwidth comes at a cost.
DFA’s current metro price for a fibre pair is R 5 per meter per month. A DFA connection from Neotel’s Midrand data centre to JINX in Rosebank – a distance of around 24 km – will cost R 120 000 per month, which excludes the equipment and operating costs needed to light the fibre and maintain the network.
While R 120 000 per month is not exorbitant when using the line for multiple-Gbps connections, a small or medium sized ISP will typically only need 155 Mbps to serve its needs. In this case the DFA model may not be suitable as it works out to R 774 per Mbps per month.
Opting for microwave is not much better. The cost for a 155 Mbps Metronet link from Broadlink – which includes all equipment – is R 140 000 per month. This service has the advantage of being a fully serviced network without the need to budget for equipment and other operating costs, something which brings it in line with the cost associated with a DFA link.
Another option is for Neotel to carry SEACOM bandwidth from their Midrand data centre to JINX, where they already have a presence. Neotel was asked for feedback on their pricing for such a 155 Mbps link, but despite numerous attempts to get feedback from the company they did not provide any information.
SA not used to Hyperband
One of the main problems with the current bandwidth models in South Africa is that low bandwidth usage means higher per-Mbps costs. This typically applies to inner city, national and international bandwidth. Economies of scale translate into lower costs, but regarding bandwidth usage South Africa is still lagging behind the rest of the world.
This is something which DFA CEO Gustaf Smith feels strongly about: “The South African market is unfortunately not used to what we at DFA call “Hyperband” yet. The term “Broadband” is used locally for a few megabytes, while we are thinking gigabytes or even terabytes when we refer to broadband.”
Smith explains that DFA pricing does not change irrespective of the bandwidth activated by customers on that pair of fibres. “Some of the smaller users of fibre, are comparing our offering to a 2 megabyte link available from Operators. They are therefore not comparing apples with apples, and are only catering for their immediate needs,” says Smith.
“The need for bandwidth is rapidly increasing, and new developments such as international connectivity (SEACOM and EASSy submarine cables) will stimulate that growth. DFA enables smaller ISP’s to sell more bandwidth to their corporate customers, while their cost of sales (the fibre cost) remains unchanged. It should be seen as a huge business opportunity by the smaller ISP’s.”
DFA planning a cheaper solution
While the DFA cost is suitable for high end users, some smaller ISPs feel that the current DFA pricing model does not suit their needs. Broadlink offers a more affordable low end microwave offering, something which makes their package attractive to a wider audience.
It has been suggested that DFA partners with an ECNS licensee to connect prominent buildings like the Neotel Midrand Data centre and JINX in Rosebank, and then sell bandwidth to multiple smaller players over the same fibre pair.
While DFA says it is confident about its current business model they are also looking at designing a cheaper solution for customers looking for less bandwidth – good news for smaller players in the telecoms market. Details about this solution are not yet available.
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