ADSL price war

Over the last few weeks numerous Internet Service Providers (ISPs) have launched aggressively priced ADSL offerings.  Some of the latest services include Screamer Telecoms’ R399 for an uncapped 384 Kbps service, DigiChilli’s uncapped 256 Kbps offering for R300 per month and MyISP’s R60 for a 3 GB ADSL data bundle.

These price cuts are partly driven by lower international bandwidth costs available through SEACOM.  The ‘SEACOM Effect’ has taken some time to filter through to consumers in South Africa, but offerings from DigiChilli, Afrihost and Screamer Telecoms are directly related to lower bandwidth costs from the new undersea cable.

SEACOM is only the first of many new undersea cables which are set to land in South Africa.  The following projects are all set to provide international bandwidth to the country over the next two years:

1. 1.14 Tbps EASSy (June 2010)
2. 5.12 Gbps WACS (Mid 2011)
3. 1.92 Tbps ACE (2011)
4. 1.92 Tbps MainOne (June 2010)

The increased competition in the South African undersea cable market is likely to push prices down further – something which bodes well for consumers. 

National bandwidth prices are also set to decrease when Infraco becomes operational and the combined MTN/Vodacom/Neotel network goes live.  Some industry players have raised concerns that inadequate national bandwidth may become a become a bottleneck when all the submarine cable systems become operational, but local telecoms operators appear to be aware of this problem and are continuing to invest in national fibre infrastructure.

Early market entrants may have it tough

Lower ADSL prices were welcomed by consumers, especially when it came to uncapped ADSL offerings.  Previously these offerings were mainly aimed at the business market because of the high prices associated with unlimited services, but with prices below R 500 per month consumers are starting to enjoy the freedom of uncapped broadband.

There is typically a trade-off however.  Better quality services means that more bandwidth must be allocated per user, increasing the price of the service.  Contention ratios of between 20:1 and 50:1 are commonplace with international bandwidth offerings, but locally high contention ratios may result in particularly poor service levels.

Early adopters of affordable uncapped offerings are likely to use the service nearly continuously which means that a contention ratio of 50:1 may well result in a user getting only a fraction of the advertised speed of the service.

Quality of service

The continuing ADSL price war is likely to drive prices down further and see the launch of innovative offerings – both capped and uncapped – in an attempt to gain market share.  Some of these offerings will however provide less than satisfactory service levels, especially when pricing takes precedence over quality.

After ADSL bandwidth prices start to settle at lower levels the quality of the various ADSL offerings will become a very important distinguishing factor to consumers.  This has been the case in more mature broadband markets for years, and South Africa is likely to follow the same route.

Good network management, acceptable contention ratios and good customer service will all become increasingly important facets of a broadband offering in a market where services are generally affordable.  The complaints about price, which have dominated broadband discussions for years, may therefore slowly start to be outnumbered by service level discussions and establishing which provider has the best speeds and superior service levels.

ADSL price war – discussion