Cheap ADSL hurting SA ISP industry?
MWEB shook up the local ADSL market in March this year when they launched their affordable uncapped ADSL offerings.
MWEB’s initiative delighted consumers, and unsurprisingly MWEB won both the ISP of the Year and the Broadband Maverick of the Year awards at the 2010 MyBroadband Conference.
While MWEB went from zero to hero in consumers’ eyes, the same love is not shared for MWEB by competing ISPs who feel that pricing has now declined to a level where it is near impossible to guarantee a quality service.
Price to provide ADSL
It is well known that ISPs can either resell ADSL services from wholesale ADSL providers such as Telkom/SAIX or Internet Solutions, or develop their own ADSL products using Telkom IPConnect service.
ADSL wholesale prices are typically in the low R30’s which means that it is challenging for reseller service providers to compete effectively against players such as Afrihost, Axxess or MWEB unless they either strike a special deal (as is the case with Afrihost which has high traffic volumes) or run their own ADSL network.
Running your own ADSL network can however also be costly unless you reach high economies of scale. An article in 2009 explained the input costs in providing your own ADSL products which includes Telkom IPC costs, international and local bandwidth costs, billing systems and support staff.
Despite the fact that international bandwidth charges have reduced significantly over the last two years, Telkom’s IPConnect costs and national transit prices have not seen the same reductions in price.
This means it still costs service providers a pretty penny to provision their own ADSL products, and to compete in the current market it is not surprising that redundancy and other factors which cost extra money are often excluded.
This means that some ADSL services may be very affordable and even perform fairly well, but they are at risk when any segment of the network gives problems. Users may also experience poor support levels or even congestion on the network during peak hours.
You get what you pay for
Many ISPs have raised concerns that ADSL prices have fallen to a level where it is virtually impossible to compete effectively and still ensure high service levels.
The ISPs owners have raised these concerns in ‘off-the-record’ discussions because of the typical consumer backlash which follows negative comments about cheaper ADSL services.
Cybersmart MD Laurie Fialkov has however spoken out, arguing that the uncapped ADSL tsunami which hit South Africa this year has done the local ISP industry a disservice.
Fialkov said that ADSL pricing developments this year has forced retail prices to fall below cost, which means that it is often not possible to buy sufficient bandwidth to provide restoration of services in a timely manner when there is a problem.
The problems related to SEACOM downtime and ADSL provisioning is a good example. Despite the availability of various cable systems, a single system failure can cause international downtime for numerous ADSL consumers in South Africa.
“At R44 per GB that we used to charge for ADSL access it was possible to buy enough bandwidth to offer restoration and redundancy, but with current prices of between R12 and R19 per GB there is just not sufficient money to provide the same level of service,” said Fialkov.
“I think the local ADSL industry needs to wake up and realise that you cannot have business services at below R30 per GB.”
Fialkov pointed out that we have seen far more ADSL outages this year than ever before. “Count the outages on ADSL before uncapped versus after it was introduced,” added Fialkov.
Other industry players agree with Fialkov, adding that it is still to be seen whether the uncapped business model is sustainable in the long run. Many international broadband service providers have moved away from true uncapped offerings to a usage based model, a sign that uncapped broadband brings many challenges with it.
MWEB CEO Rudi Jansen however said recently that people who think that one can move back to a capped world are ‘misguided’ and that uncapped ADSL is indeed sustainable as long as certain traffic volumes and subscriber numbers are achieved.
ADSL prices too low to provide reliable service? << Weigh in on the forums
Loading ...