Uncapped ADSL pricing time bomb
The price for certain uncapped ADSL products may become unsustainable unless Telkom reduces the price of their wholesale ADSL IPC product. This is according to Sean Nourse, Internet Solutions’ Executive: Connectivity Services.
Nourse explains that the higher ADSL speeds (512kbps to 1Mbps) which Telkom recently introduced is great news for the industry and consumers, but these higher speeds means higher bandwidth usage which places pressure on uncapped service providers.
Most Internet Service Providers (ISPs) upped their 512kbps uncapped account speeds to 1Mbps without increasing the price of these accounts. This however means that the input cost in delivering these accounts increased without an equitable increase in revenue.
The biggest constraint, Nourse explained, is the cost of Telkom’s wholesale ADSL product called IP Connect (IPC). With IPC service providers essentially pay per Mbps, and more bandwidth therefore means higher costs.
So when Telkom doubled the speed of some of their ADSL access lines uncapped ADSL ISPs were forced to increase their IPC capacity. Without reduced IPC rates it means that the previous uncapped ADSL business models are broken.
The lower margins associated with the higher ADSL bandwidth usage may therefore become unsustainable, and unless Telkom comes to the party with significantly lower IPC costs consumers may potentially see price increases in future.
Sean Nourse
MWEB ISP CEO Derek Hershaw explains that they welcome any intervention that results in faster line speeds.
Hershaw however points out that as line speeds improve so the load that this places on Telkom’s last mile and backhaul network increases, and this extends to the IPC.
“With this recent line-speed upgrade, we were able to absorb this without having to pass on any price increase to our customers but it does obviously eat into our margins,” said Hershaw.
“Our current uncapped ADSL pricing is sustainable, but our standpoint has always been that IPC pricing in general is too expensive and these upgrades only compound that problem further.”
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