ADSL price breakdown: where to cut costs

Internet Service Providers (ISPs) in South Africa are calling for a naked ADSL service and lower ADSL access rates. A breakdown of the cost of an ADSL service in the country clearly illustrates why this is so important.

An ADSL service in South Africa consists of 3 parts: Line rental, ADSL access, and an ISP account. The first two components (ADSL access and line rental) are paid to Telkom, and makes up the bulk of the cost of an ADSL service.

Telkom currently charges R148.37 per month for residential line rental (aka exchange connection), and R165.00 per month for 1Mbps ADSL access (the most affordable DSL service available).

The last portion needed to make an ADSL service work is an ISP account. These ADSL ISP accounts are essentially the only competitive area when it comes to ADSL, and costs range between free (for a 1GB account) and around R199 for an uncapped service.

However, the total cost of an ADSL account does not go to the ISP. Web Africa COO Rupert Bryant previously explained that the majority of the cost of providing an ADSL service goes towards Telkom’s wholesale IPConnect service.

Cybersmart CEO Laurie Fialkov confirmed Bryant’s figures, saying that around 60% of the total cost of providing an ADSL account is made up of the cost of IPC.

The following table provides an overview of the cost breakdown of a 1Mbps uncapped ADSL service.

Portion Details Price % of cost % paid to Telkom
Uncapped 1Mbps ADSL account (Cybersmart) R130.00 29.3%
–Intl Portion of Data International 30%
–Local  Portion of Data Local 10%
–Telkom IPC Portion of Data IPC 60% 17.6%
Telkom ADSL access R165.00 37.2% 37.2%
Telkom line rental R148.37 33.5% 33.5%
Total Cost to Consumer R443.37 100% 88.3%

Where to cut ADSL costs

It is clear that most of the cost of an ADSL service comes from ADSL access and line rentals, which means that the best way to reduce the cost of ADSL in South Africa is to target these two areas.

“I think the real issue is the cost of line rental and ADSL access,” said Fialkov. “These costs account for over 50% of the total ADSL cost in most offerings and more than 90% of the total ADSL cost for cap sizes less than 5GB,” said Fialkov.

The Cybersmart CEO further highlighted that another IPConnect price cut or the introduction of more affordable bitstream access service will only have a limited impact on the total cost of an ADSL service.

What is really needed is an ADSL price cut, and a naked ADSL service where subscribers are not forced to pay the line rental portion if they do not wish to use a Telkom phone.

However, Telkom has actually increased the cost of both ADSL access and line rental this year. This means that it is unlikely that consumers will see reductions in these two areas any time soon.

Telkom is also fighting against introducing a naked ADSL service, which means that the status quo is likely to be maintained for the immediate future.

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ADSL price breakdown: where to cut costs