Most of the money which you pay to your Internet Service Provider (ISP) for an ADSL service lands up in the pocket of wholesale providers. What is of concern, ISPs said, is that these wholesale costs can easily be reduced.
The Internet Service Providers’ Association (ISPA) recently called for further reductions in IP Connect (IPC) prices, saying that it is responsible for up to 70% of the cost base of providing an ADSL service to consumers.
However, the cost of IPC is not the only component which is keeping ADSL prices high. ADSL access charges, the forced bundling of ADSL with analogue phone services, and the lack of free peering from the large telecoms players also contribute to high fixed broadband costs.
This raises the question; what is the breakdown of the cost of an ADSL service? To simplify the matter, a 1Mbps uncapped ADSL product is used with the cost breakdown provided by Cybersmart.
|Retail cost breakdown for 1Mbps uncapped ADSL service|
|Portion||Retail cost||Percentage of total cost|
|Uncapped ADSL account||R175||36%|
|Wholesale cost for ISP to provide 1Mbps uncapped ADSL service|
|Component||Percentage of total cost||Money paid to|
|Uncapped ADSL account components|
|–Local Transit||10%||Telkom, IS, MTN, Neotel, etc|
|–International Transit||2%||Telkom, IS, Neotel, Seacom, etc|
Where to cut ADSL costs
There are clearly three main components where price reductions should be encouraged to make ADSL more affordable: Line rental, ADSL access, and IPConnect.
However, Telkom is not the only party to blame for keeping ADSL costs high. Cybersmart CEO Laurie Fialkov highlighted that the cost of local transit, which constitutes 10% of the total cost of providing an ADSL solution, can be eliminated through free and open peering.
However, Fialkov pointed out that the larger players (Telkom, Internet Solutions and MTN) refuse to peer for free. This means that this ‘unnecessary’ local transit cost, which is far higher than international transit costs to Cybersmart, must be passed on to consumers.