Where your ADSL money really goes

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.

Cybersmart CEO Laurie Fialkov said that IPC costs account for 68% of the cost of providing an uncapped ADSL account, while local transit makes up 27% of the cost.

Web Africa COO Rupert Bryant argued that while IPC may be to blame for a large part of an ADSL data package, the biggest cost drivers are still ADSL access and analogue line rental.

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
Line rental R148 30%
ADSL access R165 34%
Uncapped ADSL account R175 36%
Total Cost R488 100%
Wholesale cost for ISP to provide 1Mbps uncapped ADSL service
Component Percentage of total cost Money paid to
Line rental 30% Telkom
ADSL access 34% Telkom
Uncapped ADSL account components
–IPConnect 24% Telkom
–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.

ADSL cost breakdown
ADSL cost breakdown

Telkom is in control of the pricing for all three these components, and it is not surprising that ISPs are urging ICASA to put pressure on Telkom to reduce ADSL wholesale costs.

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.

More ADSL pricing articles

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The truth about ADSL costs in SA

Cutting ADSL prices: ISPs say what needs to be done

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Where your ADSL money really goes