Telkom launched its ADSL service late 2002, making it the first official broadband provider in South Africa. Numerous providers like Sentech, iBurst, Vodacom, MTN and Neotel have since joined the broadband race and launched wireless broadband services, but Telkom remains the only fixed line broadband provider in South Africa.
Telkom’s extensive copper infrastructure – which was built over decades using taxpayers’ money for a large part of the network – gives the incumbent a dominant position in the ADSL market. Local Loop Unbundling (LLU) can bring full scale competition to the fixed line broadband market, but the November 2011 deadline is viewed by experts as overly ambitious and unlikely to be met.
After numerous complaints from Internet Service Providers (ISPs) about Telkom’s failure to provide a wholesale system which would allow them to compete fairly with Telkom, the company launched its IP Connect product.
IP Connect is a wholesale ADSL product that allows an ISP to provision their own local and international bandwidth to serve their clients. This is similar to Bitstream Access where an incumbent operator enables ISPs to supply high speed services and develop their own ADSL products without access to the copper local loop.
Telkom’s IP Connect product is effectively a custom designed Bitstream Access service which makes use of a hosted Virtual Routing and Forwarding (VRF) system. This VRF system, which is assigned to each ISP purchasing IP Connect, has been described as an unnecessary complication. A Bitstream Access system, which is readily available overseas, would have been far easier to implement, raising questions as to why Telkom would spend time and resources to develop the custom designed IP Connect product.
The answer may be that Telkom is trying to limit or stifle competition. According to one telecoms expert, who asked to remain anonymous, the VRF system only gives the service provider limited control and therefore makes it more difficult for an ISP to develop innovative products that compete against Telkom’s offerings.
The irony, he pointed out, is that some ISPs have found innovative ways to overcome the potential limitations of IP Connect, which means that the complicated and expensive IP Connect service has no real advantage for Telkom.
Some ADSL players feel that it is time for Telkom to launch true Bitstream Access – a change which will enhance competition in the ADSL market and result in better services to consumers.
Telkom’s largest IP Connect client, Internet Solutions, said that it would definitely prefer full Bitstream access. “There is no doubt that we would prefer full Bitstream access based on the additional functionality it would offer us,” said IS.
Two of the biggest complaints about Telkom’s IP Connect product are the high costs associated with the product and the unfair advantage that Telkom’s own ISP, Telkom Internet, has over other service providers.
The price of a 2 Mbps IP Connect service – which costs in the region of R 30 000 per month – makes it virtually impossible for an ISP to compete against Telkom’s retail ADSL offerings. Apart from the IP Connect costs, an ISP must still provision local and international bandwidth, authentication servers and the like.
A higher bandwidth IP Connect service (like a 126 Mbps connection) can significantly reduce the ‘per Mbps’ cost, but at hundreds of thousands of rand for such a connection very few ISPs can afford it or have enough customers to justify the price tag.
The fact that Telkom Internet may have an unfair advantage over other ISPs is nothing new. In December 2005 the Internet Service Providers’ Association (ISPA) lodged a broad-ranging complaint with the Competition Commission targeting Telkom’s anti-competitive activities.
“In the retail market, Telkom determines the price that resellers must pay for SAIX ADSL accounts. But it also competes directly with those resellers in the guise of Telkom Internet. This enables Telkom to squeeze the margin between the wholesale and retail price, so that competitors cannot afford to stay in business,” said ISPA.
“Similar problems exist in the wholesale market. Telkom controls access to key facilities such as international bandwidth, and to local loop access services such as ADSL. By controlling the price that ISPs pay for these services, Telkom makes it difficult for large ISPs to compete with Telkom’s wholesale offerings.”
Internet Solutions agrees that Telkom’s ISP, Telkom Internet, has an unfair advantage over other ISPs. “There is no doubt that Telkom Internet has an unfair advantage,” said IS. “We could naturally talk about the financial side of the advantage, but even more so is the fact that they do not have to make use of them so they do not have the issue of hair pinning traffic like the rest of the ISP’s who make use of IPC links.”
“Telkom Internet users can communicate with one another at DSLAM level without having to run through a single choke point,” IS said.
Telkom was asked why it developed IP Connect in preference of Bitstream Access, and whether Telkom Internet has an unfair advantage in the ISP market, but they did not provide any feedback.
Telkom wholesale ADSL discussion