True cost of a GB of ADSL data

The real price for an Internet Service Provider (ISP) to provide an ADSL subscriber with data ranges between R8 and R10 per gigabyte (GB). This is according to feedback provided by prominent South African ISPs.

According to a well-placed industry source, the lowest possible price for Telkom’s IPC service, which is needed to provide your own ADSL service, is R920 per Mbps (Excluding VAT, if a 25Gbps service is purchased).

Assuming that the link is used close to capacity for most of the time, the effective rate per GB for only the IPC portion of the service is around R4.25 per GB (VAT inclusive).

To provide a full ADSL service, local and international bandwidth is also required. A good price for international bandwidth is around R400 per Mbps (Ex VAT), which translates to around R0.92 per GB (VAT inclusive). This is assuming around 50% of ADSL traffic uses international bandwidth.

For ISPs without free peering agreements, a similar price to international bandwidth is also applicable for local bandwidth.

This means that the bandwidth cost to provide one GB of ADSL data, at the best possible wholesale rates, is R5.17 per GB (assuming free local peering and very low IPC and international bandwidth rates).

This figure was confirmed by Openweb CEO Keoma Wright, who said that the average wholesale cost per GB of ADSL data is around R6 per GB.

This wholesale price excludes staff costs, equipment costs, hosting costs, support and profit. When including all these costs, the true price jumps to between R8 and R10 to provide one GB of data.

A breakdown of the cost components of providing ADSL data, based on feedback provided by prominent ISPs which run their own IPC service, is provided below.

ADSL cost breakdown
ADSL cost breakdown

From the chart it is clear that one of the components dominates the total cost for a gigabyte of ADSL data – IPC.

It is not surprising that all ISPs are calling for ADSL price cuts. MWEB ISP CEO Derek Hershaw said that a 20% reduction in the cost of IPC, per annum for the next 3 years is needed.

Openweb CEO Keoma Wright agrees with Hershaw, saying that a 50% reduction in IPC costs is sorely needed.

Telkom will reduce the price of its IPC service by 8% on 17 October 2013, with two more price reductions planned over the next two years.

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True cost of a GB of ADSL data