Where your ADSL money really goes

To make ADSL more affordable in South Africa, Telkom should reduce the price of ADSL access (aka ADSL line rental), cut the cost of wholesale ADSL (IPC), and offer naked ADSL. This is word from South Africa’s largest ISPs.

Over the last few years the price of ADSL data has plummeted, but the cost of Telkom’s analogue line rental and ADSL access did not enjoy the same price reductions.

Telkom did, however, increase the speed of its ADSL services free of charge. Another free ADSL speed increase is scheduled for later this year.

While these speed increases did not lower the barrier of entry to ADSL, it did provide consumers with far better value at the same price.

Telkom’s ISP arm, Telkom Internet, has also slashed the price of its retail products, offering its subscribers double the value at the same price.

Where your ADSL money goes to

Many ISPs told MyBroadband that while Telkom is benefiting their own retail customers with more data and lower prices, the company’s wholesale ADSL rates only saw a slight reduction in price.

According to these ISPs it is virtually impossible to compete against Telkom, partly because Telkom controls the price of most of the expensive components of an ADSL service.

The following chart shows the cost breakdown for a standard (not bundled) 1Mbps uncapped ADSL service. This information is based on information provided by independent ISPs.

The blue portions in the charts show the parts where the money goes to Telkom.

ADSL Cost Breakdown
ADSL Cost Breakdown
Total cost of an ADSL service
Total cost of an ADSL service

 

How to cut the price of ADSL

The charts clearly illustrate that the cost of an ADSL service is largely controlled by Telkom. It is therefore not surprising that ISPs are calling on Telkom to drop the price of its ADSL services.

Web Africa CEO Tim Wyatt-Gunning said that ISPs still rely on Telkom for the provision of the two most fundamental elements of ADSL – the physical copper cable and IPC.

“Telkom needs to drastically reduce their line rental prices to ensure that ADSL remains competitive with other access technologies such as 3G and LTE,” said Wyatt-Gunning.

He added that IPC still makes up the largest portion of an ISP’s cost to provide an ADSL service.

“It is not helpful when Telkom slashes their retail prices without passing on any IPC cuts to their Service Providers, the ISPs,” he said.

MWEB ISP Derek Hershaw agrees with Wyatt-Gunning, saying that Telkom should significantly reduce the cost of the ADSL line rental and provide the line as a ‘naked service’.

He also urged Telkom to implement a 20% reduction in the cost of IPC per annum for the next 3 years

Hershaw added that Telkom should start offering some sort of measurable quality of service on the ADSL network – from the customer right through to where it is handed over to the ISP at their IPC nodes.

“It’s inexcusable that it’s simply offered as a ‘best effort’ service when customers are paying such a premium for it,” said Hershaw.

Afrihost director Greg Payne echoed other ISPs’ view that a cut in IPC pricing is are sorely needed to reduce the cost of ADSL accounts.

Cybersmart CEO Laurie Fialkov said that Telkom’s decision to bundle a voice line with an ADSL line makes it challenging for ISPs to compete.

This bundling not only increases the cost to ADSL users, but also makes it unfeasible for ISPs to offer their own VoIP products to their subscribers.

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Where your ADSL money really goes