Uncapped ADSL quality concerns

Telkom started its free ADSL speed upgrades on 11 November 2013 – doubling the speeds of 1Mbps and 2Mbps users, and bumping up 4Mbps users to 10Mbps.

Axxess and Telkom Internet have already announced that they will upgrade their uncapped ADSL subscribers to the higher speeds free of charge.

Other Internet Service Providers (ISPs) are under pressure to follow suit, but without substantial IP Connect price cuts this is challenging. IP Connect is the wholesale ADSL product from Telkom.

On 1 October 2013 Telkom increased IPC capacity by 5% for free. On 17 October it reduced the effective tariff prices of IP Connect by 8%.

This equates to an effective price cut of 12.4% – not enough, argue some ISPs, to double the speed of uncapped ADSL accounts for free without compromising service levels.

ISPs explain their uncapped ADSL speed upgrade challenge

Afrihost director Greg Payne said that they cannot double their uncapped ADSL speeds, keep service levels the same, and still make a profit with the current high IPC prices.

“We don’t plan on dropping quality, so our margins – which are already extremely thin – are at risk here,” said Payne.

Cybersmart CEO Laurie Fialkov explained that if they want to double the speed, and still offer the same contention ratio, they need to also double their IPC capacity.

With an IPC price reduction of only 12.4%, it means that doubling capacity will come at a significant cost to an ISP. This means something has got to give.

“Who pays for the extra 80% shortfall?” asked Fialkov. “It certainly does not come from the 13% discount from Telkom,” he said.

MWEB ISP CEO Derek Hershaw said that to match Telkom’s retail offering, ISPs are going to be forced to buy a lot more IPC capacity from Telkom Wholesale.

“A classic case of margin squeeze clearly calculated to erode competition in the market place. And in the long term that cannot be good for consumers,” said Hershaw.

Openweb CEO Keoma Wright expressed concern that Telkom Internet is undercutting Telkom Wholesale clients (ISPs).

“They are offering uncapped ADSL below our wholesale cost, which makes one wonder how they are getting away with it,” said Wright.

Vox Telecom’s Douglas Reed said that they foresaw this trend, which was behind their migration back to the usage model.

“Our Fat Pipe solution caters for any size line, providing extremely affordable Internet bandwidth on a quality unshaped network,” said Reed.

“The Fat Pipe range does not enforce the “use it or lose it” rules and unused bandwidth is carried forward in perpetuity, this effectively gives our customers the same advantages of an uncapped solution but with a quality network.”

Telkom Internet said that the increase in ADSL speeds by Telkom Wholesale forced it to review costing and profitability on these products.

Telkom Internet said that price increases on some products are unavoidable as it needs to fund the increased capacity – IPC, local and International – required to continue the same quality of services on the higher speeds.

The ISP is also making changes to the way uncapped accounts are managed – in a “manner that allows it to remain profitable without sacrificing the customer experience”.

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Uncapped ADSL quality concerns