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
“We don’t plan on dropping quality, so our margins – which are already extremely thin – are at risk here,” said Payne.
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.
“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.
“They are offering uncapped ADSL below our wholesale cost, which makes one wonder how they are getting away with it,” said Wright.
“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”.