Reducing ADSL and broadband costs

Broadband and ADSL pricing remains a hot topic in South Africa, especially after the recent landing of SEACOM which promised to revolutionize the local broadband arena.  While SEACOM ‘s impact on international bandwidth prices has already been felt, it is merely one of the components of a broadband service.

To reduce the cost of broadband in South Africa all components of provisioning a broadband service, – including international bandwidth, local bandwidth, last mile access, support and operational costs – must be reduced.

SEACOM helps, but only marginally

Vox Telecom CEO Douglas Reed says that while SEACOM has had a significant effect on international bandwidth cost, it is not as dramatic as it looks at face value.  Reed points out that international bandwidth is merely one component of their total broadband provisioning costs, and that the lack of redundancy on SEACOM means SAT-3 bandwidth is still needed.

“First Tier ISPs can’t afford to have all their eggs in one basket, and SEACOM has no redundancy,” says Reed.  “By the law of averages it will go down. SAT-3 went down twice this year and was backed up on SAFE.  This adds about 30% to the cost.”

SEACOM is however a good start, says Reed:  “It is the first time we have had a bit of competition (technically still a cartel) and pricing will continue to decline, customers will get more bang for their buck and this process will be speeded up once EASSy and WACS arrive.”

What else can be done?

Cybersmart MD Laurie Fialkov says that cheap backhaul bandwidth tariffs – within central business districts, national backhaul and to the international undersea cable landing stations – is a cornerstone for lowering broadband prices.

Failkov further said that widespread local peering between Internet Service Providers (ISPs) can significantly reduce the cost of local bandwidth.  “All ISPs need to co-operate and peer with each other.  This will significantly reduce local bandwidth prices as well as incentivize people to host locally,” said Fialkov.  “At the moment it seems to be a case of ‘I own the content so I must charge you for it’ versus ‘I own the customers so I must charge you for it’.”

Internationally a great deal of content, which is accessed by broadband users, is typically hosted within the same country – something which is not the case in South Africa.  The high bandwidth costs associated with local hosting means that many websites targeted at a local audience are hosted overseas.

Local Loop Unbundling (LLU) is widely viewed as a way to increase competition in the local ADSL market, but Fialkov says that the true benefits of LLU will be only be felt in the presence of cheap backhaul bandwidth. 

Additional spectrum allocation by ICASA is another way in which more competition at the last mile access layer can be introduced, something which ISPA’s William Stucke feels strongly about. 

“Telecoms regulator ICASA must urgently review and speed up the way that radio spectrum is assigned to ECNS licensees for consumers to see more competition and lower prices in the broadband market,” said Stucke. “Access to spectrum now represents the single biggest obstacle to competitive participation in the telecoms marketplace.”

How low can it go?

Most telecoms operators feel that a cost of between R 200 and R 300 per month for a broadband service is as low as it can go.  Former iBurst MD Alan Knott-Craig Jnr said that a cost of around R 220 per month is the ‘broadband pricing floor’:  “Anything below a price of R220 will mean that a provider will find it difficult to show profits on its service offerings,” Knott-Craig said.

Reed agrees with Knott-Craig’s view, pointing out that although European broadband prices are low, broadband bundle pricing still starts at around R200 to R300 per month.  “You will find average sales per customer below that are not profitable if you want to retain a good level of service,” says Reed.

Broadband and ADSL prices – what do you think should be done?