Many Internet service providers (ISPs) are unhappy with Vumatel’s pricing structure and are favouring other fibre operators.
Vumatel currently charges new fibre clients a R1,725 installation fee, and then another R1,000 connection fee to activate a new subscriber on its network.
South Africa’s top ISPs, who spoke to MyBroadband on condition of anonymity, said Vumatel’s total installation and activation pricing is much higher than other fibre providers.
ISPs have been absorbing the upfront costs for new fibre subscribers to remove the barrier of entry to fibre, but Vumatel’s pricing structure makes this difficult.
“ISPs are competing more and more by covering this fee for clients to close the deal, as the install fee is a huge barrier for consumers,” an ISP executive told MyBroadband.
“We do find though that where there is a choice of multiple suppliers the consumers do tend to go for the cheaper option.”
Two of the biggest ISPs in the country said they now prefer selling products from other fibre providers because of Vumatel’s high installation fee.
“If there is an overlap in the fibre footprint, we’ll push the other provider ahead of Vumatel. Our sales and marketing team efforts are also concentrated on non-Vuma fibre areas,” one ISP said.
Another ISP told MyBroadband that they would rather sell other broadband connections instead of Vumatel fibre in areas where only Vumatel has fibre access.
Connection fee a big problem
The ISPs which MyBroadband spoke to all agreed that Vumatel’s connection fee should be dropped.
“The connection fee is a glorified configuration fee, and if a customer wants to cancel a service for two months and reactivate it, it would attract another connection fee,” one ISP said.
“The idea behind the connection fee was to discourage subscribers from jumping from one ISP to other, but in reality it is just a way for Vumatel to make more money.”
Vumatel maximising returns
Most ISPs told MyBroadband that although they do not like Vumatel’s pricing model, they cannot exclude them from their product portfolio.
“We’d be excluding ourselves from 50% of the fibre footprint in South Africa if we dropped Vumatel,” an ISP executive said.
Although ISPs have voiced their concerns with Vumatel, they said their complaints have fallen on deaf ears.
The reason, an ISP owner explained, is that Vumatel is maximising their returns while they have a strong market position.
“That means they are going to maximise their returns and are going to charge as much as they can until there is a lot of competition at significantly different prices which provides ISPs with real choice,” he said.
Vumatel explained that the total cost of an installation, which includes labour, material, and hardware, is significantly higher than the fees Vumatel charges.
“The installation fee is therefore already subsidised by Vumatel,” the company said.
The company added that the total cost of ownership of fibre is a combination of both the installation fee and the recurring line rental fees.
“Whilst Vumatel may charge a slightly higher installation fee than some operators, the competitive recurring line rental fees make it more cost effective for the customer than many other networks,” it said.
Vumatel said it is not concerned that some ISPs do not promote its services because of these higher costs.
“We are very competitive on price when all costs are factored in. Secondly, it is not merely a question of price, but of value. These networks will be around for the long term,” Vumatel said.