Openserve’s recent agreement with the Competition Commission to adjust the price of wholesale broadband access will result in little to no savings on a home user’s monthly fibre bill.
Customers can, however, expect to see an improved network experience during peak times.
This is according to RSAWEB cofounder Mark Slingsby, who said that while Openserve has reduced pricing for the “IP Connect” portion of its wholesale product, it has substantially increased the fibre line access fees ISPs must pay.
The Competition Commission recently confirmed it had reached an agreement with Telkom for the “substantial reduction” of wholesale broadband access costs. Openserve is the wholesale division of Telkom.
This was done to remove “excessive pricing concerns” in respect of its IP Connect product – concerns which were raised during the Commission’s recent Data Services Market Inquiry Report.
The IP Connect product is what Internet service providers, such as RSAWEB, use to connect their fibre clients on the Openserve network.
Openserve said it would address the pricing concerns by introducing a new product to replace IP Connect. The structure and pricing of this new product would reduce wholesale charges to Internet service providers, it stated.
Importantly, it would allow ISPs to compare Openserve’s offering with that of other wholesale broadband providers.
As recently as February 2020, many of South Africa’s largest ISPs said Openserve’s IP Connect prices were so high that they lost money on fibre clients.
“The Commission welcomes the effective price reductions for wholesale broadband fibre infrastructure to ISPs, as this should result in lower prices to consumers and even small businesses,” said the Commission.
Line access fee hikes
Slingsby, however, said Openserve has effectively pulled the wool over the Competition Commission’s eyes with its new wholesale product and the claimed price reductions.
While the “IP Connect” portion of Openseve’s pricing has dropped from R135 per Mbps to R9 per Mbps, line access charges were hiked dramatically by Openserve – by as much as 47%.
Slingsby said this was done by Openserve to make up their expected loss of revenue.
He went on to provide several examples of how fibre line access fees have been increased.
As an example: The wholesale line access fee for a 100Mbps Openserve line used to be R490 ex VAT per month. From 1 April 2020, the wholesale price for a 100Mbps line increased to R720 ex VAT per month – a 46.9% price hike.
“The net effect to an ISP is, at worst, a 0% price change – and at a maximum probably around a 5% reduction,” said Slingsby.
“ISPs will most likely not be able to reduce prices, though, due to COVID-19 driving anywhere from 50% to 100% more bandwidth utilisation as people stay at home.”
Additionally, Slingsby stated they are using approximately twice the international bandwidth as they did before the lockdown.
“We believe in giving value to our customers, but disappointingly the savings we expected to gain from this change didn’t materialise as Openserve just switched one cost for another. Any savings we were expecting to be able to pass on to our customers have unfortunately been erased.”
Ultimately, fibre users will receive better service during peak times but are unlikely to see price reductions, said Slingsby.
In response to questions from MyBroadband on the matter, Openserve said it cannot detail its pricing structure as customer contracts are confidential.
“Openserve has responded to its clients’ request for lower end-to-end broadband pricing by introducing our new Broadband Connect suite of products,” said Openserve.
“This new product suite includes a solution that is provided from the customer premises to the hand-off point as an aggregated offering and therefore it does not have IP Connect.”
“Our new product suite has the overall effect of significantly-reduced end-to-end wholesale broadband pricing.”
Openserve stated that its pricing is also competitive when compared to the other fibre network operators in the market and it has seen a positive response from clients.
“The overall pricing of the new product components that are required by ISPs to deliver an end-to-end broadband service is significantly lower than that of the components that were bought in the previous product suite,” said Openserve.
It therefore expects ISPs to lower their prices to ensure “the implemented lower Broadband Connect pricing to ISPs will for sure reach the end-user”.
Slingsby said he has confirmed with other ISPs, along with his own calculations, that the claimed substantial price reductions for end-users are unlikely.