Prominent ISPs in South Africa have raised concerns that Telkom’s fibre pricing may be anti-competitive as it is sold below cost.
Telkom Retail is currently offering a 25/25Mbps fibre package on the Openserve network at R449 per month – the cheapest on the market.
Telkom is also running a promotion for a 25/5Mbps package in April for R399 per month on a 12-month contract.
While this is great news for customers looking for an affordable fibre connection, ISP executives told MyBroadband the pricing from Telkom is suspect when considering the wholesale costs associated with this product.
Openserve charges a wholesale price of R410, excluding VAT, for a line with 25Mbps download and upload speeds.
With VAT added the cost of rental alone would be R472.50 per month, which is already R23.50 more than Telkom Retail’s price for the package.
In addition, Openserve charges a Broad Connect wholesale fee for local bandwidth usage on the line – which is charged at R9 per Mbps.
Previously known as IP Connect, this is an amount which ISPs have to pay for bandwidth consumption by their customers.
There are also many other costs associated with offering a fibre service, including international bandwidth, customer support, marketing, staff costs, and equipment.
Bundled together, these costs would suggest that Telkom is either making a loss on its 25/25Mbps service or that Openserve is offering packages at reduced rates to Telkom.
A prominent fibre ISP executive, who asked to remain anonymous because they also offer Openserve products, said the break-even point for this package is around R483.
This retail pricing guideline makes sense as the next-best pricing, compared to Telkom’s R449 per month, is MWEB’s R499 per month.
Openserve boasts the largest fibre network in the country and many ISPs rely on the company to provide Internet services.
To remain competitive, ISPs need to be able to purchase products on Openserve’s network at the same price as Telkom.
Telkom’s aggressive fibre-to-the-home prices have now raised concerns about anti-competitive practices.
These concerns are partly fueled by historic anti-competitive practices by Telkom.
Telkom previously ran into trouble for advantaging its retail business by charging other ISPs more to buy services on its network in the 2000s.
Telkom had a monopoly during this period which means ISPs were forced to use Telkom’s backbone network.
After a probe by the Competition Tribunal, it slapped Telkom with a R649 million fine, ruling that the company was abusing its dominance in the telecommunications market in South Africa.
“The prices for the Telkom access services supplied to first tier ISPs and their end customers were higher than those that Telkom Retail accounted for in pricing its bundled IPN VPN services to its customers,” the Tribunal’s order stated.
As another consequence, Telkom was ordered to split its wholesale and retail businesses.
As part of a new Code of Conduct, Telkom instructed employees of its wholesale and retail businesses that they had to treat Telkom’s retail division and other licenced operators (ISPs) in a non-discriminatory manner.
Under the new Code of Conduct, employees from Telkom Wholesale – which was renamed to Openserve in 2015 – were prohibited from giving special treatment to requests made by Telkom Retail employees.
In addition, they were prohibited from sharing any confidential information from competing operators – such as client information or product pricing models.
At the time, Telkom noted that non-compliance would breach the company’s agreement with the Competition Tribunal and result in possible disciplinary proceedings against employees.
When asked about how Telkom Retail was able to charge such a cheap price for Openserve’s 25/25Mbps package, the company said it could not disclose confidential commercial information.
It added that Telkom Retail did not get preferential treatment from Openserve.