Why a Single-Cost ADSL service?
Telkom, who holds all the cards when it comes to ADSL, argued that a one-price ADSL service will mean that ISP’s will resell a PSTS service which is currently not legally allowed.
According to the monopoly this may change when the new ECA takes effect, but a closer investigation reveals that there is more to selling ADSL as separate components than meets the eye.
The current ADSL pricing structure dictates that consumers have to purchase three separate components, namely a standard analogue line, an ADSL access portion and an ADSL ISP portion. The first two services must be purchased from Telkom while the third part can be purchased from a variety of ISP’s.
This means that ADSL customers must purchase at least part of the service from Telkom, independent of whether they ordered ADSL through their ISP or from Telkom directly. Telkom therefore gets access to the details of all ADSL users, whether they use TelkomInternet, an independent ISP reselling Telkom accounts or even independent ADSL providers like Internet Solutions or Verizon.
For consumers looking for a single account solution there is only one option and that is to use TelkomInternet as an ISP. This in itself can be viewed by some as anti-competitive, but the issues run far deeper than this.
While the ISP has to advertise and convince consumers to use their ADSL offerings, they have no real control over the access or speed portion of the ADSL service. This is sold separately by Telkom, and Telkom takes it upon themselves to upgrade clients or sell higher end services to users.
The ISP can therefore make recommendations to their clients, but reap no financial benefit from upgrading clients to a superior ADSL service. What makes the situation worse is that Telkom can contact the ISP’s clients directly, trying to sell them a certain ADSL service without the ISP’s consent.
This direct access from the wholesaler to clients is seldom good business practice, but one over which the ISP’s have no control. While it is always difficult to prove, there have been allegations from some ISP’s that Telkom has poached clients from them through having direct contact with their customers.
This system may prove to be even more problematic in future when bundled services like triple play becomes available locally. Internationally the ISP can service the customer without much interference from the wholesale operator which means that they have control of what gets recommended to their clients and who they partner with for certain services.
Locally the situation is very different. Telkom can contact ADSL subscribers directly when trying to sell them a certain service on top of ADSL, whether it is VoIP or IPTV.
In a situation where the ISP can sell a one-price ADSL service to their clients it is likely that there will be some form of negotiation power if a service provider wants to sell a bolt-on service to their ADSL client.
The other complication with this system is fault resolution. If a customer uses an ISP other than TelkomInternet it is often out of the hands of the independent ISP to assist with the problem. If the problem lies on Telkom’s side the ISP’s hands are tied and it is virtually impossible to provide good customer service.
ADSL ISP’s problems in South Africa are clearly far more complex than simple margin squeeze or the prohibitive costs of IPConnect. With Telkom having direct access to all ADSL users they are in a very dominant market position, leaving ISP’s with very little negotiation power.
The problem may partly be solved by allowing ISP’s to resell the full ADSL product. Through this system ISP’s will be charged for the full ADSL service, inclusive of all components, and this cost will be passed on to consumers.
The real problem however lies in the fact that Telkom acts as a wholesaler and a retailer. How better to ensure that you keep control over the full fixed line broadband market than to force every client to purchase at least one component from you?
With direct access to all your competitor’s client details as well as controlling price and services it becomes quite clear why Telkom is not keen to alter their current ADSL product structure.
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