The ISP Industry: where to from here?

Years ago, while other kids my age were at school, playing sports and socializing, I discovered this amazing thing called the Internet.  More precisely I discovered the wonders of Internet Relay Chat (IRC), and a myriad of people to communicate with.  I was hooked, instantly, and it became a passion. I knew what I wanted to do in the future.

That was 14 years ago, and as I look back to those days when Internet Africa was running 64kbit circuits into East London, and the web was still largely emerging, I start to wonder, where to from here.  The rest of the world has advanced in leaps and bounds, and while we have come a long way in South Africa, we are unfortunately still largely a fledgling industry that has to learn to spread its wings and fly.

It’s easy to cast blame to excuse SA’s slow growth, but I believe that rather than playing the blame game we need to learn from the past but only with a view to looking forward.  We need to keep in mind that because we have lagged behind, we have had the chance to watch the world try many things, and fail. 

We would be fools not to look at the lessons learnt by others, and not learn from them.  Where so many companies folded in the months following the turn of the millennium, we sat (at least partially) protected, because our infrastructure investment wasn’t as large, and we didn’t have an industry that was advanced enough to get caught up in that most spectacular of bubbles.  So moving forward, we need to stop for a second, and make sure we don’t end up going down the same path that led to the demise of so many others.

South Africa is starting to see more and more investment, by both small players and big players alike, and competition is on the increase, but again, it needs to be carefully considered.   With the granting of so many licenses last year, many people are looking at this industry thinking they can make a lot of money, and they are right, but the key to making money is not to be the same as all your competitors, but it’s to be different and offer things your competitors do not offer.  

A good example is the DSL market which is already under pressure with the margins made by providers shrinking every day.  In this current scenario unless you have very large client basis it’s fast approaching the point where the provision of DSL services as a sole revenue stream will simply not be a viable business model.

We are also starting to see huge investment in fiber infrastructure, as more and more people build out cable.  This is great, but at the same time we run the risk of a massive glut of fiber that is never used.  Surely this industry would be better served if we utilized the technology that exists to build infrastructure in partnerships where each partner shares the infrastructure and, rather than utilizing the infrastructure to drive their revenues, the money is made from the services offered over that infrastructure?

Bandwidth internationally is fast becoming a commodity; internationally you can now buy bandwidth as a provider at costs as low as 1 Euro per megabit and unless you are selling hundreds of gigabits a second, there is simply not enough revenue to sustain a company.

So, with all that said, it leads back to the original question, where to from here?

We have two options, go down the path that has been followed by others and follow the rest of the world, make the same mistakes they have made, and see the same string of bankrupt corporations, low margins and a never ending fight to survive, or, we can skip the hurdles, and start to lead the global industry through innovation.

The home user market obviously has to be serviced, but why not look at the option of cutting the cost of bandwidth through subsidization, where bandwidth even in that market is not what the consumer is paying for; instead they are paying for the additional services.  In short, we bypass the hard lessons learnt elsewhere in the world and enact the principle of ‘content is king’. 

IPTV is a good example of how this can work. We have yet to see a proper rollout in South Africa, and the excuse often used is that the bandwidth is too expensive.  That is a fallacious argument, since a proper IPTV rollout could generate enough funds to subsidize the one through the other.  It’s an entirely untapped market waiting to be exploited, and instead of walking down this path, we seem obsessed with providing and selling bandwidth, which should actually be there purely as a commodity to facilitate the distribution of other services.  The current route is a road to disaster, and the same road which led to the demise of so many elsewhere in the world.

The trick to making a content model feasible is to be creative – find the services the public would pay for, and create your services to meet their demands.

So the answer to the question – where to from here?

Very simple really, if we are smart, we will forget about selling commodities, and concentrate on innovation, new services, and finding ways to develop our content. If South Africa gets this right we are in for a rich and vibrant future. 

However, the flip side of the coin, if we continue to treat bandwidth as a means of profit, we are heading down for another bubble, more bankrupt companies and a stagnant industry that simply doesn’t move forward.

Andrew Alston is the CTO of TENET but the opinions expressed in this column are his personal views and not that of TENET or any company to which he is affiliated.

The ISP Industry: where to from here? – Discussion