Bringing down broadband

Nov 10 2009 00:09
Simon Dingle

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THE dream of reasonably priced broadband in South Africa received several boosts this year - the first undersea cable has landed, prompting other projects to up their game, and government has shown a commitment to driving prices down.

Whether we want government meddling in the telecoms market, for good or bad, is a separate discussion.

But, frustratingly, the South African consumer is yet to see any meaningful reductions.

Internet service provider Afrihost launched a PR stunt in recent weeks, dropping the price of broadband on its ADSL service to R29 per gigabyte (GB).

The company admitted that it was not making any money in selling bandwidth at the reduced price, but would fund the special from its marketing budget to prove a point.

Real reductions

In a statement issued to the press, Afrihost says that the arrival of new undersea cables is a factor that has already had a dramatic impact on the market.

The company adds that new telecom laws allowing service providers self-provision of their own last-mile and national links for the first time is introducing more competition.

Afrihost CEO Gian Visser says that Seacom has brought real competition to Telkom in the undersea cable space.

"Telkom's dominance of most of South Africa's international bandwidth was a major factor in high bandwidth pricing," he explains.

"International bandwidth will become even more affordable and abundant in South Africa once additional undersea cables such as the West Africa Cable System (WACS) and the Eastern Africa Submarine Cable System (EASSy) go live in 2010 and 2011," he adds.

Visser says that international bandwidth costs form only one aspect of the high costs South African consumers pay for their broadband services. Local national links also account for a significant portion of the cost, and incumbent operators still own most of this infrastructure.

"Telkom still controls the vast majority of backhaul bandwidth, but competition is starting to rise as other operators and service providers begin to provide their own infrastructure," he says.

"Heated competition is likely to start driving costs down for service providers, who will in turn be able to pass on cost savings to their customers."

More cooperation needed

According to Visser, more cooperation between South African service providers is required to aid the reduction of prices.

"An increased emphasis on local peering between South African ISPs - through the work the Internet Service Providers Association is doing with its Johannesburg (JINX) and Cape Town (CINX) Internet Exchanges - could also help drive down local bandwidth costs," he says.

Another major contributor to South Africa's high bandwidth costs is the in the last mile, and this is something that is out of the hands of the country's internet service providers.

Says Visser. "It contributes to high cost of ownership for broadband through the line rental, or access fees, that Telkom charges.

"[Regulating body] Icasa has once again highlighted local loop unbundling as an urgent regulatory intervention, which could mean that other service providers and operators will have access to the last-mile copper infrastructure at competitive rates.

"Local loop unbundling could be completed as soon as 2011," he says.

Visser explains that while the line rental fee doesn't have a direct impact on per-gig bandwidth rates, service providers might be able to drive down overall costs for ADSL services by putting together innovative access and bandwidth bundles.

Explaining the strategy behind his company's costly price reduction, Visser says:"We are currently winning market share for a future when prices will fall to our current special rate or below. We are positioning ourselves for long-term growth and profitability in a market we expect to change dramatically over the next three years."

While most internet service providers seem to be genuinely concerned with reducing costs, the higher-tier networks that feed them seem to be more interested in fleecing the South African consumer for all we're worth.

In this way, telecommunication is no different from retail clothing or any of the other numerous industries in South Africa that place high margins above the more lucrative business of high volumes.

Until our national paradigm changes, I wouldn't expect anything major from our broadband providers. Even R30 per gigabyte is considerably higher than world standards.

- Fin24.com



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