Consumers are unlikely to feel the effects of Telkom’s latest wholesale price cuts because Internet service providers (ISPs) have already cut their prices in anticipation of the reductions, industry players have told TechCentral.
Telkom Wholesale on Wednesday announced various price cuts, including a 25% reduction in international bandwidth and an 8% reduction in IP Connect (IPC) charges. ISPs pay the IPC charges to access Telkom’s ADSL network.
The new rates come into effect on 17 October and form part of the terms of a consent agreement reached between the telecommunications operator and the competition authorities for past anticompetitive abuses.
“Our view is that there’s so much movement in the market anyway in terms of competitive positioning and various companies cutting costs across the board,” Wyatt-Gunning says.
“The industry has known about these cuts for some months, so I think they’ve been priced into cuts we’ve already made.”
MWeb ISP CEO Derek Hershaw says that although his company might adjust pricing on some of its high-end products, it’s more likely it will use the savings to buy additional IPC capacity. Hershaw says the cut in international bandwidth prices doesn’t affect MWeb because it doesn’t buy international capacity from Telkom.
Wyatt-Gunning says most of those cuts already made by ISPs have been greater than the savings Telkom has offered now. He says the latest cuts won’t “spark any particular reaction”.
Many ISPs made cuts back in April when Telkom Internet, the operator’s retail service provider, cut prices of its own uncapped consumer offerings. “We were all assuming then that IPC reductions would follow so many of us changed our pricing back then,” says Wyatt-Gunning. “Those failed to materialise until the rather humble recent reductions.”
Afrihost commercial director Greg Payne says the cuts aren’t nearly enough. “We’ve just done a massive cut of up to 66% on our capped prices, so the 8% from Telkom didn’t go very far to contribute to that. It should’ve been at least 30%.”
Payne says Telkom is “doing what it has to” in terms of its settlement with the competition authorities and that the IPC fee should be “a quarter of what it is”.
“When you compare [IPC fees] to what ISPs pay for undersea bandwidth, the 8% is actually laughable.”
According to Payne, Telkom should also cut line-rental costs and shouldn’t force consumers to take an analogue telephone line when all they want is a fixed broadband connection.
“Telkom’s decision to persist with high prices on DSL just means mobile alternatives are rocketing,” Payne says. “Telkom might be making good margins, but it’s losing market share.”
Afrihost has launched a mobile data product because of the obvious demand for it, he adds. Its mobile offering provides 5GB of data and a portable Wi-Fi modem for R145/month. It received 8 500 takers in its first seven hours on sale. “If you want the same thing on DSL, you’re looking at spending at least R600 because of line costs,” Payne says.
Intense competition in the market, combined with Telkom’s rates, means Afrihost is only keeping between 10% and 15% of what its clients pay, according to Payne. “The rest goes to Telkom.” — (c) 2013 NewsCentral Media