Internet service providers (ISPs) have adopted a wait-and-see attitude about the wholesale broadband price cuts of up to 63% announced by Telkom on Thursday.
Industry body, the Internet Service Providers’ Association (Ispa), says the reductions are a result of a settlement reached between Telkom and the Competition Commission in 2013 regarding the fixed-line operator’s previous anticompetitive behaviour.
Telkom agreed to pay a R200m penalty and to “functionally separate” its retail and wholesale divisions and adhere to pricing commitments for the next five years.
It also agreed that its future conduct would be monitored.
The agreement formed part of a broad-ranging settlement with the commission over abuses that took place between 2005 and 2007.
The settlement package also included an admission of guilt by Telkom and a commitment to “transparent transfer pricing” to ensure “nondiscriminatory service provision” to its retail division and to ISPs.
However, Prenesh Padayachee, the MD of Telkom’s wholesale services business, says the price reductions go beyond the Competition Commission settlement agreement.
Ispa has welcomed the move by Telkom, saying that both ISPs and customers will benefit.
“There are a lot of unanswered questions and until we have a full written description of the detail, it would be premature to comment since we can’t make any decisions about our ADSL pricing and packages. The devil, as ever, is in the detail,” Wyatt-Gunning says.
He says it is unfortunate that Telkom recently increased line rental charges.
“I think it’s a shame that Telkom chose to increase line rental, because that’s the real barrier to making more South Africans consider getting a fixed line,” he says.
“IP Connect pricing is a very significant component of an ISP’s costs, but before people can consider an ISP’s offering, they need to be able to afford ‘step one’, which is low-cost line rental.”
IP Connect — a big input cost for ISPs — is one of the wholesale charges that is being cut by Telkom.
Crystal Web CEO Shaun Kaplan says, too, that it’s a pity the increases were coupled with an increase in the analogue line rentals.
“Price reductions result in either the same or similar services offered at a lower price, or an overall better quality of broadband in South Africa,” Kaplan says.
“We hope that the balance of the market is shifted towards quality over cheap. ISPs have been calling for IPC reductions in order to offer a better quality of service in the market.” Although he welcomes the price reductions, he is also waiting for the details.
If the cost reductions are indeed significant, it will lead to a more competitive industry and lead to lower fees for consumers, he says.
Greg Montjoie, executive for connectivity at Dimension Data’s Internet Solutions, says Telkom’s price cuts “will not only have an impact on DSL (digital subscriber line) pricing, but also on the quality of service as the offer includes a commitment from Telkom to provide significantly increased bandwidth on IPC for a marginal increase in cost to the ISP”.
“We anticipate some ISPs may have to make significant investments in international bandwidth to cater for the increased IPC demand,” Montjoie says.
“It must be remembered that the Telkom IPC costs are only a portion of the total cost to deliver a DSL service to the market and because of this we don’t anticipate ISPs will be able to pass an equivalent percentage discount to clients.
“Although ISP fees should decrease and this will allow further penetration in the market, the cost of the line rental is still prohibitive for some and certainly a barrier to entry for many,” he says.
“However, with the anticipated increase in quality and lowered costs, the ability for people to use this as a medium to consume more online movies and media will certainly drive penetration and usage as people transition to online consumption of TV shows, movies and other media.” — © 2015 NewsCentral Media