New Telkom South Africa ADSL wholesale pricing raises questions

Internet

Telkom/SAIX launched their new wholesale ADSL pricing model to local Internet Service Providers (ISP). The new pricing model, which kicked in on the first of June, introduces limited price reductions for longer term contracts.

The standard per-Gigabyte wholesale price remained at a similar level to previous pricing, but ISPs willing to sign a one year contract will get a discount of over 10%. The discount increases to over 18% for those service providers willing to sign a 5 year contract. Elsewhere, these kinds of deals are described as “lock-ins”.

The new ‘term contract option’ discounts create a better profit margin to SAIX reseller ISPs, but not everyone is impressed by Telkom’s discounts for long term contracts. It appears likely that Telkom is keen to lock-in ADSL resellers to a one year or longer contract just before SEACOM becomes operational later this month.

One industry expert said that this may be seen as an underhanded tactic by Telkom to stifle competition in the wholesale bandwidth market ‘before it arrives’. Another concern is a new clause which seems to commit service providers to a minimum billed monthly usage limit. ISPs will have to commit to a set usage amount with SAIX which means that there will be no breakage for any usage lower than the committed usage level.

Many ISPs sold bandwidth close to cost, hoping for under usage which would then be their profit. A committed monthly usage limit may remove this benefit during lower usage months like February and December.

Not all local ADSL resellers knew about the changes when MyBroadband contacted them, but Telkom/SAIX confirmed the new model: “The current SAIX pricing model on ADSL Usage is based on normal month to month pricing. SAIX has introduced term contract discounts as an option on SAIX ADSL Usage should ISP's want to contract on term at a more beneficial per Gig price.”

“The committed usage level is determined and negotiated as part of the term contract between SAIX and the ISP,” Telkom said. Despite potential wholesale discounts from other providers like Internet Solutions, after SEACOM becomes operational, many ISPs may decide to take advantage of Telkom’s new ‘term contract option’ to increase their current profit margins.

The margin to ADSL resellers who make use of Telkom’s authentication servers - hence reselling standard capped accounts - is less than R 10 per account in some cases. Such a small margin means that an ISP can barely afford to provision an email account and support it before they start to make a loss.

This is something which the Internet Service Providers Association (ISPA) tried to address in a 2005 Competitions Commission Complaint in which ISPA accused Telkom/SAIX of margin squeeze in the ADSL market.

Telkom’s latest wholesale tariffs look be to be more of the same indicating that that not much has changed. Per GB billing provides ISPs with a more flexible model to build their own products and increase profitability, but it remains to be seen if Telkom’s latest wholesale ADSL pricing will benefit service providers and consumers.

MyBroadband