South Africa: Low ADSL prices here to stay

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The past few months have been a rollercoaster ride for ADSL consumers and service providers alike, with new and more affordable offerings appearing on a weekly and even daily basis. While ADSL consumers have had a virtual ADSL bandwidth feast, ISPs have had a hard time keeping up with all the developments.

A few prominent industry players have raised doubts about the strategy and business models behind some of the low cost ADSL offerings which emerged, questioning the sustainability and service levels associated with these offerings. Some of the ‘low cost’ ADSL ISPs have now hit back, saying that their strategy of going below cost are paying off.

WirelessG CEO Carel van der Merwe, the company behind G-Connect’s R14.50 ADSL service, says that the response from consumers has been overwhelmingly positive. “The G-Connect product reached the 10 000 new sign-up mark in less than three months which includes the December holidays,” said van der Merwe.

Greg Payne, sales director at Afrihost, says that they have also seen significant growth since they launched their R29 per GB ADSL data offering. “Afrihost is very pleased that the response from consumers and SME's has exceeded our initial forecasts,” said Payne.

Sainet MD Bianca Petersen also reports that sales have been very strong, and that the response from consumers has exceeded their expectations.

Many questions have been raised about the low-cost ADSL business models, with critics saying that launching services with either no margin or below cost, with the aim of building a large user base and then realizing savings because of economies of scale,is risky at best.

Afrihost however says that it is working out well for them. Payne explained that they decided to sell bandwidth below cost in the hope that word of mouth would result in significant growth, which in turn will mean bulk discounts from their upstream provider.

“We are pleased to report that this strategy has paid off and we are now making a sustainable margin at R29 per GB and this will become our new standard pricing into the future,” says Payne. "The R29 price point is not an unrealistic expectation and is here to stay. The R14.50 special that we are running is exactly that, a special, and we will only offer this when we are able to. Afrihost has been in business for close to 10 years and is here to stay.”

Van der Merwe is also confident of the G-Connect strategy, but warns against poor service levels. “Only if the low-cost model in its entirety is implemented correctly will it work. Many companies have paved the road to success with such a strategy, but a company with low prices and poor services will not survive,” said Van der Merwe.

“The break-even volumes relevant to a low-cost model are relatively low due to a different activity composition and the success in targeting market segments must be very innovative and effective,” van der Merwe continued. “G-Connect focuses on only a few consumer segments; we deliver the basic product and strive to provide one benefit better than rivals do; and we back everyday low prices with super efficient operations to keep costs down.”

Petersen also says that she believes that Sainet’s business model is sustainable, but adds that any ISP must be able to adapt as “many externalities can influence this new business model”.

Van der Merwe also dismissed the notion that low cost services are accompanied by poor service levels. “G-Connect’s uptime for the past month was 99.96%,” said Van der Merwe.

“In my opinion support is the most critical issue when it comes to sustainability of business models. G-Connect aims to be the best in terms of customer support. If we have an unhappy customer, we will always make a high level personal call to that customer. Our current average hold time for the last month was 20.35 seconds while the resolution turnaround time was an average of 4 minutes,” said the WirelessG CEO.

Payne indicated that consumers can expect a lot more innovation and affordable broadband offerings from Afrihost. “We are on a drive to bring down broadband prices in South Africa while making an honest margin.”

Further good news is that the G-Connect R14 per GB ADSL special will be extended for another 6 months and therefore come to an end in September 2010.

“As a result of constant innovation, we plan to announce a new model for broadband where this kind of pricing structure will become part of the ordinary value proposition offered by G-Connect,” said Van der Merwe.

“We also look forward to contributing in developing cutting edge models and providing in-flight broadband to the consumers in the nearby future. G-Connect reacts to the changes in the environment. We listen to the needs of our consumers and our partners.” Mybroadband