South Africa: Telkom's pricing untenable – ISPs


The cost of providing services through Telkom's network is maddening, says MWeb CEO, Rudi Jansen. Internet service providers (ISPs) MWeb and Internet Solutions argue that Telkom's current prices for connecting into its network to provide services to end-users are untenable.

The ISPs were addressing an Independent of Communications Authority of SA (ICASA) committee during hearings into local loop unbundling (LLU). They argued that the cost of connecting into Telkom's network on the current IP Connect (IPC) model is hampering competition.

Khetan Gajjar, head of new business development at IS, said there is “a lot” of bandwidth arriving on SA's shores, but this needs to get to the end-user. He argued that the current cost of connecting into Telkom's network is prohibitive.

IP Connect (IPC), which connects ISPs into Telkom's infrastructure so they can deliver a service, is charged at an “exorbitant and unreasonable” level, said Gajjar. He added that ISPs cannot innovate, because they are limited to offering the products that Telkom will allow.

ISPs are charged three times to deliver a service through IPC, said Gajjar. He noted that this is the only way of connecting into the last mile. “Telkom is stifling the market.”

IPC is a broken model and needs to be changed into “something that works”, said Gajjar. “IPC is fundamentally broken, but it's what we have at the moment.”

Ryan Hawthorne, senior manager of economic regulation at Neotel, said during the hearings that IPC accounts for 80% of Internet bandwidth costs, a price that the second operator can bring down substantially if it has access to the last mile.

IS regulatory director Siyabonga Madyibi said local loop unbundling is the start of the introduction of a wholesale pricing regime. He says the process is a “stepping stone” towards effective regulation.

There have been a number of interventions by the regulator, but these have not been effective, said Madyibi. He added that the playing field is tilted in Telkom's favour and there is very little new operators can do to stimulate competition and push down pricing.

Although the effects of lower interconnect prices have been seen at wholesale level, other regulations have not changed the wholesale pricing model, argued Madyibi. He said geographic number portability has failed, because numbers are charged on a single basis, and blocks become too costly to port.

In addition, said Madyibi, carrier pre-select is also not a success, because the incumbents have moved to protect their market share by increasing the cost of the origination fee. This means the regulation is only good on paper.

As a result, argued Madyibi, ICASA has to get LLU right. If it does not have a regulatory impact; the sector will end up back at “square one”, he said. There is a need to intervene in the wholesale cost of data, he added.

Madyibi said IS has tried to go around the last mile issue to connect to its clients, without any real success.

MWeb CEO Rudi Jansen said the cost of IPC is “driving everybody mad”. He said it is about nine times the expense of moving data between Cape Town and Europe. “That is just absolutely absurd.”

Jansen said it is difficult for ISPs to compete effectively with such high prices, and IPC causes congestion on the network, a situation that is out of ISPs' hands. The cost of an ADSL line rental is a big bugbear, said Jansen. He added that Telkom charges both the customer and the ISP for access to the last mile.