Telkom offers ADSL 'mixed blessing'

By Damaria Senne for Telkom
Johannesburg, 05 Apr 2007

Telkom's new wholesale ADSL access package allows Internet service providers (ISPs) to provide a full ADSL service to consumers. The product will be available from Tuesday.

However, the Internet Service Providers Association of SA (ISPA) says the offer is a mixed blessing, as the margins are too low to prove profitable to ISPs, or allow them to grant meaningful discounts to consumers.

When a consumer purchases ADSL Internet from an ISP, the charges are broken into line rental, ADSL access (which goes directly to Telkom), and the ISP's costs, which accounts for the ISP's revenues.

The new wholesale ADSL service allows ISPs to purchase ADSL access in bulk from Telkom, and resell it to the customer at a profit margin.

The discounts are on a sliding scale, with the smallest discount kicking in for an ISP with more than 50 000 customers and the largest discount provided for ISPs with more than 400 000 subscribers. SA currently has 260 000 ADSL subscribers.

ISPs, which resell the Internet access, will also be responsible for the installation of the ADSL service, as well as providing support for the service.

Low profit margins

MyADSL founder Rudolph Muller says the offering is a step in the right direction, as it provides ISPs with a 15% to 22% profit margin.

"Right now, ISPs don't make a cent from Internet access charges that customers pay, as the money goes directly to Telkom," he adds.

However, an ISPA spokesman, who did not wish to be named, says the profit margins offered by the ADSL reseller plan are too low. "There is no scope for ISPs to provide customers with any meaningful discounts."

Even with the new offering, Telkom continues to squeeze the ISPs' margins when it comes to line rental, he says.

Large ISPs benefit

Despite the challenges related to the new offering, there are a number of benefits for ISPs, Muller says.

Larger ISPs, such as DataPro and Internet Solutions, which deal with large volumes of transactions, will be able to make additional income from the discounts provided by Telkom, he notes.

The larger ISPs may even be able to innovate and provide a better value proposition and some price cuts for consumers, he adds.