East coast cable company Seacom will charge 80% less for bandwidth compared to Telkom, it says.
This, if realised, could knock the socks of SA's incumbent telecommunications operator and government-sponsored rival Infraco.
Seacom, a privately-financed venture, is surveying the planned route for its cable that should connect all countries on the East African seaboard to Sicily, in Europe, and India to the international telecommunications grid. It says its cable will have an initial capacity of 1.28Tb, four times as much as planned for rival Eassy (East African Submarine Cable System).
Working out the exact comparative pricing proposed by Seacom, with potential rivals such as Telkom and Infraco, is difficult because all players keep this a closely guarded secret. However, Seacom representatives have been canvassing local Internet and telecommunications providers to gauge their reaction.
Connectivity pricing
According to an industry source who has attended one of these briefings, Seacom is offering connectivity from Johannesburg to Sicily on the basis of an indefeasible right of use (IRU) - the exclusive right reserved for a client. It also offers a lease for STM-1, the standard telecommunications unit for a 155Mbps chunk of bandwidth - rising to STM-4, through to STM-64, amounting to 10Gbps.
"If a client takes the equivalent of STM-64 on an IRU that is based on 20 years of ownership, this works out at R475 per megabit per month," the source says.
Telkom's equivalent fee is about R100 000 per megabit per month, but the source cautions this is not an exact comparison.
"Whatever the rate, it seems as though Seacom will be pegging itself far lower than Telkom and even that of Infraco, which has so far indicated it will be only 20% cheaper than Telkom. This should knock socks off," the source says.
Seacom has admitted it is looking to supply bandwidth at 80% cheaper than prevailing market rates and says: "The Seacom [investors] believe there is a large amount of pent-up demand in the market. They expect a fundamental shift in how international bandwidth is procured and expect that the actual volumes will be substantial enough to encourage and support a low and declining bandwidth price."
Government's solution
Industry and government have become increasingly critical of the high bandwidth costs associated with doing business in SA. This is the major reason given by the Department of Public Enterprises for the creation of Infraco, which will become a broadband wholesaler to rival Telkom. Hearings into the law that will govern Infraco are under way in Parliament.
The department's rationale is that the situation is the result of a market failure at the facilities level and that a strategic intervention is required by government to rectify the issue. Among Infraco's projects is to lay two 3Tb cables - one to Brazil and one to Europe.
"Eighty percent of our Internet costs are because of international connectivity charges," says Raven Naidoo, chairman of independent telecommunications consultancy Radian. "Say an individual subscriber's costs are 10c per megabyte, and Seacom's pricing is right, then the cost should go down to about 4c. Infraco's pricing will mean that it will only go down to 8c."
However, whether SA would be allowed to enjoy the benefits of a private cable company is open to question, as the Department of Communications seems to be lukewarm to the idea.
Communications department director-general Lyndall Shope-Mafole stated last week the country would give priority to the Nepad Broadband Infrastructure Network, that guidelines for landing foreign cables have not been drafted, and that it feels private ventures would not necessarily reduce the cost of telecommunications.
Seacom believes its model meets the requirements of an open access, non-discriminatory cable system based on a low-cost, high-volume business.
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