Seacom to POP up in Joburg

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 13 May 2008

Venture capital company Seacom is to terminate its East Coast cable in Johannesburg, rather than on a beach in KwaZulu-Natal. This forms part of a determined effort to cut the cost of broadband - at the wholesale level, at least.

Seacom is currently laying a $650 million 1.2Tb fibre optic cable from Europe down the east coast of Africa. It was last year reported as saying it wanted to charge 80% less for bandwidth than the then Telkom price.

But analysts said telecommunications companies (telcos) have no commercial incentive to pass that discount on to consumers.

Seacom president Brian Herlihy says "cables are only one piece of the puzzle and telcos still hold the key to end-user pricing as they deliver the 'last mile' to the customer".

"Seacom understands this issue and worked out a solution all the way to Johannesburg where customers can buy from a point of presence (POP). While this doesn't completely solve the 'last mile' problem, it puts the bandwidth into a more competitive region that is closer to the customer than the beach, in turn permitting the customer to demand a better product from a greater range of service providers at competitive prices," says Herlihy.

He adds that the Seacom model is different from the consortium approach used by Infraco, Eassy, SAT-3 or Uhurunet in that once a consortium has been formed, no additional parties can join in and thus no additional party can secure capacity on the cable. "This means that pricing is in the hands of the members who have a direct interest in retail operations."

The Seacom cable, by contrast, is being laid "purely at the risk of the private investors who have no interest in the retail operations that sell to the entire market. The wholesale of bandwidth is the key driver and in the case of a private cable, should it be perceived that the current wholesalers are holding prices too high, a new wholesaler may emerge, easily gain access to capacity and exploit the non-competitive environment," Herlihy says.

"This is the reason why SA needs 'more private cables' and not simply 'more cables'."

Local factors

Neotel chief technical officer Angus Hay says cheaper international broadband wholesale prices will not necessarily drive down end-user prices as a variety of other factors are at work, including telco dominance of the 'last mile'.

"Broadband provision is always a challenge and requires an actual physical network. There is no substitute to real competition, but you have to have physical networks out there to actually compete," says Hay.

"We find in SA that even if you take the international components out, there is still a fairly significant local cost. I won't mention any players by name, but certain large players obviously play that to their advantage and you will see that in the way they set their prices. Those who have access to significant local capacity offer competitive pricing."

Hay adds that, as underlying international and local costs "become more in line with global costs, you will see more competition and better prices", saying that even Telkom, which has long had a stranglehold on broadband, has dropped end-user prices.

MTN spokesperson Rochelle van der Ross says the Seacom cable, which will be available from June next year, two months ahead of Uhurunet, will help satisfy the "increasing demand for bandwidth... ensuring we have the bandwidth to satisfy our clients' requirements".

However, Van der Ross says she agrees with Hay that the impact on pricing will be small. "International bandwidth represents a relatively small component of the local pricing structure, so we cannot forecast what, if any, significant impact this will have on pricing."

She adds: "MTN has already factored in reduced rates and cost savings in its current data pricing."