Don't expect broadband relief

By Leon Engelbrecht, ITWeb senior writer

Johannesburg, 05 May 2008

Consumers and businesses looking for relief from high broadband prices, when a number of new undersea cables land on SA's shores from next year, will be disappointed, say analysts Richard Hurst and Steven Ambrose.

Seacom, the venture company laying a $650 million 1.2Tbps fibre optic cable down the East Coast of Africa, was last year reported as saying it wanted to charge 80% less for bandwidth than the then Telkom price. The venture capitalists expect to have their cable, linking SA and Europe, in place by June next year.

By then, the rival $1.4 billion 3.84Tbps Uhurunet should already be in service. The 3Tb SA-Brazil leg of the Infraco West Coast cable should be operational by August next year and its 3Tb UK link by May 2010 - just in time for the Soccer World Cup kick-off.

Presently, the 120GBps SAT-3 line carries 80% of all SA's overseas voice, fax and Internet communications - at prohibitive cost.

At a briefing to introduce the Infraco cable in July last year, public enterprises deputy director-general Litha Mcwabeni quoted 2004 International Telecommunications Union figures that showed SA's US dollar cost of 100Kbps as $21.93, versus Japan, Sweden and Korea, where it was a fraction of a dollar.

"The average price is $2 and best practice is 18 US cents," Mcwabeni said, respectively 10 times and 125 times cheaper than in SA. "Our position has not improved since."

Better offers?

Neither the IDC's Hurst nor World Wide Worx's Ambrose expect the situation to improve much even when all that capacity is landed.

"I expect a reduction, but not a dramatic reduction and nowhere near 80%," says Hurst. Ambrose agrees, saying: "Commercially, the cost will go down 80%, but there is no commercial reason for them [the telcos] to reduce prices by 80%."

Hurst expects the cost to the consumer to fall 20% to 30% initially, adding that the selling point to consumers will be adequate bandwidth rather than cost. "There's lots of marketing hype surrounding the issue," he says.

Ambrose speculates that the price could fall as much as 40%. He sees a drop of between 10% and 20% by August, on the back of stronger competition, and a further 10% to 20% once the cables land. But he also sees an alternative: better offers at similar prices, meaning a 350MB at R200 deal converting to 500MB at the same price.

Competitive versus disruptive

"I don't see much price reduction, but I expect greater flexibility in caps and access speeds. Ironically, the corporates may be the ones who drive prices down as they are bulk buyers [and can insist on discounts]."

Ambrose also sees a new market at the lower end of the consumer market, where a telco such as Neotel might want to offer telephony and small cap broadband for less than R100 a month all inclusive.

"I don't expect any disruptive pricing," he adds, saying Neotel has so far priced itself carefully, offering packages slightly cheaper than Telkom, but with better offerings, "but not groundbreakingly cheap. They are competitive rather than disruptive," he explains, saying this will likely also be the case once the much-awaited new capacity arrives.

By deadline this morning, only Vodacom had responded to a request for comment. "At this stage, Vodacom is unable to provide the market with any updates regarding Seacom besides to say that we are in constant discussions with all our suppliers regarding a range of issues to ensure we provide our customers with the best and most effective solutions," said spokesperson Dot Field.