Telkom has confirmed the cost of IP Connect, one of the biggest cost drivers for Internet service providers (ISPs), will come down.
However, the telco has not indicated by how much this charge will be reduced. It says the reduction in the price of its wholesale IP Connect (IPC) service will be reduced as part of the Competition Commission settlement.
"Telkom will implement price reductions as per timelines agreed with the Competition Commission, namely within the 2014, 2015 and 2016 financial years. In each instance, Telkom will directly notify the ISPs of such price reductions."
The reduction follows a 30% cut in PC costs last April. IPC has been cited as an inhibitor to growing broadband in SA as ISPs argue the cost is inflated and limits competition.
Telkom's settlement with the commission moots a functional separation of Telkom into a wholesale and retail arm, and the payment of an administrative fine of R200 million in three tranches. As part of the agreement, the telco will implement wholesale and retail pricing commitments for the next five years that should yield R875 million in savings.
The settlement follows five complaints lodged between June 2005 and July 2007, by several ISPs and the Internet Service Providers' Association (ISPA). The commission determined Telkom was squeezing margins and acting in an anti-competitive manner.
Dependant on size
Derek Hershaw, MWeb ISP CEO, says the effect on the industry depends on the size of the cuts. He says, if fixed-line broadband is going to stay relevant in a market that is increasingly dominated by mobile broadband, a few things have to happen.
These include that the cost of data must continue to come down, which requires double-digit IPC cuts, and speeds must improve, says Hershaw. He adds that the cost of the access line also has to decrease.
Telkom has agreed to trim the price of wholesale services in areas such as undersea cable international lines, national high bandwidth transmission lines, access to ADSL lines via the IP Connect service and Diginet leased-line access, as well as related retail products, Telkom's VPN Supreme and Internet Access.
IPC, the wholesale product through which third-party ISPs connect to Telkom's network, is responsible for the bulk of ISPs' costs to deliver Internet services to customers. According to ISPA, this can be up to 70% of the total costs involved.
The product is used by existing ISPs to provide Internet services to small and medium enterprises, residences and businesses. "The cost of the IP Connect product is the single largest cost component faced by competing ISPs in providing choice to the end-user for fixed-line ADSL services," the Independent Communications Authority of SA has said.
Telkom's price reductions, as a result of the settlement, are weighted more heavily in favour of wholesale services, at a minimum of 70%, to bring about a more competitive market, says the commission in its statement. Telkom will also ensure any price reductions are not reversed in the 2017 and 2018 financial years.
Telkom has admitted that, during the complaint period, first-tier ISPs had to use Telkom's services to build or gain access to backbone networks, but that the pricing charged by Telkom was higher than it charged its own retail arm.
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