Neotel to offer cheaper bandwidth

By Damaria Senne for Neotel
Johannesburg, 07 Aug 2007

Second national operator Neotel has bagged the right to land the Seacom submarine fibre optic cable in SA, creating hope that it will compete with Telkom to provide international bandwidth.

This deal will allow Neotel access to the international gateway, liberating local operators from being dependent on bandwidth access through Telkom's SAT-3 undersea cable, market watchers say.

The announcement also spurs hope that the construction of an undersea cable for the African continent may actually be realised, as Seacom has already appointed Tyco Telecommunications to begin building the cable later this year.

This is in contrast to the East African Submarine Cable System, which has been the subject of much discussion since 2003, but has failed to launch as yet.

The 13 000km Seacom cable will connect the East African seaboard to the global telecommunications network, stretching from SA to Madagascar, Mozambique, Tanzania, Kenya, India, the Middle East and Europe.

Through the partnership, Neotel will own the cable landing station and all facilities within the South African territory.

"The Seacom and Neotel agreement requires complete open access for all carriers to co-locate their equipment directly on the cable. Seacom and Neotel are also in an agreement to provide a backhaul solution to Johannesburg to remove the backhaul bottleneck and permit customers to access the cable directly in a point-of-presence in SA's major business centre," the two companies say in a media statement.

Neotel MD Ajay Pandey says the company is committed to reducing the cost of doing business in the country, indicating that Neotel will provide cheaper bandwidth than incumbent monopoly Telkom.

"A key enabler to this objective is the availability of multiple international routes connecting SA to the rest of the globe," he says.

Seacom president Brian Herlihy says the cable will offer international capacity on a lease and indefeasible rights of usage basis, at costs that are 70% to 80% less than the current satellite pricing. It is not yet clear how the pricing will compare to Telkom's offering.

Competing with Telkom

Market observers agree Seacom will introduce a new level of competition in the SA telecoms industry, forcing Telkom to charge reasonable fees for access to the SAT-3 undersea cable and for national backhaul from the landing station to Johannesburg.

MyADSL founder Rudolph Muller says the benefits of this competition will likely be seen in the medium term, maybe near the end of 2008.

However, Gateway Communications COO Mike Van den Bergh argues that the threat of competition from Seacom will force Telkom to start lowering international access charges in the short-term.

"History has shown that even the threat of competition has forced Telkom to drastically reduce prices," he says.

World Wide Worx MD Arthur Goldstuck says: "The irony is that, while it reduces the urgency to free up SAT-3 from a Telkom monopoly by providing competition, Seacom also speeds Telkom's imperative to be more competitive. Having a competing cable, with far greater capacity and an open access model, will force Telkom's hand to lower prices."