A broadband price war has finally begun in earnest. It is being led by the country’s cellphone operators sticking it to Telkom in a bid to capture more subscribers.
The latest to join the fray is mobile operator Vodacom, which announced this week that from April 1 2007 its data rates will be decreased by as much as 61%, making it the cheapest and fastest broadband offering available.
The past few weeks have seen price decreases from Vodacom, MTN and Sentech. iBurst has increased its subscribers’ data bundles at no extra cost and is planning further tariff cuts.
Vodacom’s price cut follows shortly after MTN’s. Three weeks ago, it cut the price of its 2GB-a-month offering by 20%, to R399 a month. This week Vodacom cut the same offering by a further R10, to R389.
BMI TechKnowledge telecoms analyst Richard Hurst has described the recent price cuts as the first salvo in a price war.
“This is, without a doubt, the biggest price war since the launch of broadband in South Africa in 2002,” says Rudolph Muller, from consumer activist website MyADSL.
MyADSL says the majority of local broadband subscribers have accounts with bandwidth caps between 1GB and 3GB.
A 2GB-a-month offering from Sentech costs R449 and from Telkom, R544. So Telkom’s offering is 40% more expensive than Vodacom’s.
iBurst’s 1GB offering will cost R469 and its 3GB package, R599.
Not only are the packages offered by the wireless operators cheaper, they are also faster than Telkom’s 0,38MB-a-second offering. MTN and Vodacom are six times faster at 1,8MB a second.
Telkom’s broadband product uses fixed-line ADSL, which lacks the flexibility of the mobile offerings of its wireless competitors.
Analysts predict that the latest price decreases by Vodacom and MTN will place pressure on Telkom to follow suit, but it has not budged.
Hurst says the recent price cuts are an interesting development, but what is even more interesting is that Telkom has not responded by reducing its broadband prices.
MTN and Vodacom now have a real opportunity to win over subscribers who would have chosen Telkom.
“It is symptomatic of our telcoms market in that the fixed-line operator has enjoyed its monopoly for so long that it can put this kind of abuse in place,” says Hurst.
Telkom is not the only operator that has been placed under pressure by the latest price war. Muller says iBurst is under severe pressure to respond with aggressive pricing.
Hurst says the move by mobile operators has placed iBurst between “a rock and a hard place”, because it is going to have to follow suit with similar price decreases, but it does not have as many subscribers as its competitors.
Alan Knott-Craig Jnr, the managing director of iBurst, says the wireless operator has further tariff cuts planned for the near future.
“While there has definitely been price competition in the past, these recent drastic cuts can be defined as a war,” says Knott-Craig.
“The price cuts by Vodacom in particular are very steep and we will be accelerating our planned tariff cuts in response,” he says. “In the end the customer wins and the market will grow faster.”
Vodacom spokesperson Dot Field says the mobile operator does not view the current developments as a price war, but merely a sign of healthy competition in the market.
iBurst announced recently that it was giving all subscribers an additional 200MB or 500MB a month from March 1 2007.
Knott-Craig says that whether subscribers are given additional data or whether the same amount of data is provided at a cheaper cost, the effect is the same.
Telkom and MTN failed to respond to questions at the time of going to press.