Seacom, the much-touted answer to South Africa’s broadband woes, has arrived, but the price war that many expected to arrive with it has not.
It was anticipated that the new undersea fibreoptic cable would revolutionise the broadband market in bandwidth-starved South Africa.
But it appears that most major broadband players have been content to sit tight, praying that their competitors don’t rock the boat.
Major players such as Telkom and MWeb decided to offer their customers more bandwidth for their buck, a move that many predicted in the build-up to Seacom’s launch date.
At the time of the launch numerous commentators and industry players were suggesting that operators would not threaten their revenue stream by reducing prices, but rather give their customers more bandwidth for their monthly subscription fee.
Although in theory this strategy can be seen to be passing on the benefits of Seacom to the consumer, there is a fundamental flaw.
By not lowering the prices of their broadband packages, operators are still keeping their entry-level packages artificially high. This excludes many from entering the broadband market.
With an extremely low broadband penetration level of 6%, South Africa desperately needs to make headway in ensuring broadband is affordable and accessible to the majority of its citizens.
Judging by the response of the major operators so far, this is clearly not a priority for them.
“I think everyone held their breath and hoped that no one would be the first to start discounting,” says Steve Song, telecoms fellow for the Shuttleworth Foundation.
Alison Gillwald, the director of Research ICT Africa, says that increasing bandwidth for existing customers is great for the “very limited, largely elite customers able to afford connectivity” but that it does not contribute to national policy objectives of increasing internet penetration and building an information society.
So although the bigger players carry on with business as usual, it has been left to an ambitious new entrant to rock the boat. Enter Afrihost, with its gutsy plan to spend its advertising budget to subsidise its opening ADSL special of R29 a gigabyte.
Until they entered the market — less than three months ago — ADSL broadband prices were sitting at between R50 to R70 a gigabyte.
Although Afrihost chief executive Gian Visser admits that the company is losing money on the R29-a-gigabyte deal, the positive spin-offs in terms of exposure are likely to be much greater than if the money had been spent on advertising.
The problem is that these prices are not sustainable for Afrihost and it does not have the financial muscle to take on the bigger players in a sustained price war.
But even if South Africa did have healthy competition at an internet service-provider level, there is one further obstacle to bringing down the cost of ADSL.
“In terms of offering lower-income consumers a better deal Seacom is important. But equally important is ownership of the local loop,” says Song.
The local loop is Telkom’s copper-wire infrastructure that delivers your ADSL and telephone calls to your home.
“I am paying Telkom nearly R250 plus VAT per month for the pleasure of a copper wire,” says Song. “On top of that I pay WebAfrica R200 per month.”
Song’s argument is that without all players being given equal access to the local loop, we will not bring down ADSL access costs significantly.
Broadband activist Rudolph Muller agrees.
He says Seacom is a “positive development’ but that its benefits are related to only one aspect of providing a broadband service, which is the cost of international bandwidth.
“In the ADSL market Telkom still has a monopoly on the access portion [local loop] of the service,” says Muller.
“This portion can account for as much as 80% of the total cost of an ADSL service and pricing is not likely to decrease significantly unless competition is introduced.”
“The high cost of rolling out copper infrastructure means that other telecoms providers are unlikely to roll out their own ADSL services, which means that local-loop unbundling is desperately needed to create a competitive ADSL environment.”
So when are we likely to see local-loop unbundling taking place? No time soon is the answer.
The late Ivy Matsepe-Casaburri, who was the former communications minister, set a deadline of November 2011 for local-loop unbundling, but so far little progress seems to have been made.
It is hoped that Siphiwe Nyanda, the new communications minister, and Mamodupi Mohlala, his director general, realise that this is a matter of national importance.