Making money from ADSL services
South Africa’s ADSL service provider market is fiercely competitive, with Internet Service Providers (ISPs) running at very low margins to attract customers in the broadband market.
While the ADSL ISP price war over the last two years saw margins for service providers decline significantly, Telkom‘s ADSL access and wholesale IPConnect prices hardly moved.
This means that most of the money from an ADSL customer – even if an ISP is operating their own network – is still flowing into Telkom’s pocket.
MWEB CEO Rudi Jansen explains: “The cost of the ADSL line rental is a big cost element and between that cost and the cost of the IPC, Telkom receives the bulk of an ADSL connection’s and internet access revenue in comparison with the ISP. These Telkom costs need to be better regulated.”
Making ADSL more profitable
It is no surprise that ISPs are struggling to compete on price while still maintaining large enough margins to support their businesses.
According to Cybersmart MD Laurie Fialkov, they are currently working on a 15% margin when it comes to ADSL products – much lower than their 50% margin on their hosting products.
Fialkov proposes three changes to boost ISP’s ADSL profit margins and compete more effectively:
- Remove compulsory telephone line rental (hence, launch naked ADSL);
- Reduce the price of Telkom’s IPConnect service;
- And have an efficient ADSL portal for ADSL line orders.
Neology CTO Roelf Diedericks agrees that Telkom’s ADSL IPConnect price should come down. “Telkom is starting to become a really good wholesaler, their systems and technologies are reliable, but the IPConnect pricing is still a killer,” says Diedericks.
Jansen agrees that lower IPConnect prices is desperately needed, and further supports a naked ADSL offering to “open up the market even further”.
Better ADSL network will help
Jansen added that congestion on Telkom’s ADSL network is causing problems for ISPs.
“With the congestion on the Telkom backhaul network and between the DSLAM and the exchange, the ISP does not necessary get the throughput on the network that they pay Telkom for. So there should be better service levels to manage congested and overloaded Telkom exchanges,” said Jansen.
“This is a huge issue that needs to be resolved, and Telkom will have to invest more than what it is investing currently into this network.”
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