How ISPs make money from uncapped ADSL

Numerous Internet Service Providers (ISPs) cut their uncapped ADSL prices, following Telkom’s decision to slash its uncapped ADSL rates on 1 February 2013. To remain profitable with the lower rates required innovative solutions from the ISPs.

ADSL service providers informed MyBroadband that they did not receive wholesale price cuts on IPC, national transit or international bandwidth to support the lower uncapped prices. This means that they had to find other ways to save costs.

MWEB ISP CEO Derek Hershaw said that the two lower-priced uncapped products they introduced differ from their existing uncapped premium products in that it is a throttled service aimed at users with moderate consumption behaviour.

“We provision less capacity for it on our network, and we have priced it accordingly,” said Hershaw.

Openweb CEO Keoma Wright said that they had to “fine tune” their existing uncapped ADSL packages to provide the best throughput for the best price.

Tim Wyatt-Gunning
Tim Wyatt-Gunning

Web Africa CEO Tim Wyatt-Gunning said that they have been planning their ADSL move to Internet Solutions for some time; lower costs was one of the determining factors for the move.

“We were planning to cut prices anyway but Telkom’s surprise move just prompted us to cut quicker and possibly deeper than we might have at this stage,” said Wyatt-Gunning.

Wyatt-Gunning added that there has been no corresponding drop in IPC or ADSL line rental charges as yet.

“We are getting squeezed on margin in what we hope is the short term because a return to the days of blatant anti-competitive behaviour [by Telkom] is just too much to contemplate,” said the Web Africa CEO.

Laurie Fialkov
Laurie Fialkov

Cybersmart CEO Laurie Fialkov explained that big investments in their network over the last few years made it possible for them to drop prices.

“We are splitting our IPC into 3 POPs – Durban, Johannesburg and Cape Town – which brings some cost savings that we are passing on to our subscribers,” said Fialkov.

Other cost saving initiatives which will save Cybersmart money in future include investing in their own data centre, paying off their international bandwidth IRUs and saving electricity by using solar power.

Despite all these initiatives, the Cybersmart CEO said that they are still taking a big knock in revenue and profit with the price cuts.

“This large knock will reduce as the cost savings mentioned kick in, but even then we will still be taking a hit on the bottom line,” said Fialkov.

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How ISPs make money from uncapped ADSL