This past Friday Telkom announced that it will reduce IPC costs by 15%, giving ISPs some breathing room in their pricing. The new pricing goes into effect on the 1st of February.
IPConnect – Internet Protocol Connect – is the product Telkom resells to internet service providers, and it’s what allows ISPs to route their bandwidth over Telkom’s infrastructure. Cheaper access costs to IPConnect means lower operating costs for the ISPs, but in this case it doesn’t necessarily mean that internet access will become cheaper as of next month.
Over the last few years Telkom has steadily been cutting IPC costs. In April 2012 it slashed prices by 30%, and in October last year prices came down by another 8%. It says that over the last 24 months the total price cuts equal a 53% reduction in costs for internet service providers.
But MWEB’s CEO, Derek Hershaw, explains that this latest announced reduction won’t benefit end users, going forward.
In September 2013 Telkom Wholesale announced that all ADSL line speeds would be doubled, for free. Those on 1Mbps and 2Mbps lines would be bumped to 2Mbps and 4Mbps, respectively. Consumers who were already on a 4Mbps line would see their speeds boosted to 10Mbps, as long as their line supported the higher speed.
Hershaw says that MWEB hoped the increased line speeds would also see the IPC prices drop, which would effectively enable ISPs to let end users have uncapped ADSL accounts for their new lines without paying much more.
However, Telkom Internet, the ISP division of Telkom, offered free uncapped ADSL upgrades for its existing clients. There were no IPC price cuts, and other ISPs were forced to follow suit, dropping prices for their uncapped data offerings. Hershaw says this was done despite the lower prices squeezing the margins of the ISPs.
The recently-announced IPC price cuts will provide relief for those ISPs who’ve cut prices to compete with Telkom Internet, but Hershaw says that not enough has been done.
“The 10% that Telkom has offered now is not enough to offset these additional costs – we believe that the figure should be at least 25%,” he says. The 10% figure is the effective cut, excluding a limited offer of a 5% reduction in September which only a few ISPs took advantage of.
“But the Competition Commission will look into that as part of the settlement agreement they reached with Telkom last year, and hopefully we will get further relief then.”