Broadband prices are expected to come down by about a fifth over the next year as operators drive efficiencies, another cable lands, and local loop unbundling kicks in.
However, South African consumers will still be paying too much per MB compared to other end-users in countries such as Poland, says an analyst.
Recent research from Ovum found that fixed and wireless broadband in SA is as much as 20 times more expensive when compared to offerings from providers in 18 other countries that are also classified as emerging markets.
The prohibitive cost of broadband in SA is an aspect government has vowed to tackle for several years, yet the report finds connectivity is out of reach for most South Africans.
Ovum's “Broadband Pricing in Emerging Markets in 2011” looked at HSPA, WiMax, and DSL broadband services in 19 countries in Asia, Eastern Europe, the Middle East and Africa, as well as South and Central America.
SA has the most expensive broadband tariffs of the 19 countries the report surveyed. Some low-end entry-level services cost as much as $1 443 a year, while costs for higher end services are as much as $6 000 a year.
Internet. However, these have been limited-time offerings.
In general, stripping out the special deals from operators, the cost of broadband declined by about 20% over the past year, and a similar drop is expected in the next 12 months.
Driving efficiencies
Jannie van Zyl, Vodacom's executive head of data product development, says incremental improvements in network efficiencies could drive down mobile broadband by between 15% and 20% in the next year.
Van Zyl says this would be a similar trend to what happened last year. He adds SA saw massive price cuts recently thanks to promotions, but these are not sustainable.
Cellular companies are working hard to get more efficiencies out of the network, which will incrementally lower costs. He explains that about half the cost is linked to the radio side of networks, which includes spectrum use and the base station.
The balance is related to the backhaul, which is the cost of connecting consumers up to the towers, says Van Zyl.
Cellular providers are self-providing backhaul by laying down fibre, but this is challenging as councils deal with many applications from companies wanting to dig up pavements, which delays the process, explains Van Zyl.
However, as more fibre is laid down, prices will drop over time, says Van Zyl. In addition, technology improvements allow operators to get more use out of the current available spectrum, allowing them to decrease prices, he adds.
Flow-through benefits
Wayne de Nobrega, CEO of Altech Technology Concepts, says the cost of fixed broadband will also come down, although prices will not halve. He says the cost could come down by between 20% and 25%.
De Nobrega explains the West Africa Cable System (WACS), which is expected to open up for commercial services in the first quarter of next year, will aid price cuts. In addition, he says, local loop unbundling should also drive prices down.
Regulations to enable local loop unbundling are expected to be published by the Independent Communications Authority of SA next month.
De Nobrega adds the actual drops depend on several factors, and the timeframe in which these aspects come into play. He explains consumers are likely to get “more bang for their buck” instead of extremely cheap packages.
Internet Solutions' connectivity executive Sean Nourse says the bulk of broadband pricing is based on Telkom's pricing, which accounts for about 60% to 70% of the total cost.
Nourse says this leaves about 30% to 40% for an Internet solutions provider to provide local and international bandwidth, support and then to “try and make a margin”.
WACS will trim the cost of international broadband, but providers will have to use a more expensive cable to ensure redundancy, as there will be “soaking in” outages, says Nourse. “While there will be reductions, it'll be hard to see them as high as 20%.”
Richard Hurst, Ovum's emerging markets analyst, notes that SA consumers are still paying far too much for broadband, despite recent price drops.
Hurst expects prices to come down by between 20% and 30%, but does not expect a drastic move. He adds that operators will be under pressure to provide more “bang” for consumers' bucks by offering value-added products such as higher data caps, or bundle voice in with broadband.
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