Afrihost, the broadband provider and webhosting firm that set the cat amongst the pigeons by slicing its ADSL bandwidth tariffs to just R29 per gigabyte, believes that the real cost of bandwidth will fall below the current R29 threshold within the next three years.
The company is currently subsidising its R29 per gig ADSL special offer with its marketing budget, but CEO Gian Visser said that a range of regulatory and competitive moves in the marketplace will mean that ISPs will be able to sell bandwidth profitably below that cost within the near future.
The Afrihost special offer runs until the end of the year and Afrihost has promised new and existing subscribers that they will enjoy the R29 per gigabyte rate as long as they remain subscribers. One reason that the company is comfortable making this offer is that it believes bandwidth prices will fall rapidly in the next three years, eventually reaching or falling below the R29 per gigabyte level.
The arrival of new undersea cables is one factor that has already had a dramatic impact on the market. Meanwhile, new telecom laws that allow many service providers to self-provision their own last-mile and national links for the first time is introducing more competition at those layers of the market.
Seacom has brought real competition to Telkom in the undersea cable space - Telkom's dominance of most of South Africa's international bandwidth was a major factor in high bandwidth pricing. International bandwidth will become even more affordable and abundant in South Africa once additional undersea cables such as the West Africa Cable System (WACS) and the Eastern Africa Submarine Cable System (EASSy) go live in 2010 and 2011, said Visser.
Of course, international bandwidth costs form only one aspect of the high costs that South African consumers pay for their broadband services. Local national links also account for a significant portion of the cost, and incumbent operators still own most of this infrastructure.
Telkom still controls the vast majority of backhaul bandwidth, but competition is starting to rise as other operators and service providers start to provision their own infrastructure, said Visser. Heated competition is likely to start driving costs down for service providers, who will in turn be able to pass on cost-savings to their customers.
An increased emphasis on local peering between South African ISPs - through the work the Internet Service Providers Association is doing with its Johannesburg (JINX) and Cape Town (CINX) Internet Exchanges could also help to drive down local bandwidth costs.
Visser said that the last-mile is another major contributor to South Africa's high-bandwidth costs that is currently out of the hands of the country's Internet service providers. It contributes to high cost of ownership for broadband through the line rental (or access) fees that Telkom charges. Icasa has once again highlighted local loop unbundling as an urgent regulatory intervention, which could mean that other service providers and operators will have access to the last-mile copper infrastructure at competitive rates. Local loop unbundling could be completed as soon as 2011.
While the line rental fee doesn't impact directly on per-gig bandwidth rates, service providers might be able to drive down overall costs for ADSL services by putting together innovative access and bandwidth bundles.
Concluded Visser: "Though many people have questioned the sustainability of our pricing model, we are currently winning market share for a future when prices will fall to our current special rate or below. We are positioning ourselves for long-term growth and profitability in a market we expect to change dramatically over the next three years."
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