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Why is Telkom letting ADSL die?

Read time 4min 20sec
Guest columnist James Francis.
Guest columnist James Francis.

I thought I had a witty title for this column, but upon googling I discovered it's been used before - twice - and both times by me. Perhaps I'm beating a dead horse here, but I keep coming back to this topic: broadband is not serving poor consumers and Telkom's ADSL network could be used towards that purpose.

I picked those words very specifically: 'poor' as in the vast multitude of South Africans who survive hand-to-mouth on pittances in the informal economy or at the bottom end of the formal economy, and 'consumers' because they are consumers and because encouraging the virtuous cycle between businesses and people grows economies.

But South African companies are not interested in the poor, at least not those in the technology space. They sell rubbish phones (you can barely fit the Android operating system on many low-cost smartphones, let alone other apps), they inflate data prices and they conflate technology issues to protect themselves, not serve customers.

These accusations have exceptions, but as a general observation it stands. Telkom, in particular, is enjoying large mobile growth because it tries to appeal to our pockets. But it's not a champion for poor consumers; particularly its sister company Openserve. If you look at the latest financials, Telkom is meeting ADSL losses with mobile and fibre, two channels that are too expensive for the average South African.

To get an entry-level fibre connection requires two things: several hundred rands (at least) and proximity to last-mile fibre. Despite all the major fibre pipes running through townships, the majority of the action is still within suburbs and high-LSMs. I live in a medium-LSM neighbourhood tucked inside Johannesburg and yet the fibre companies have shown no interest in serving the area. But I can throw a stone and hit homes that have fibre access.

Imagine what it looks like in even poorer areas...

Mobile is a joke for poor consumers. You still pay around R100 per gigabyte, prepaid, not counting extra conditional data. Compare that to ADSL's R2 to R5 per gigabyte. Until regular, prepaid mobile broadband comes near the same price as ADSL data, it's not going to help poor consumers. But I can appreciate the difficulty of business models built around mobile data. It's not feasible to drop those prices overnight or even over a year.

So why doesn't Telkom use its vast ADSL network? I've written about this before: cut the costs of ADSL and offer low-speed lines to poor consumers. A 2meg line running overnight is sufficient to download shows or update phones. It would remove pressure from mobile data usage and also encourage home use of data.

Telkom is meeting ADSL losses with mobile and fibre, two channels that are too expensive for the average South African.

There are attempts to bring broadband to poor consumers in meaningful ways, such as VAST. That's fine. But how Telkom is essentially killing ADSL and looking to mobile/fibre to make up for lost ground is a terrible waste. Neither mobile nor fibre is appealing to poor consumers. I'm sure Telkom has a few accountants who can work out a cost-model for ADSL that can be bundled with other products such as mobile. And surely those customers could be migrated to low-end fibre products in a few years. I think Telkom could afford to lose money on ADSL if it plays a longer game.

The Telkom ADSL network is vast and reaches into many areas of South Africa. Sure, it's not the high-fidelity of a 10, 20 or 50Mb connection, but not so long ago many of us made do with trickle-down fixed-line Internet. At 200Kbps you can accomplish quite a bit with a little patience. Okay, actually it's Openserve's network. But the two companies are closely linked and could work something out.

Since we see the likes of Showmax, Black and Netflix heavily promote downloading content, it's clear that downloading is a popular workaround for poorer consumers. The massive prevalence of pirate DVDs and people copying files from each other in townships is indicative of the digital culture we saw among SA's middle-class a decade ago.

I'm bullish on Telkom. I believe it is in a unique position to rumble the other telco operators and it has the appetite to make radical decisions that will turn the market on its ear. It's a shame it is squandering a still-great asset, a national copper network.

There is still a lot of life and potential in ADSL, an established network with established service skills and processes. If Telkom was willing to use ADSL as a value-add instead of forcing it towards its death by means of attrition, it could challenge the market in new ways.

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