Telkom has started off the year with aggressive fixed broadband price cuts, a move analysts say may mark a year of price wars in the local telecommunications space.
In an unexpected development, welcomed by industry observers and consumers - and eliciting industry talk of an imminent fixed broadband price war - Telkom announced last week that it would cut uncapped ADSL costs by up to 40%.
Thursday saw the company announce significantly lower prices, for both consumers and businesses, particularly on its higher end products. The new prices will kick in on 1 February.
Fellow Internet service providers (ISP) say the step is way overdue, considering Telkom still dominates SA's telecommunications backbone. The 39% state-owned company has often been criticised for its monopolistic tendencies and anti-competitive behaviour, and has long had consumers - as well as other telecoms players - calling for price cuts.
'Lovely war'
World Wide Worx boss Arthur Goldstuck says we are going to see some "lovely price wars" across the board this year.
He says the drop in Telkom's uncapped prices - particularly that in its high-end products - is "startling" and that it is a case of the operator "catching a wake up".
"It has taken Telkom almost three years to catch up to the new reality of uncapped. While they had the offering before, it was never as competitive as the rest of the market."
Likewise, IDC analyst Spiwe Chireka says Telkom's announcement "definitely marks the next wave of price cuts" and the fact that ISPs plan to respond creates a dynamic price-based change in the market.
"The key thing to note with ADSL in SA is that price is still a major differentiator, unlike in international markets where services such as video over broadband and voice over ADSL have become the key competitive factors."
Chireka says price cuts are likely to be the norm in the short-term, before we start to see more being packed onto DSL networks in SA.
Uncapped future
Goldstuck says the move also highlights the extent to which the future of broadband is uncapped. "The content environment is evolving so fast and making massive demands on data use, that the existing caps are just not viable anymore."
He says uncapped will eventually be the only way to go, in terms of fixed broadband. "Almost three years ago, when MWeb introduced uncapped broadband, it was met with a lot of scepticism in the market. Ironically, this was around the same time the first iPad came out and was also met with scepticism - yet it transformed the world of computers."
Goldstuck adds that this year has long been regarded as an inflection point in the uptake of digital services, and therefore data usage.
He refers to the commoditisation of data and the fact that this year will see the completion of most of the national terrestrial fibre grids currently being built.
Goldstuck noted previously: "The national long distance network, being jointly trenched by Neotel, Vodacom and MTN, is expected to be completed, linking all major cities in SA this year, as is the Fibreco network that includes Cell C and Internet Solutions in the partnership. Dark Fibre Africa is currently completing the urban grids that will link all these networks to the main end-users."
He says caps on data are not viable, particularly for heavy users and businesses. "Telkom cannot work according to a five - or even a two - year model.
Chireka says, since the launch of uncapped Internet in 2010, no dramatic price changes have shaken the market as yet. "This development can be viewed as uncapped broadband becoming a standard and not a premium offering as seen in international markets.
"In SA to date, uncapped was priced more like a premium offering and with price cuts of 40% it is expected that the service will become widely adopted."
Knock-on effect
Analysts also agree that the move will create somewhat of a more competitive environment, as other ISPs respond and as pressure mounts for Telkom to relinquish some of its control over ADSL in SA.
Goldstuck says Telkom's ADSL monopoly is "causing a slowdown of ADSL growth".
SA's ISPs did indeed sit up and take notice last week, with many saying they have price cuts on the cards, and some that the move by Telkom is still not enough.
OpenWeb responded almost immediately, with a post on its Facebook page referring to a price reduction on its Vanilla Uncapped products.
OpenWeb CEO Keoma Wright says, however, he does not believe Telkom's price cuts mean war. "Telkom is a very slow mover, and they were overdue a price cut for quite some time now."
MWeb CEO Derek Hershaw says the company will make an announcement this week regarding its response to Telkom. "Subsequent to Telkom's announcement, we have been trying to determine exactly what these new Telkom products will look like, and how they will perform (throttling, etc). We will then evaluate our own products and pricing against that and decide how to respond.
Hershaw adds that Telkom has not reduced IPC prices since early 2012. "We believe that further significant cuts are required this year."
Web Africa CEO Tim Wyatt-Gunning says, while he can foresee prices continuing to fall, a price war is unlikely - but, he says, the move raises questions as to the cost of IP Connect in SA.
"The odd thing about this price cut by Telkom is that it doesn't appear to be driven by any similar drop in costs, which limits how much we, the ISPs, will be able to respond without compromising our service levels.
"Since IPC still constitutes over 70% of our network costs, we can only hope that this premeditates another healthy drop in IPC prices to ISPs by Telkom, but so far we have heard nothing."
Wyatt-Gunning says it is unfortunate that Telkom has chosen to get aggressive on pricing in the part of the market which is already highly competitive, "whilst turning a blind eye to cutting prices in the area which would actually stimulate growth in ADSL, being the line rental prices".
Marketing director of Axxess, Franco Barbalich, says Telkom's move was an anticipated one, as the industry at large has moved on pricing already.
"Telkom are now in line with most of the bigger private ISPs, so we don't see any real price war starting.
"What is a shame, is that Telkom did not reduce the price of the ADSL line rental, or offer naked ADSL, which would have had a massive impact to all ADSL users across all networks."
The move is, however, welcome, says Barbalich. "We welcome their move and have a few tricks up our sleeve to have some fun with uncapped services. We still need to agree on this internally and hope to have a campaign running soon."
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