Information Technology Reference
In-Depth Information
stream revenue which attracts significantly higher
profits. Hence, broadband users might experience
limited throughput and high latency, translating
into broken speech patterns and abnormal delays
when holding a conversation through an applica-
tion such as Skype.
To this end, it is argued that potential abusers
of the network are throttled so that performance is
not degraded for the entire broadband user base.
Unsurprisingly, such individuals complain that
they are being unfairly victimised. Herein lies
the fundamental problem: broadband promises a
multimedia rich environment whereby users can
experience the true benefits of the information
age without prejudice in terms of application.
However, by labelling certain users as rogue cus-
tomers or certain activities as abuse, the potential
for broadband to revolutionise the way in which
the Internet is used is severely stifled. Further
unhappiness is caused by the fact that this is a
relatively unique stance foisted upon consumers
in the South African market.
services has actually stayed static and has not, as
expected, increased with inflation. This is, in ef-
fect, a price decrease in real terms. It is expected
that as broadband infrastructure is built, capacity
creation (i.e. supply of bandwidth) will increase
and prices will be pushed downwards. Progress,
however, remains slow. Prices, likewise, remain
sticky as there is little incentive for companies to
drastically slash prices.
Secondly, telecom incumbents claim that in-
ternational bandwidth is exceptionally expensive
in South Africa due to the geographical distance
from the main Internet centres (i.e. United States
of America, Western Europe, South East Asia,
etc.). Until mid 2009, the SAT-3/SAFE undersea
fibre optic cable was the exclusive fixed connec-
tion integrating South Africa with the Internet
backbone. Whilst satellite connectivity has been
in operation for over a decade, the exceptionally
high costs and poor latency meant that this capac-
ity was typically reserved for backup purposes.
Telkom, being South Africa's only shareholder in
the undersea cable and holding exclusively land-
ing rights, exercised its market power and held
wholesale connectivity prices artificially high.
This situation has subsequently been rectified
with open-access to the SAT-3/SAFE cable and
the landing of the SEACOM cable.
Thirdly, Telkom claims that establishing their
ADSL network has been extremely capital in-
tensive. The incumbent argues that it has had to
convert previously analogue exchanges into digital
format, and then equip these to handle fixed-line
broadband. It therefore maintains that it needs
to recoup these costs and that further investment
in infrastructure, without the required financial
return, wouldn't make good business sense. In
this respect, the company has even threatened to
pull the plug on its broadband network if it were
to be forced to slash the price tag of its broadband
offerings.
At present, most fixed-line broadband provid-
ers merely resell white-labelled (core) Telkom
products. These products are facilitated by Telkom
THE 'RIPOFF' RATIONALE
The high costs of telecommunications services,
particularly broadband connectivity, provides
much fuel for ongoing debate. A number of reasons
have been put forward as to why South Africa is
out of synch with other emerging markets apropos
telecommunications costs. These are addressed
below.
Firstly, it is claimed that the South African
broadband subscriber base is still relatively lim-
ited in size. Thus, the country has been unable to
benefit from the economies-of-scale experienced
elsewhere in the world. However, it is reasoned
that as the number of broadband subscribers con-
tinues to grow, subscription rates should naturally
decrease over time. Fortunately, there appears
to be some merit in this argument as there have
already been a number of price reductions in the
market. The price tag of many other broadband
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