At the beginning of 2020, several of South Africa’s top fibre network operators warned Internet service providers that they essentially planned to increase wholesale prices. These included Vumatel, which has overtaken Openserve to become South Africa’s largest fibre provider, Octotel, and the Vox-owned Frogfoot. Internet service providers also announced prices on Openserve, Telkom’s wholesale and networks division, leading to a war of words between the parties.
When President Cyril Ramaphosa announced the national state of disaster due to COVID-19, a moratorium was placed on increasing the prices of any telecommunications service. This included mobile networks and fixed-line operators. Vumatel, Frogfoot, and Octotel have suspended price increases in line with regulations published by the Minister of Communications and Digital Technologies, Stella Ndabeni-Abrahams. The regulation preventing price increases was deleted on 8 May by Jackson Mthembu, who was acting as Minister while Ndabeni-Abrahams was on suspension for violating South Africa’s lockdown rules.
This opened the way for network operators to implement the price increases they had announced earlier in the year. With retail price hikes happening on four of South Africa’s major fibre network operators, consumers are asking why the price of broadband is increasing.
Frogfoot CEO and founder Abraham van der Merwe told MyBroadband that unfortunately, the input costs of all fibre operators are increasing. “The reality is that our costs are increasing on an annual basis in line with labour costs of constructing networks, and inflationary increases in materials and other costs,” Van der Merwe said. “None of these factors even take into account the massive weakening of the rand, which substantially increases our material costs as most is imported.”
Fibre networks aren’t considering the increased costs as a result of the COVID-19 pandemic and resulting lockdown, Van der Merwe stated, as they will simply absorb those and not try and recoup any of these losses from customers. Van der Merwe said that customers must not lose sight of the fact that fibre network operators in South Africa have been a driving force in bringing down the price of broadband.
“I think we mustn’t lose track of the fact that fibre network operators have been — and will continue to be — instrumental in driving down costs aggressively. But we cannot do so without increasing our fees in a (sometimes hyper-) inflationary world.”
Octotel COO Scott Cunningham agreed with Van der Merwe, saying that unfortunately all of their input costs have increased. “The delivery of a quality fibre network has many input costs that are unfortunately linked to areas of the economy that regularly experience price escalation,” Cunningham stated. “These being construction costs, labour-related costs, as well as increasing supplier costs. Pricing is negotiated aggressively on an annual basis and at times we are in a position to defer these adjustments until later dates, but this is not always possible.”
Cunningham said it is important to note that prices have not increased annually. Octotel has only had two price adjustments since January 2016, he said. “Our ability to increase pricing allows us to continue investing in fibre and bring this amazing technology to the rest of the country,” Van der Merwe said, referring to Frogfoot’s push to roll out fibre to smaller towns around South Africa.
Openserve argued that it hasn’t increased prices, but has, in fact, decreased the wholesale costs that ISPs pay. “As previously communicated, our analysis indicates that with the launch of Openserve Broadband Connect, the wholesale input cost of ISPs acquiring end-to-end broadband services from us has decreased significantly, with some ISPs experiencing decreases in excess of 20%,” the company said. “We have not applied an annual price increase but rather launched a new product suite, effectively reducing prices.”
Openserve made changes to its wholesale regime following pressure from the Competition Commission, but the ISPs said that in many respects the changes made no difference at all. While Openserve has reduced one portion of its wholesale pricing by introducing Broadband Connect to replace its old IPConnect product, it also hiked line access charges. One ISP told MyBroadband that although Openserve Broadband Connect reduced the network capacity charges from R135 per Mbps to R9 per Mbps, line access charges were hiked by as much as 47%.
Openserve maintains that its changes have resulted in a substantial reduction in end-to-end wholesale broadband pricing for service providers.