At the beginning of 2020, several of South Africa’s top fibre network operators warned internet service providers (ISPs) that they planned to increase wholesale prices of their service. These ISPs include Vumatel (South Africa’s largest fibre provider), Octotel and the Vox-owned Frogfoot. However, COVID-19 threw a spanner in the works when President Cyril Ramaphosa announced the national state of disaster and a moratorium was placed on increasing the prices of any telecommunications service including mobile networks and fixed-line operators.
Vumatel, Frogfoot and Octotel suspended price increases in line with regulations published by the Minister of Communications and Digital Technologies, Stella Ndabeni-Abrahams. However, the regulation preventing price increases was removed on 8 May 2020 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 were soon asking why the price of broadband is increasing.
Frogfoot CEO and founder Abraham van der Merwe told MyBroadband that input costs are increasing for all fibre operators. “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 are imported.”
Fibre networks are absorbing these increased costs rather than trying to recoup any of these losses from customers, Van der Merwe stated. He notes that customers must not lose sight of the fact that fibre network operators have been a driving force in bringing down the price of broadband in South Africa.
“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.
Octotel COO Scott Cunningham agreed with Van der Merwe. “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 pointed out that fibre prices have not increased annually. Octotel has only had two price adjustments since January 2016, he noted.
Openserve argues that the wholesale input cost of acquiring end-to-end broadband services has decreased significantly for ISPs. With the launch of Openserve Broadband Connect, some ISPs have decreased these costs by over 20%. “We have not applied an annual price increase but rather launched a new product suite, effectively reducing prices,” the company said. These developments happened in response to pressure from the Competition Commission, but ISPs argue that the changes made little difference to their overheads.
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.