MWeb vows to hit back at Telkom

Recent dramatic broadband price cuts by Telkom’s Internet service provider have got its rivals considering how best to respond. The biggest rival, MWeb, has vowed to react by early next week. By Craig Wilson.

MWeb, the Internet service provider owned by media group Naspers, is assessing Telkom Internet’s dramatic broadband price reductions, announced on Thursday, and has told TechCentral it will respond with product announcements of its own early next week.

This comes after Telkom said it would cut prices by up to 40% on its consumer, uncapped products in a move that sets the bar for other Internet service providers (ISPs) — and possibly the tone for the year ahead.

Although consumers are unlikely to move immediately from rival ISPs, the question is whether Telkom’s rivals will be able to match its price cuts.

Internet Solutions executive for connectivity Sean Nourse says he is surprised by Telkom’s price cuts because there haven’t been any significant cost reductions in this space for some time.

He says Internet Solutions is curious about the timing of the cuts and wonders whether there are cuts coming in IPConnect fees, to which Telkom might be privy. IPConnect fees are the tariffs Telkom charges ISPs for access to its “last-mile” infrastructure.

MWeb ISP CEO Derek Hershaw says there have been no reductions to IPConnect since early 2012 and further “significant cuts” are required in 2013.

“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,” Hershaw says, clearly wondering whether the lower-priced packages will be subject to more bandwidth throttling or other conditions.

Hershaw says MWeb will evaluate its own products and pricing accordingly and decide how to respond. “We are likely to have answers early next week,” he says.

However, Nourse says it will be hard for ISPs to react with big price cuts of their own. Internet Solutions, he adds, will carefully analyse Telkom’s new offerings to determine how it has made them commercially viable. “At the moment, we believe our price point and service is benchmarked correctly with input costs.”

Nourse is keen to see how consumers respond. “The most important thing for us at the moment is to identify exactly what service Telkom is offering and determine if it can be matched and if it needs to be matched. If we can’t match the price, we’ll have to find other ways to improve our offerings,” he says.

Vox Telecom director Doug Reed says the South African Internet industry has to cope with 60% deflation per year on average”.

He doesn’t expect Telkom to reduce the IPConnect rate but that ISPs will nevertheless have to respond to the price cuts in kind.

“We’ll have to respond,” Reed says. “We’ve never been more expensive than Telkom and we’re not going to start now.”

Reed says he isn’t too concerned about the cuts because Vox’s products are already competitively priced. He says the move from Telkom puts it more in line with the rest of the market.

The price change is unlikely to cause subscribers to flee their existing ISPs for Telkom because, over the years, consumers have learnt to wait and see how their service providers respond to moves from the competition, Reed says.

On the whole, the move is “good for the consumer” and important for balancing communication costs in South Africa, he adds.  — (c) 2013 NewsCentral Media