Uncapped Internet is a con

Justin Spratt

[By Justin Spratt]

Right, so this whole “uncapped” and “Free the Web” stuff has me a little vexed. Basically I think it is all a bit disingenuous, even bordering on manipulative.

While Seacom opened the floodgates last year with falling prices for international bandwidth, the reality is that the Telkom “last mile” — the line from the exchange to your home or business — is still disgustingly expensive. On average, more than 70% of the cost of broadband access is attributable to Telkom’s punitive pricing of the last mile. This is the “Telkom tax”.

As an Internet community we should be keeping our lasers trained firmly on this issue. It’s going to take considerable public pressure from citizens to free the last mile from Telkom.

Lest we forget, taxpayers have already paid for the copper, the trenching of roads and the bulk of exchanges.

I have heard some really smart people retort, saying this uncapped movement is a watershed moment for the Internet in SA. If we measure technological progress by marketing prowess, then I agree.

And I agree that more people surfing the Internet is a great thing for SA.

But I vehemently dispute that this uncapped movement was the watershed moment for Internet “freedom” in this country. That moment will come with the revocation of the Telkom tax.

Besides the Telkom tax, and the fact there have been uncapped products before, there are technical reasons why “uncapped” isn’t what most think it is. Overseas experience tells us that uncapped products are not the future because bandwidth hogs on these services degrade the experience for all. This results in Internet service providers having to introduce higher contention ratios (slowing the service) and harsher acceptable use policies.

Uncapped models globally have become fringe products due to these bandwidth hogs.

Though places like Hong Kong, South Korea and Scandinavia have dense geographies amenable to uncapped bandwidth, the reality is that they, too, shy away from it because of the few who download multiple terabytes of data every month.

Internet download patterns are generally shaped like a bell curve — on the left side you have the people who only use the Internet for e-mail; on the other end you find the terabytes-a-month bandwidth hogs; and in the large mid-section of the curve are the majority of folks who don’t need more than 50GB/month (this will increase slowly over time).

It’s the bandwidth hogs that ruin the experience for everyone else as they dilute others’ experience.

Accordingly, the leading products from providers globally are generally capped: 50GB, 100GB and 200GB products are the sweet spot for service providers internationally.

Contention ratios and acceptable use policies are the tools service providers use to manage user experience in the uncapped world. Contention is simply putting more users on a single chunk of bandwidth and usage polices provide limits to the uncapped experience, blocking certain traffic that essentially leading to the service becoming capped.

The better solution is higher capped products that provide excellent user experiences.

Some people have put forward a more cynical view of why uncapped bandwidth is suddenly such a big issue in SA.

It’s been suggested the company that introduced these uncapped services has done so to create a future market for future video-on-demand — essentially TV over the Internet. The company in question is owned by an entity that has a huge amount of video content.

So, even if you don’t believe my argument, there are enough issues to raise doubts about some of the promises that are being made. What we mustn’t do is lose sight of the bigger issue: repealing the Telkom tax.

  • Spratt is co-founder of ISLabs

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  • http://www.wwwstrategy.co.za Steven Ambrose

    Justin makes reasonable points from a biased perspective. Uncapped is not the only solution, nor is it the Holy Grail of the internet. It is a brick in the wall on the way to maturity. Certain compaines have kept their capped products pricing insanely high for now, hoping that inertia and the hassle factor will keep their customers with them. Uncapped is one step toward higher quality internet for a wider base and it was an neccesary step. Telkom’s access chages are now more than the bandwidth charge, and we can now focus on that. The change that even low quality uncapped makes to the average users perceptions and useage of the internet is fundemental. Quality of service and higher cost associated with that, will follow. However the whole value proposition has changed and there is no way back. Take note those that still charge high prices for bandwidth, and these are not only Telkom.

  • Mark

    I couldn’t agree more! Telkom Tax is very frustrating for me as I live in a complex where there are no Telkom lines. I find myself considering moving just to get a Telkom line, because Telkom refuses to install in our complex unless we get almost every resident to sign up for a line!
    It was fascinating for me to read the other day that we have something like 45 million people living in SA, about 4 million have a Telkom line and of that only 1 million have internet availability on the line! Is there going to be a fight over homes that have a landline installed??
    (To note: I have Neotel at the moment and pay over R600 for just 15Gig! A year ago it was a great deal, but I would like to not have to move to switch service providers!)

    It will certainly be interesting to see how long uncapped internet lasts because of already slow internet speeds in South Africa will be slowed further by these internet hogs!

  • http://www.twitter.com/Lwazi2711 Lwazi

    And just when I thought “uncapped” data was here to free us all, you’ve just made me see the downside to it. This reminds me of the “free BlackBerry internet”- service providers are still slowing the users down. This really limits the web experience and users get tired of accessing the web on their phones so they use their Hellkom-ed computers.

    So really, I agree that higher capped data may be another solution as Telkom won’t budge anytime soon!

  • Greg

    The recent changes in uncapped internet have totally changed how consumers will use the internet in ZA, and it’s already started happening. I see Justin is associated with IS, whose uncapped offering is pretty grim. Mweb are the only guys who have a really good offer in the market, their shaping/contention policies are really 1st world, and they provide a great user experience, which he seems to imply uncapped users don’t have, for people who don’t want do download the entire internet every day. Even if you do, they’re the best uncapped for it, as, although they shape, they have no explicit caps on how much you can download. I assume he’s more familiar with the IS product, which is why I can understand he’s not massively enthusiastic about the new uncapped wave.

    And about Telkom holding back a revolution – if you just look at the math, it’s clear that this is not true anymore. Before the “free the web” stuff, there was no CONSUMER uncapped internet that was viable and useable for average consumers. Now there is. It’s as simple as that. Digichilli and the like don’t count as they were nigh on unuseable until Mweb came into the market. Using the mweb product as an example, even at the highest contended times, you’re going to see 2mbit download speeds on the R550+(say R500 telkom tax) uncapped account. Previously the only way to get an uncapped experience close to this was R3.5k+(say R500 telkom tax) “business” accounts. That’s a MASSIVE pricedrop – even if the “telkom tax” was lifted, and the price of the line portion halved, it still wouldn’t be anywhere near of an end-user savings of what we’ve just had.

    I hate telkom’s pricing policies as much as the next guy, but let’s face it – this uncapped wave was “the big one” – anything from now on is going to be evolutional. I’d love to be wrong, but there’s not enough space left in the value proposition for this kind of thing to happen again.

  • http://www.sandboxsavant.com justinspratt

    @steve – while I respect you immensely, you havent disagreed with what I have said so I am unsure where you disgaree

    @greg – huh? You *really* dont understand this landscape at all. Almost everything you have said is wrong… mail me and I am happy to discuss and edify you. Just for starters: IS doesnt sell bandwidth directly to the retail market. Afrihost and Plugg, et. al. do a pretty good at that using IS bandwidth – along with a litany of other ISPs in South Africa. And IS has a core that has stood the test of time, not one that was built the other day. Oh, and IS indirectly an owner of a large chunk of Seacom – you know that thing that started the price push downward? And, and, and… But alas, the piece was one in support of IS. In case you hadnt noticed, Is benefits from increase internet usage. That is *not* the issue I raised. The issue is ensuring we focus on the right issues. But debate like yours, albeit wrong, is great for the movement. Thanks

  • http://www.paulscott.za.net Paul Scott

    Well thought out and written. Thank you Justin for bringing some sanity to this issue. I posted a similar view on http://www.paulscott.za.net/index.php?module=jabberblog&postid=ps123_83059_1269890122&action=viewsingle a while back, but in more of a tongue in cheek style. I will not be “upgrading” to any uncapped offering anytime soon as I definitely need the services that I use to be well shaped and reliable (I don’t use only web, but the whole spectrum of internet services on a daily basis). Uncapped is for grannies to use Skype to chat to their children in New Zealand (note, I didn’t say Australia ;)) and send mails. Uncapped is not (yet) useful for internet professionals like myself

  • http://www.vincentmaher.com Vincent Maher

    I know one of these bandwitdh hogs

  • Greg

    @justin I have no problem with IS as a company, my partner and I were actually IS’s first customer in KZN, running a 64k leased line up to JHB, and continue to be a happy business customer ever since. I’ve been in the internet game a while, too.

    The IS infrastructure isn’t in question, we’re talking about consumer uncapped products here. Which, I think, mweb nailed 100%. Everyone just seems to be trying to play catch-up and hasn’t caught up yet. And when they do, we’ll have damn good uncapped offerings at an affordable price in ZA. When Telkom get their act together and drop their line charges, we’ll save another 20%-30% or so, and that’ll be nice too.

    Unless all the ISPs are lying about what they’re selling, they’re “reselling IS’ new uncapped offering” – much like they always have – be it uncapped express, business uncapped, etc – the fact is these are IS products that are resold, and the new IS uncapped might be built on a core that’s stood the test of time, but it’s not testing well in the market. This wasn’t an attack on IS, I was actually a bit disappointed after being a happy user for so long (personally, I’m still on the IS uncapped express+ product) – I got a lot of my friends and family to move to axxess and imagine – BECAUSE they resell IS accounts, but have to move them to mweb now.

    Look, the bottom line is that yes I agree – when some people say “uncapped internet” they’re telling a big fat lie and conning you – Afrihost have lost a lot of face in this debacle, as they have perhaps the worst offering at the moment, which took everyone by surprise based on their history. But if you sign a normal user up with mweb (and I don’t work for them or have shares in them, I just think they’ve done an amazing job and deserve credit) then they are part of the “uncapped revolution” as the media so cringe-worthily says.

    Your article should be “Beware uncapped internet cons”, not a general “Uncapped internet is a con”

    I still stand by my opinion that this is the biggest change we’ll see in uncapped internet; unless ISPs and Telkom start paying us for uncapped accounts, we’re not going to see end-user savings like this again.

  • http://enetworks.co.za Jon Maliepaard

    Well said. It is great that such a well written commentary can come from someone who isn’t part of an ISP. In general any ISP that makes comments like this is seen by the “free Internet” community as just protecting profits. The reality is that forever and still today Telkom hold the last mile and it costs us more to get bandwidth from the ADSL subscriber to our networks than it does to get bandwidth over Seacom from London. Neotel are not innocent in this either. They price products at just a few percent cheaper than Telkom, as that is just how business works when there is no competition and the regulators receive their funding from the very entities they are supposed to be regulating!

  • http://www.edsl.co.za Jaap Scholten

    When driving on some highways in the USA, you can choose to pay a toll and drive on an un-congested lane at the speed limit, or you can go toll-free and contend with all the other drivers on heavily congested lanes. It is a simple choice by the consumer.

    Uncapped ADSL services give consumers more choice, and that is a good thing. Consumers will quickly learn that you get what you pay for in bandwidth terms – anything between a lot of low-quality bandwidth for cheap, to a few Gigs of quality at a premium price. As an ISP, you simply cannot create bandwidth out of nothing and give it away for “free”. Einstein was right after all…

  • Simon

    Justin, you make a valid point. I was on a 5Gb account with Afrihost. I upgraded to their 384k uncapped offering as soon as it became available since I always hit 5GB and the next step up – 10GB – was more expensive that the uncapped option. If they made it a 30GB capped account at the same/similar rate as the 5GB I would be there like a bear.

  • http://www.direct-assist.co.za Romany Thresher

    Excellent post Justin

    For the last few months I have been feeling like the dumbest blonde on the planet in South Africa because of this whole disgusting internet escapade and I agree with you that if the people don’t take a stand nothing will change.

    The internet creates great opportunities for businesses and great opportunities for people to earn money online, It has created an equal opportunities and business without borders market.

    I have been living in the UK for the last few years, I pay around R500 a month for unlimited broadband and this includes my telesphone and my calls. My broadband is £38 per month to be exact and it is business broadband.

    My entire business is on the internet, if I don’t have internet, I don’t have a business.

    From Nov last year to date, end of March I spent around R6,500 on internet to run my business excluding landline costs and excluding telephone calls. If I stayed in the UK it I would’ve spent £250 over this period, this would’ve included my calls and my landline.

    I have looked at every possible avenue looking at the uncapped offers but still amiss is the fact that while it is great to have these offers, either it is on a very low basic speed/bandwidth package or I still have to consider my costs to Telkom whichever way I loose. On average I am using about 10 Gigs a month.

    I went on a rampage and got a petition set up and started speaking to people and I was shocked at the feedback from people to a point that I thought “you know what, if you are happy paying those prices then stuff it, why should I bother, I’m going back to the UK after all”. The general responses were, This is Africa and things run differently, “So does that mean you want to pay those prices, is that what you are telling me. Are you telling me then, that you are happy to make Telkom richer and richer, laughing all the way to the bank.”

    The other big reponse is “oh but the prices are coming down”. “Pah” is what I say, “I bet it was a rumour started by Telkom, Vodacom, and all those others, to keep the carrot dangling in front of your face”. A year down the line when I come back, people will still be saying to me, “oh but haven’t you heard, the prices are coming down.”

    So you know what, I’m back in the UK, I don’t have to sit and worry about how much I’m spending, uploading, downloading, uncapped, capped, all this confusing nonsense. I don’t have to feel like I’m being constantly RIPPED OFF.

    I can’t wait for the day when people finally wake up, take a stand and fight Telkom, Vodacom and all the others for prices do come down in South Africa.

    Internet has become a human right in some countries.

    Internet is an integral part of life. It is a free learning centre for those who do not have the money to pay for college or varsity fees, it creates job opportunities and it creates business opportunities.

  • http://www.wwwstrategy.co.za Steven Ambrose

    I simply took exception to the “Uncapped is a con” part, Telkom Access charges are still high and the service is not great, we the players in the industry need to focus on this. My point is uncapped is a big deal. Most home users have 384K ADSL, not really broadband at all in my opinion, so contention ratios and all the rest are not a big deal, what is, is the simple fact that you dont have a finite cutoff so if the kids, or you, spend more time online you dont treat the whole experience in the same way. Quality will come with greater maturity, and a cost of course. SO once again uncapped is no con but an important step

  • http://manypossibilities.net Steve Song

    Well said Justin! It’s not just the local loop though is it. The fact that getting fibre bandwidth to the coast costs more than getting the same bandwidth the rest of the way to Europe is indicative of the state of competition.

  • Stefan Magdalinski

    I couldn’t agree with you more on the Telkom tax issue. It is an exact analogy of the British Telecom tax in the UK, where it is impossible (even with a fully LLU product) to get ADSL without paying R130/month to BT for a phone line. For 10 years I paid this tax.

    However, I still disagree with you on uncapped. The vast majority of UK subscribers are on uncapped plans (yes, with contention ratios and AUPs, but generally users don’t care and much prefer them to (even large) capped plans. It is the dominant model. Do you have stats to back up your assertion that users preferred capped, because I’ve travelled widely, and the only place I’ve ever seen it a lot, apart from SA, is in hotels, and airport wifi. And people hate it there.

    Oh, and Scandinavia is a dense geography? Really?

  • The Masked Mahogany

    Hmmm there is another stealthy irritation and thats constant ISP shaping our bandwidth during the day without informing the public. Speak to anyone on the IS back bone that plays games online and they’ll tell you they are lagging during the day with pings of over 100ms whereas normally its anywhere between 10 – 30ms. Just sick of SA and its underlying agenda’s. To many lies and not enough honest people will be the downfall of a once great Nation.

  • http://www.chrisrawlinson.com Chris Rawlinson

    Great article Justin and loved the conspiracy theory at the end regarding online video on demand.
    As an English man living in Silicon Cape it near pains me to death to pay my internet costs each month, its shocking compared to the UK (approx 15 quid gives you uncapped BT internet at up to 50mbps depending on how close you are to the exchange, they give you the fastest you can pick up).

    Am sure times will change, it cant be long till Telkom realise they can’t continue to take us from behind forever.
    At present my costs are near R750 for my telkom 4mbps line with a land line, and then R497 a month uncapped bandwidth from the legends at Afrihost.

    If only Vodacom etc would reduce data costs then I would just go mobile, and at higher speeds too !

  • Greg

    @Chris – R750 for line rental + ADSL?! I get billed R130incl line rental + R413incl 4mbit DSL – or are you including call costs? That R413 can go down to R360 if you bundle it in with your bandwidth account, 1st world style.

    I agree that’s still too much, but that 4mbit will soon be bumped up to 8 or 10mbit for the same price (assuming history repeats itself) – and over time hopefully the telkom portion can creep down to 1/2 of what it is, and then we’ll have what I consider decently priced internet. As for the contentions and funny pseudo-uncapped rules; it’s been less than a month since the “uncapped revolution”, it’ll take a while for the ISPs to re-balance their backbones to user habits, and I’m sure the experience will get a lot better on the accounts that are currently grim.

  • Chris

    I use to have a adsl line, with calls etc for my business use to be over 1500 per month and somehow always getting capped. Went over over to Neotel, 2 gig option, at 298 per month and using my cell phone now as business phone, total saving per month about R1000. I’ll wait another year when the neotel deal is up and then swap again for the business.
    For personal downloads I’ll be looking at the screamer option for downloads, I see people downloading upto 60 gigs per month on the 384 lines, for somehing in the R 400 or R500 brackets, cant remember, but thats a good option.
    Why do people still go via helkom if theres other options out there?

  • http://www.shoutsa.co.za McT

    Thanks for a great article and I agree that as we have already paid the tax for the “last mile”, the “last mile” should belong to the people.

    So when does it end? Who will be the hero/ine who will champion the cause and truly free the internet, because the “good” General is way too focused on his own financial affairs and wealth creation, that his appointment is wasted. His legacy in reality could become no better than his predecessor.

  • http://www.callegari.co.za nicolascallegari

    Bandwidth prices will fall even further, it’s a foregone conclusion. Don’t forget we have two more cable systems reaching completion in the form of EASSY and WACS. Soon there’ll be a bandwidth glut and quality of service – even on sub-standard uncapped lines – will improve while prices fall.

    But I have to agree about the “Telkom Tax”. It’s completely ludicrous that we are forced to pay for an analogue voice line rental IN ADDITION to the ADSL line rental in order to have ADSL. I’d hazard a guess that the majority of ADSL users in SA don’t even use their analogue lines (I don’t) for voice.

    I just wish Telkom would separate the two components. Charge for ADSL and disable the voice component if all people want is ADSL. WHo knows, it may even give us poor 384kbps users motivation to upgrade to 512k or 4mbps – not that 384 or even 512 can be considered “broadband” to begin with.

    But that would be too easy woudln’t it? It’s basically free money for Telkom, which – in understand – makes a loss on line rental anyway.

    Pity the likes of Neotel aren’t offering any form of credible compeition at all.

  • http://www.sandboxsavant.com justinspratt

    @nicolas – yes, they will fall more but in diminishing marginal fashion versus entire cost. obviously. hence the need to repeal “Telkom Tax”. There are FOURTEEN cable projects dude, not just WACS and ESSAy (which is pretty much done, online soon). And you are correct on Telkom fight the last mile as it is their last frontier of unfair profits.

    @McT – Nyanda is *much* better than Poison Ivy ((c) Ivo Vetger) so we should acknowledge that. But yes, we need him to keep the eye on the ball as you rightly say.

    @Romany – it saddens me that your story is all too common.

    @chris – spot on. Telkom is really the only option for most – iBurst and Satellite have poor latency and lumpy throughput.

    @chrisrawlinson – the reality with mobile broadband via GSM is that it is getting increasingly lower through-puts in major metropols as demand increase (much like other wireless techs), which is part of the reason mobile operators dont slash their rates by more – supply / demand issue.

    @masked mahogony – IS latency: not sure where you get that from. We are the only STEAM hosters on the continent. Are you authenticating by an IS DSL? If not, that is your issue (IPC), if so, mail me and I will connect you with right people.

    @stevesong – you are 100% right – national backhaul is also chronic, but I think there will be a fibre glut (MNOs, DFA Neotel, Municipals, etc) circa 18 months which should solve that

  • http://badentrepreneur.bundublog.com/ Marc Ashton

    Good article

    I have a slightly different take on when the watershed moment for SA internet came and that is when Vodacom was unbundled out of Telkom. Suddenly the cash-cow was gone and Telkom realised it couldn’t stand on its own two fee as it was. 23 November 2009, Reuben September acknowledged that competition was starting to bite into the underlying Telkom business.

    Uncapped is important because it shifts the focus away from selling data packages and forces people to work out a quality service which brings me to my final point… iBurst and Neotel get a lot of criticism about their uncompetitive offers and technology. For large-scale users they’re probably not the best tech around but for the oke who runs a small SME they’re not bad and they do provide an alternative. As they gain traction and demand for internet services increases they will gain traction.

    Gonna be an interesting space for the next few months methinks

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