Local Internet access provider (IAP), Utande, published a column titled “Techno Talk” in a local weekly last week. First, we’d like to commend them for this and we hope the column is going to be a regular one. It’s not every day that an internet provider comes out to say their view of connectivity issues, so it’s quite a welcome development.
The subject of last week’s column is the cost of broadband in the country, specific ally why it is expensive. Here’s a summary of those reasons given:
- The vast distances between populated areas mean that deploying infrastructure (fibre for example) between two points costs just a few customers significantly more as the cost is not shared between many customers, as would be the case in densely populated markets where thousands of consumers between two points also buy the service.
- There are taxes, licenses and levies that add to the cost of infrastructure locally. We think they mean the local IAP fees are heavier than other markets. Hello POTRAZ, we hope you’re reading this.
- The need by internet users to access content that is outside the country. The further the content you access, the more you pay for it, is the argument. Utande throws in an example here; 45% of the cost of bandwidth they get from SEACOM are fees to TDM, the Mozambican operator whose fibre connects the SEACOM fibre to Zimbabwe.
- Some ISPs “keep selling a finite supply of bandwidth again and again” and this reduces the quality of the connection which results in customers feeling they’re paying more than they are getting. Utande goes on to explain in some details how ISPs using this model do their ‘dirty’ tricks; “sometimes users only obtain one sixth of the bandwidth they pay for and only get to use their internet connection for the type of traffic their ISP chooses to permit at any given time”. Mean hey. Can’t say we disagree; we’ve been victim of this practice ourselves too many times to count. Utande, by the way, prides itself in not being part of this lot. The company told us back in July this year: We do not believe in contention!
- Call center support, which local ISPs do not outsource, also contributes to the high cost of bandwidth.
Just to be clear on contention, the practice is not an all-evil-and-no-good one that the words above may paint. Balanced well, it promotes affordability and more access to more people. The abuse of the model by the bulk of ISPs is what frustrates users so much.
Utande has been promising to launch consumer WiMax services in last few months. This may be a sign the company is ready to launch and we can’t wait for that to happen. Their choice of releasing this ‘prices disclaimer’ of sorts though may suggest that their consumer broadband pricing will not be common-people friendly.
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All the above reasons given by Utande would have applied 100% 2-years ago. Now maybe 20% or less. I will tackle them Point-by-Point -:
“The vast distances between populated areas” – What about CDB, Msasa, Graniteside?? Why is Fiber still expensive there?? Kudos to Econet for employing a sound FTTP (Fiber to the Premises) model. They do not charge for under 500m from their POP.
“taxes, licenses and levies” – you will be shocked the paltry fees IAPs remit to Potraz.
“further the content you access, the more you pay for it” – better argument of the lot but still every other African country is more or less in the same boat so it cannot be used as a carte blanche by Zim ISPs to cream Zim customers with prices above the entire region. Price per Meg from TDM is around $1 000 only – and dedicated!
“keep selling a finite supply of bandwidth again and again” – this should knock down the prices of bandwitdh to rock-bottom but as usual our willy ISP friends do not miss a chance to exploit their unsuspecting customers to the maximum. ZOL, YoAfrica – guys this is no longer 2006!!!
“Call center support” – Any investor who establishes a Service Company should really have inculcated support costs into the overall business model. Most ISPs charge call out rates to clients anyway. Any abnormally high costs here are most likely linked to in-experienced staff and weak business systems on the part of the Service Provider.
The truth is Zim businesses are used to abnormal profits period. These guys should go prospect in Marange or start conducting their business properly and ethically. Service providers are well known for complaining about the state regulators and Gvt policies when they do not see that they are the other side of the same coin!
You said…
1. “What about CDB, Msasa, Graniteside?? Why is Fiber still expensive
there?” -Keep in mind that costs are shared across the entire country!
The charges have to be fixed! It’s impractical and, im sure highly
complex, to charge location based charges! The logic here is if it is
expensive anywhere it is expensive everywhere!
2.”you will be shocked the paltry fees IAPs remit to Potraz.” – please
shock me. You must look at these fees in relation to earnings. E.g you
most likely think that the electricity bill you pay is too expensive,
yet it is the cheapest in the region. What makes it expensive is not its
comparative cost but, instead, the cost of the bill in relation to the
money you earn and the other costs you have to cover i.e generators and
or candles.
3. “Price per Meg from TDM is around $1 000 only – and dedicated!” – it
is imprudent to compare the costs of a provider that has direct access
to the under sea cable with those of one that has to pull bandwidth past
many kilometers of rough terrain and middle men. Also remember that the
Local charges are added to the TDM cost. It’s similar to arguing that
local suppliers should match Chinese factory prices!
4.” this should knock down the prices of bandwitdh to rock-bottom” –
Although I am also of the view that profits of local ISPs may offer huge
cushions, it is not necessarily the case that if ISPs resell the same
bandwidth over and over again prices will fall! In fact the truth might
be inverse! As local ISP’s force prices down, they will begin to sell
much of the same bandwidth to break even!
5. “Any investor who establishes a Service Company should really have
inculcated support costs into the overall business model.” The cost of
having a group of trained employees stationed 24-7 to solve customer
problems is a huge one that should never be under estimated. While it is
important, the big question becomes ” Do we increase costs to offer
better service or do we reduce costs and risk the quality of service?”
In Zimbabwe only the latter will likely prove sustainable.
An indication that profits in Zimbabwe are not all they are thought to
be, can best be reflected by how difficult many businesses are finding
it to operate in our country. It is perhaps a result of this difficulty
that some companies over charge to compensate for an un otherwise
unprofitable business. Dimonds of cause are a whole different ball-game
with their own complexities and laws!
1. “The charges have to be fixed! It’s impractical and, im sure highly
complex, to charge location based charges! The logic here is if it is
expensive anywhere it is expensive everywhere!” I dont know whether you are an ICT practitioner, probably not. If you were you would know that all Fiber links are charged based on Location. There is no other way. I happen to be an Account Manager at a Telecoms company. So my point was if the excuse to charge high last mile installation charges is population density then surely installlations in areas with a concentrated number of businesses e.g. Southerton area – should be way cheap if not free of charge. The argument of scarce fiber in Zim is fast becoming an expensive lie!
2.”you will be shocked the paltry fees IAPs remit to Potraz.” – “please
shock me”. Let me shock you indeed. I once worked for one of the first IAPs to be licensed in Zim as Sales and Marketing Exec. Our monthly revenue was around $180 000 and of that we paid Potraz around $5 000 (5% of Net Profit). And we also always paid late… As for licence fees we paid most of it during Zim dollar era. As of now no IAP is actually paying for their license apart from the lumpsums most of them initially paid which investment goes into their balance sheet as an asset ( a big asset too since there are around only 12 licensed IAPs).
3.”it is imprudent to compare the costs of a provider that has direct access to the under sea cable with those of one that has to pull bandwidth past many kilometers of rough terrain and middle men.” Selling bandwidth is very simple. A Carrier can import a Meg for $1 000 and you mark-up 20% or 30% depending on your pricing model so you end-up selling it for $1 200 or $1 300. No need to apply any Pythagoras theorems here. If you are an ISP buying the bandwidth from the players who have “direct access” to the undersea cables you still apply your own mark-up to their prices. Using any extreme way of looking at it I dont see how a Meg can end-up costing in excess of $3 000! If you wanna make more money then do indeed “break bulk” but it will only be ethical to remember International Bandwidth is now wholesaling at aroung $1 000 per meg and please please manage quality of service!
4.”As local ISP’s force prices down, they will begin to sell
much of the same bandwidth to break even!” – Your logic here is vague because I think you are arguing 2 factors at once: price and quality. These 2 work in harmony if explained well to clients. In other words lower sharing/contention ratio = higher price and higher quality and the reverse being also true. The evil here is lying to customer they have 512k and concealing that its shared with 100 other clients. Or the favorite of ISPs they tell you you are on 1:3 contention and yet in reality you are on 1:20 as they play probability games of peak and off-peak times with all their clients. Using any business model here the ISP will always not only “Break-Even” but make super-profits unless they are in the wrong business…
5. “Do we increase costs to offer better service or do we reduce costs and risk the quality of service?” – Risking quality service is only an option in Zimbabwe trust me. But I do agree with your point that customer service is a cost driver. But it has also been seen to be a serious profit driver. Take Starbucks in USA and Telecel in Zim for example these 2 companies have benefited immmensely from their commitment to Customer Service. So if your profits from establishing a contact center outweigh the costs (all costs including those associated with risks like brand damage for example) then I say go for it. But in today competitive Telecoms market a strong after sales support system is now 70% a requirement for being and remaining in the market.
This argument “The vast distances between populated areas mean that deploying infrastructure (fibre for example) between two points costs just a few customers significantly more as the cost is not shared between many customers, as would be the case densely populated markets where thousands of consumers between two points also buy the service.”…is because Zim companies are greedy and dont want to come together to share the little scacy resources that are available. How many fibre links are there between harare and byo, and i guess they are very much underutilised. I know there is a Powertel one (which they used to tell us its a 256k line until we proved it was a 28K), then Econet i think and others…. If we could share 1 link and make sure it fast and has uptime of 99%, then most companies could save millions and venture into other “forgotten” areas. If 1 fibre network can link Africa and Euripe, why cant 1 fibre link Hare-Byo-Plumtree-B.Bridge-Mataga-Mutare etc….
I think your solution would be indeed a brilliant one albeit almost impossible to achieve. Sharing infrastructure is much like deciding to buy a car and sharing it with your neighbor, the following become obvious obstacles.
1. COMPETETIVE ADVANTAGE: The reason this does not happen is the same reason you wouldn’t share information with anyone about your cure for Aids. Some of this infrastructure is cutting edge and ahead of the competition, it is in the interest of any company to keep it that way
2. COST: since you decide to share the costs, you will soon realize that your budgets hugely differ, while you wish to spend less your neighbor might have something more elaborate in mind. The question now is do they reduced their expectation and spend less, are you forced to spend more to match their contribution or will they agree to pay more while you pay less? Chances are none of the above will be an option.
3. TIME: While we need the infrastructure as a matter of urgency, our neighbor might perhaps be content with getting it next year since he has alternative infrastructure in place. Also he can intentionally delay the process until he has enough money to contribute thus ensuring that I won’t get the infrastructure before them.
4. PREFERENCE: Pickup, Sedan, van or sports car?. Because uses of infrastructure differ and variations are limitless, It becomes difficult to come to an agreement on what infrastructure to use. Also differing standards and technologies make it impossible to merge some rival technologiy infrastructer, i.e Econet and Africom. Also differing corporate strategy makes it often impossible to agree on simple matters. i.e over head or under ground!
5. INFLEXIBILITY: As a result of the above issues and more, the process of syncing infrastructure may actually turn out to be more bureaucratic, expensive and unproductive than allowing each company it’s own way.
7. THIS IS WHERE YOU COME IN: The responsibility of making your solution lies outside ISP’s. It lies with you the new entrepreneur who will come up with a workable solution for ISP’s that he can charge for while reducing costs, increasing efficiency and creating opportunities
It is 256Kbps = 32KBps
Kilobits per second, KiloBytes per second
Liked the comment: If the whole continent can share a fibre link between African and the world, why cant local ISP share some of their common infrastructure????????
It’s like saying if 500 people can share one plane, why can’ 10 households share three cars!
Competitiveness, management, priference, cost, sustainability and profitability etc
All retail ISP’s worldwide sell shared/contended bandwidth, unless the customer (eg: an internet cafe and small ISPs) buy 1:1 unshared bandwidth. That’s how they keep the prices of shared packages down. You will not be paying less than $1,000 to $2,000 a month for true 1mb 1:1. So Utande’s claim of not believing in selling contended bandwidth to retail customers is simply false.
I’ve been keen to share my thoughts as an end user of the internet in our third world country, I’ve tried out a lot of connections in the past and the best internet experiences on my part have been over a wired connections and the best wireless over a reliable WiFi compared to dongles. I’ve used the internet to find information download and stream all of these activities where once painful to complete or even pursue until this year as either it was just too expensive or too slow or required one to browse at odd hours.
What would be great is not so much an explanation of why we have connectivity issues but rather a common vision across all providers of what a true and cost effective broadband service entails, the year is almost at its end the outlook for great new internet solutions has never been so wide as compared to previous years, all I know is at the start of the year there was a buzz of this cable coming from Mozambique and eventually something fruitful came from that.
I would imagine that our internet services still have potential to benefit all members of society; it’s more now to do with the attitude of those people who offer such services to be in agreement on what BROADBAND product experience in the Zimbabwean context should be able to deliver and at what cost.
“The company told us back in July this year: We do not believe in contention!”, and this is a sustainable model how ?, the Internet by design is a shared, and therefore contented (best-effort) model. Yes 128Kbps at a 16:1 ratio is going to be terrible, but its a completely different story when you are talking 2Mbps at a 16:1 ratio, 80% of the time that link is going to be minimal utilized and or idle,
Give people the bandwidth, they will run out of crap to download. Fair Usage policy a must of course, though this shouldn’t need to be said.
Wow gr8 debate
In Europe (UK in particular) regulatory authorities subsidise taxes and licencing and provide incentives (monetary or otherwise) in exchange for participants letting competition share infrastructure. While this isn’t practical in our zimbabwean economy it does show that in the end responsibility rests on POTRAZ to make things work.
Internet bandwidth can also be a cut throat business. I have heardd of cases in Kenya where ISPs allegedly sabotage fibre optic lines of competition. While this hasn’t happened yet in Zim unless all/most ISPs, Telecoms and IAPs have some common interest sabotage could also eventually be the case here too.