News Column

Corporate internet bandwidth remains expensive, even though bandwidth costs have plummeted

June 9, 2014

Stuart Hardy

In the last 18 months consumers have seen a significant change in the costs of broadband internet services. This change has almost entirely been supported by a substantial increase in infrastructure and competition in the telecommunications space that makes delivering consumer services like broadband internet possible.

However, while consumers are paying 10% of what they were 18 months ago for internet access, corporate companies and enterprises have not seen similar cost reductions.

There are two main reasons why corporate bandwidth costs remain so high:

- Historical lack of competition: One of the largest drivers of low-cost consumer broadband internet services and bandwidth has been a relatively new entrant into the space: Afrihost.

Unlike the providers that have been around for years, Afrihost had little to lose from addressing the market aggressively and at a relevant low-cost base, given a significant reduction in costs in the market. With its target of driving volume and not necessarily profit, it was able to make a substantial impact on the market in a short amount of time, leaving the larger historical players scrambling to react.

The point here is that competition comes from new players in the space; generally not from the larger, older ones.

- Business trust: Even with so many new licensed operators in the enterprise space, businesses are not taking advantage of cost reductions. One of the main reasons is lack of trust. With more at risk, enterprise clients feel that it is safer to remain connected to the big five providers, even though they could be paying considerably less using the newer alternatives.

With none of the larger providers driving their prices downwards in line with the real cost of bandwidth, enterprise companies can expect to continue paying more than they should be for bandwidth and broadband internet connectivity.

Today there are some very relevant providers with very strong networks and delivery capabilities - but they are being overlooked. In most cases they are providing more - or exponentially more - bandwidth and services at the same prices as the older large providers. Unfortunately, warning bells sound for many enterprise companies when the price is too low, as this is perceived to imply low quality. While quality should, of course, always be a consideration, more often than not these providers are making a healthy profit from these services.

Either way, the enterprise telecoms landscape is set to explode, or collapse, depending on which side of the fence you are on (client or provider). With the number of dark fibre projects nearing completion locally and nationally, and a substantial excess of capacity in all sectors, you can expect the cost of telecommunications to drop more than 50% in the coming 18 months. This will again be driven primarily by smaller, newer entrants in the telecoms space.

Where corporate bandwidth costs are heading

Predictions are often folly - especially economic ones. However, it's not difficult to get a broad view of where corporate bandwidth prices are going. So I'll confidently stick my neck out and predict the following:

- Metro Ethernet 100 Mbps. Currently at R35, 000 per month, will be down to R12, 000 per month in a year or two;

- National MPLS 100 Mbps. Currently at R200, 000 per month, will be down to R50, 000 per month in coming years;

- International MPLS 50 Mbps. Currently at R150, 000 per month, will be down to R40, 000 per month.

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Source: Bizcommunity (South Africa)

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