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Wednesday, Oct 23rd

Broadband 'land grab' strategy good for SA?

Broadband 'land grab' strategy good for SA?

South African internet and voice telecom service provider Zinia has welcomed recent developments within the local telecommunications space geared towards a reduction in the price of fibre-based broadband, but cautions that cheaper does not necessarily translate to guaranteed speeds.

Warren Bonheim, Chief Commercial Officer at ISP Zinia, said that as fibre networks started rolling out, it was inevitable that broadband prices would start bottoming out.

At the same time that cheaper doesn't necessarily mean you will get the speeds promised, he warns.

Citing 2015 Ookla Household Value Index statistics, in which SA was ranked 56 out of 64 tested countries when comparing actual speed and "promised speed", Bonheim believes South African broadband users still get relatively low value compared to the rest of the world

He says once a customer is on the fibre network, the telecoms provider will have retention of those customers. This allows the networks to get a return on investment of the actual fibre, which is the majority of the costs – a competitive strategy otherwise referred to as 'land grab'.

"Land grab in the context of the telecoms industry is a strategy large networks have of offering last mile fibre with pricing at breakeven levels, to secure customers and market share on a large scale. With the fibre infrastructure paid off said network will be able to out-price its competitors and 'secure that land'", he says.

He adds that while the fibre space is very exciting with networks jousting for land and market share, ultimately it is consumers and businesses that benefit from this competitive strategy.

His only concern with this strategy is that locking in customers through long contracts and underperforming in terms of delivery, could ultimately damage relationships with customers.

"This is a great step in the right direction, but as telecom providers we have to continually work on bringing more value to businesses. This means bringing the best speeds, contention ratios and uptime to meet their needs and providing better service levels. We need to make sure once the customer is brought into the fibre experience that we deliver consistently. It's much like water or power; it is expected to always be available when we need it!" says Bonheim.

Industry analyst and MD of World Wide Worx Arthur Goldstuck, said the surge in FTTH services and offerings translates into a fast-emerging industry sector, which, in turn, usually translates into shifts in pricing, service structures and service providers. "We can expect many new businesses, continual consolidation, and great initial enthusiasm for investment in the sector. In this context, any significant move on pricing is good for consumers, both because it [puts pressure on pricing from other service providers and because it spurs other major players into greater action," he says.

Goldstuck added that this kind of market is also characterised by the appearance of a land grab, but that is a natural consequence of pent-up consumer demand. Further down the line, it will result in greater acquisition appetite by the bigger players to swallow up small players that have carved out decent geography.

"An unfortunate characteristic of this kind of market is that there will be inconsistent service from some established players, and poor service from fly-by-nights. This means consumers and small businesses should avoid signing up for long-term contracts. The more nimble players appreciate this concern, and offer month-by-month contracts," he says.

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