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Despite the animosity towards Telkom and its broadband business practices — which includes deceptive advertising featuring online gaming and video, but at the same time shaping accounts to prohibit using these services at optimum speeds — the South African broadband market is set to double in the next year.

According to the report "Broadband in South Africa 2005", analyst firm World Wide Worx expects the user base locally to grow from 147 000 users to 277 000 in 2006. This is partly due to another finding that the local dial-up market has hit a ceiling and not seen growth in the past year.

Telkom's own new projections are far more ambitious, though: at least 680 000 ADSL customers by end of 2008. This is from Telkom's new CEO, Papi Molotsane, who has shown a much larger willingness to address the problems with local ADSL.

Blockades ahead

But the road is marred with quite a few blockades.

A lot of the growth stems from Small Medium Enterprises (SMEs), which find ADSL more affordable than ISDN (still charged per minute on phone rates) and leased lines (an effective but expensive permanent internet package that large companies tend to prefer).

More growth is also coming from the stagnated dial-up market as users move towards broadband, but the influx of new users is still very small.

"It’s the kind of growth rate we saw in the early years of internet take-up in South Africa, but it's still going to be a big disappointment for some operators," says Arthur Goldstuck, MD of World Wide Worx.

"Those who are investing in broadband roll-out expect instant take-up by the public, and that simply does not happen in what is still a luxury category."

Source of the problem

The problem remains Telkom. Despite promoting its broadband service, the company still treats it like a dial-up market, arguing that the average 1.4GB usage of its customers indicates that there isn't a demand yet for high-end service. It defended its per-gigabyte payment model introduced in November as giving the power to the ISPs, but small ISPs and power-users have complained, saying the pricing model effectively punishes high bandwidth users.

A poster on the popular MyADSL.co.za forums revealed that it is cheaper to fly return to Hong Kong and download 100GB of data than do it via Telkom. (It's also faster, even when you include the flight times).

The problem is that 1.4GB per user does not constitute proper ADSL use, especially when the average ISP broadband account in the world market sits between 10 and 30GB on average — not to mention international markets' cheaper bandwidth rates and little to no cost for local bandwidth.

Telkom still charges local bandwidth at international rates and hard-caps ADSL accounts — which severs an internet connection once the bandwidth quota is reached. This is marring the growth of existing and new sites in the South African internet sector, as it is a very expensive exercise.

Telkom's pricing, despite its growth, keeps broadband a luxury item, which means that the local online community remains small and provides a small customer base for local sites.

Slow change

The trend isn't likely to change soon.

"We found that there is little incentive for Telkom to respond to critics of ADSL, since the customers are voting so strongly with their wallets," says Goldstuck. "Particularly among small, medium and micro enterprises (SMEs), it is a solution that works, at a price that has not scared them off. For consumers it remains expensive, and that it is the source of most of the criticism."

There is some hope for when the much-delayed Second National Operator (SNO) launches. And the Convergence Bill, which will be signed into law by the president soon, will hand regulator Icasa significant legal power to challenge and address Telkom's practices.

Growth in wireless broadband

Also, while the monopoly is raking in lucrative profits from its handling of the market, it has spurned growth in wireless broadband like Sentech, iBurst and 3G and EDGE packages from mobile operators. At the recent Broadband Conference MyADSL founder Rudolph Muller noted that South Africa has a disproportional large wireless market, since the traditionally complimentary technology is instead a direct competitor to the broadband fixed-line market.

This has spurned a lot of packages and healthy competition in the sector, but Telkom's price structure keeps broadband an expensive and select market, keeping the disadvantaged and rural from the most powerful tool in the technology age.

"The good news is that we are seeing real choice beginning to emerge, not just among the five broadband providers, but also within the product range of each of the operators," says Goldstuck.

"The premium offerings may be expensive, but for the ordinary user with average internet needs, there is a price point to suit the pockets of most working people who have computers and phones at home."

A change is gonna come

As the regulator gains more power, political pressure mounts (Telkom's monopoly has become politically unfashionable of late) and more players move into the market, things are likely to improve slowly but significantly.

But core problems remain Telkom's control over international bandwith, restrictive measures on user accounts, high charges towards both ISPs and consumers, and its refusal to "unbundle the local loop". The latter would allow ISPs to build their network on top of Telkom's infrastructure and make local bandwidth really cheap. Right now it is really expensive.

Still, World Wide Worx doesn't regard broadband as the solution to crossing the divide between the haves and have-nots. "Technology by itself won’t change the lives of the disadvantaged," says Goldstuck. "For that you need a commitment from Government, and that commitment must run from top to bottom. In the absence of meaningful policy leadership, access to technology will remain the domain of the privileged."