Neutral is the new black

Lock-in has been the name of the game in the internet service provision and hosting markets in South Africa – until now. New, neutral players are changing the game.

The deregulation of the local telecommunications sector, in as much as operators can now provide their own infrastructure, has been a game-changing move, as expected. Thanks to Altech, some 400 value-added network service providers (VANS) can build and roll out network to their hearts’ content, provided they have a licence.

Previously, ISPs and end-users were legally obliged to obtain connectivity from Telkom and, once it was licensed, Neotel. Today, they can do so from any organisation that has an appealing offering.

The trend to neutrality is not a local one. As the cloud opens up the possibility of obtaining service from anywhere, provided by anyone, companies are taking advantage of the choices now available and making arrangements with service providers that suit their business’ needs. This is in contrast to making arrangements that suited the service provider, and hopefully met some of the client’s needs.

The shift to neutrality in South Africa has been heralded by three events: the creation of Teraco, which provides carrier-neutral data centres, the establishment of Africa. Inx, which aims to provide neutral exchanges as well as being a wholesale bandwidth provider, and the announcement by Telehouse that it is moving into the local market.

Says Teraco MD Lex van Wyk: “Previously there was no use for carrier-neutral environments – you had Telkom, and then Neotel. Now with 400 licensees, you have people investing in infrastructure and building their own networks. Not everyone wants to build a network and data centre, though. There’s a huge cost involved.”

This cost is the same factor ensuring that not all 420 VANs roll out networks.

“So what we see happening is prices coming down over the next two years,” says Van Wyk. “We see a sharp downtrend, new entrants will accelerate that, so the guys have the option not to build a datacentre. It saves capital investment and allows them to price more efficiently.

With all of the carriers in one place, service providers can locate equipment in a resilient environment that’s being looked after and just move upstream providers when they wish, which gives them more negotiating power.”

It comes down to the customer, whether it be an end-user organisation or ISP further down the tiering chain, having a choice of suppliers, and being able to negotiate for better pricing, or leave if service isn’t up to scratch. As it stands, providers sell contracts that persist year after year, with little adjustment in pricing even when market pricing is dropping, and, usually, rapidly declining levels of service. Should the customer complain, the provider will usually just bundle more services into the offering (reducing prices is a no-no, apparently) and lock the customer into a further long-term contract.

Says Mimecast MD Garth Whittles: “One of the things that Mimecast has been talking about to customers and the market is the idea of democratising services to local companies. What do we mean?

Many people living in SA are not exposed to international markets and are unaware of the choices we have in South Africa versus the rest of the world. We talk about monopolies, etc., but how does it affect people? Companies purchasing internet services, connectivity and such have mainly purchased from an ISP.

The ISP supplies connectivity and at some point expects margins to erode so includes value-add services, which creates lock-in and prevents churn. It’s a tick-box approach to providing a service, and not something the customer necessarily has the chance to evaluate in terms of quality.”

Now that customers can change providers, literally overnight once the commercial agreement has been signed, according to Van Wyk, this approach should change. “I remember when it took months to change,” says Van Wyk, “and then there was the impact in terms of downtime. It all comes down to choice. You can have a network supplied by one provider, telecommunications services by another and managed services by another, and have all the choices in one space. It’s never happened here before.”

Service layers

“It comes down a lot to the cost of infrastructure and economies of that,” says Altech Technology Concepts head Wayne de Nobrega. “Look at SA, for example. If you take an area like Pietersburg, does it make sense for all the ISPs to roll out fibre to Pietersburg? Is it big enough? No. So either Pietersburg doesn’t get a high-speed connection or it gets one that’s too expensive to benefit it. If you can get the economies right, you drive costs down. “From Altech’s perspective, does it make sense to roll out and own infrastructure countrywide? Absolutely not. It’s better to leverage the incumbents, see who is doing what the best and leverage it. This lets us focus on supplying service to the customer. As long as the customer doesn’t care what it runs on, and just cares about the services, we see an opportunity to be a player that’s neutral to what’s underlying our services.

“As a service provider, we need to look at the best solution for the customer, and have the flexibility to do that,” he adds. “The large players don’t look at it like that. They want to own it. We want to be a level above where it is irrelevant whether we own or partner. We’ll look at implementing or owning it only if we can add value. This doesn’t mean we don’t own things, but we’ll only do so where we can add value and where there isn’t a player in the space offering a cost-effective service.”

De Nobrega is quick to point out that he’s not talking about reselling other providers’ offerings, but rather being able to offer distinct services over other providers’ infrastructure. Again, it boils down to being able to offer the customer a choice, something the local market has seen very little of to date. Brainstorm suspects that’s all about to undergo a rapid change.