Telkom`s per-usage billing for ADSL is good news for only some ISPs. Speaking for the rest, Cape Town outfit Dotco made a mighty stand last week. CAPE TOWN-BASED ISP DotCo was one of the first small-to-medium-sized ISPs to be awarded a contract by Telkom to resell its ADSL service, with a large cap of at least 30GB. In an ironic twist, it is now the first to start court action to stop the telecoms utility from implementing its new pricing structure on 1 November.

DotCo last Thursday succeeded in preventing Telkom from billing it according to the new ADSL pricing structure. The temporary interdict was awarded by Cape High Court Judge President John Hlope and will remain in force until a final hearing, scheduled for 5 December.

Much is at stake. Since February, Dotco operated a business model reselling the ADSL service at the relatively low price of around R600 for 30GB per month. Now its livelihood is placed at risk due to significant change in Telkom`s wholesale pricing structure.

Another issue is that by implementing a per-usage structure, Telkom is effectively taking ADSL back into the dial-up age, as users and ISPs will not be able to budget for a flat monthly fee.

The beauty of ADSL technology is that, for a fixed amount, one has always-on Internet access, allowing close to unlimited browsing and downloading.

Then there is the issue of an unencumbered incumbent with significant market power using its position to increasingly squeeze the margins of its resale channel - an area where it is a player as well, and allowing its own direct selling arm, Telkom Internet, unfettered access to the best pricing.

Considering the legal muscle Telkom has at its disposal, the fight between it and DotCo will not be easy or pretty.

DotCo, allied with another Cape Town ISP, Web Africa, also has a complaint against Telkom with Icasa. That complaint focuses on Section 53 of the Telecommunications Act, which allows the regulator to halt the actions of a full telecoms licence holder from acting in a manner that unfairly prejudices another party.

PRICING NUTSHELL

In a nutshell, Telkom`s new billing structure gives resellers two options: The first offers a shaped variety, ranging in price between R127 and R1 620, for between 2GB and 30GB, as well as an unshaped ADSL, ranging between R420 and R2 860, for 4GB to 30GB. The second option offers a discounted price per GB, shaped or unshaped, starting with R59.40/GB (for 0-100 GB, shaped) and ending in R54/GB (for 501GB and up, shaped).

Option one is for standard predefined ADSL products that will only be available to Telkom`s "SAIX-authenticated" service providers. The second option is for ISPs that are able to perform final authentication of their customers and will be billed for each gigabyte consumed by their customer base.

The billing system first introduced by Telkom was per-user with the ISP paying it according to the number of customers it has.

Central to DotCo`s High Court application is its contract with Telkom. This, according to DotCo MD Johan Ferreira, does not specify any cap on the ADSL service.

"In February, when we first signed the contract, there was no mention of a cap. In March we had further discussions with Telkom and agreed to a 30GB cap," he said.

Coincidentally, a few hours after DotCo filed its High Court application, it experienced a 12 hour interruption of its service, and then a severely downgraded service for at least 24 hours after that.

"We received a written explanation from Telkom stating that it had nothing to do with our legal action. It is hard not to feel paranoid about the whole issue at the moment," Ferreira says.

Telkom`s contracts are notorious in the market for being heavily biased in its favour, indemnifying it from damages claims, and featuring heavy-handed non-disclosure clauses.

"The only way we could force this contract discussion is to bring a High Court action to stop the implementation of the billing structure. Otherwise, Telkom makes the decision and we just have to live with it," Ferreira says.

DotCo`s contract is now part of its court papers and so is open to public scrutiny.

BREAKING BAD NEWS

Web Africa MD Matthew Tagg`s view is that Telkom is placing the ISPs that are reselling its ADSL service in a situation where they have to break the bad news to their clients.

"We have to tell our clients that we now have to hard-cap their service, and they are naturally unhappy. The burden of capping has been placed on the ISPs, and Telkom has not provided us with the tools to do so yet," he says.

Tagg says Telkom has set a precedent by allowing ISPs to offer high-capacity accounts, and now users are having the rug pulled from underneath their feet.

"We only now offer a maximum of 10GB accounts, in order to adjust to the new situation. This means some of our high-use customers will move to other ISPs - probably IS or Telkom Internet," he says, resignedly.

Tagg believes that if Telkom Internet retains the soft-cap option, he may have a very strong competition case.

"We believe they may only cap people at around 100 GB, but I have no way of knowing if Telkom Internet is billed the same way as us. I am watching DotCo`s actions very closely," he says.

NEVER SIGNED CONTRACT

Victor Strydom, Telkom`s specialist in product development, maintains that the company has never signed a contract with any ISP allowing them to resell a 30GB service.

"We only allowed them to resell 3GB accounts, and the extra bandwidth was made available because of the soft-cap implementation that allowed for local roaming when international roaming was switched off," he says.

Strydom says Telkom did hold discussions with ISPs who had customers who were taking advantage of the situation. "But we never switched off any service, because we are not the regulator."

He also contends that the new billing structure could help ISPs make a lot of money.

"The average user uses between 1.2 and 1.6 GB per month. The new structure can help ISPs make a lot of money. It is a pity that the wholesale prices were made public, because this tips the ISPs` hands (see iWeek August 18)," he says.

Strydom maintains that he does not know why Telkom Internet has not advertised the new rates yet. "We keep at arms` length from Telkom Internet. My guess is they are managing the risk of their clients` reaction to the changes," he says.

But if Telkom never signed any contracts allowing ISPs to sell high-capacity accounts on services it was advertising quite widely, why did it not take them to task on this?

Strydom`s answer is that they could have bought the same service from another first-tier ISP, such as Internet Solutions (IS), and so did not necessarily know what service they were selling.

DIVIDE AND RULE

Greg Massel, joint chair of the Internet Service Providers Association (ISPA) says Telkom has had a history of "margin-squeeze and divide-and-rule" for some time.

"The large-cap services have only been signed with a select number of ISPs. This has led to others complaining about favouritism. The squeeze on margins has led to other legal actions, such as the joint MWEB/Internet Solutions case against Telkom," he says.

IP Connect is the Telkom service for first-tier ISPs to offer a wholesale ADSL service. It consists of a DSLAM device in the local exchange, in place of a modem rack.

IS has been highly critical of this service. CEO MD Angus MacRobert says: "IP Connect is totally overpriced. Essentially people pay for it twice. We pay Telkom to install the line and then the subscriber pays Telkom for the line rental."

MacRobert says Telkom never does anything without been forced to do so. "We are very disappointed with the service and it has done very little for our business. It is typical of them to provide products and services that the customer either does not want or cannot afford," he says.

ISPA`s Massel says: "The reality is that Telkom`s changes in its offering will be better for some and worse for others, but it is not the right answer. The right answer is one that will be fair across the board."