KACST offers bulk discount on bandwidth

KACST has slashed its prices by as much as 70% for bulk purchases of bandwidth. But many ISPs believe the new price structure will result in market consolidation within Saudi's ISP market.

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By  Greg Wilson Published  January 28, 2001

Introduction|~||~||~|In a surprise move, King Abdulaziz City of Science & Technology (KACST), Saudi’s de-facto Internet regulatory body, slashed its bandwidth charges to the Kingdom’s ISPs. The reduction in charges applies to volume orders of bandwidth from an ISP — the more digital bandwidth the ISP invests in, the larger the discount becomes. “This is a volume based discount,” says Fahad Al Hoymany, director general of the Internet Services Unit (ISU) of KACST.

The existing payment structure for ISPs is around 123,480 SR per M/bit. If an ISP orders an additional 2 M/bits of bandwidth they can receive up to a 40% discount. Those ISPs that can afford between 5 and 6 M/bits will earn a massive 70% reduction. “We’ve always said and felt that the charges were high. We felt the need to reduce the costs,” comments Al Hoymany. “We have to buy our [international links] bandwidth from STC like everybody else, which we get at a wholesale price… We’re not a profit making organisation so we’re sharing around the benefits of the wholesale price we get from STC,” he adds.

Since September, when KACST invested in a second 155 M/bit international link via the FLAG undersea fibre optic cable, the Internet custodian has been eager for ISPs to sign up for additional bandwidth. However, due to the price, many ISPs had been biding their time, making the most of their existing bandwidth before making the outlay for greater digital capacity. Speaking to ACN in December, Rashid Al Snan, executive director, of the joint Batelco/Jeriasy ISP venture, Atheer, said the issue wasn’t available bandwidth — but the expense of investing in bandwidth. “It’s so expensive [ISPs] are looking to optimise their [bandwidth] as much as possible… In our [last] meeting with KACST, they complained the ISPs weren’t using enough!”

||**||Mixed opinon|~||~||~|Opinion remains mixed on whether the latest round of price cuts will create a new wave of subscribers. Price cuts midway through last year were primarily responsible for boosting the number of subscribers to the 250,000 mark. The price cut has certainly been a “great help,” says Dr. Badr Al Badr, CEO of Al Alamiah Internet & Communications Company, otherwise known as @net. “The additional bandwidth will also mean improvements in the quality of service that people and businesses will receive… I don’t know whether the price reductions will generate an explosion in subscribers, but it will certainly have some effect on the numbers,” he adds.

But one possible side effect of KACST’s restructuring of its ISP tariffs could be the long awaited consolidation of the ISP market in Saudi. Currently, there are 24 active ISPs in the Kingdom, chasing a low number of subscribers. KACST’s pricing structure is likely to suit the larger ISPs, which can afford to invest in high bandwidth volumes and the Internet platform that can scale with the growth in subscribers. There are doubts whether smaller ISPs will be able to raise their game and make the additional investments necessary to support extra subscribers. “This will impact the smaller ISPs, they won’t be able to stand the heat — the costs are much higher. Only the large ISPs will be able to stay with the market and make the investments in terms of bandwidth and infrastructure,” says Dr. Al Badr.

Rashid Al Snan agrees, “KACST has put the squeeze on the market. The ISPs with the smaller platforms won’t be as reliable as those with the proper Internet platforms,” he explains. “We’ll be in a position to provide the quality of service, whereas the smaller ones will have difficulties.”

||**||Price war pending?|~||~||~|But it’s unlikely that the Saudi ISP market will erupt into a full on price war. Price regulations put in place when the Net arrived in Saudi still remain. According to Al Hoymany, these restrictions will provide a safety net for the smaller ISPs. The restrictions mean ISPs can only charge between 50 and 100 SR per month for connection and between 1 and 3 SR per hour for browsing the Web. However admits Al Hoymany, the large ISPs are likely to benefit more as “they can afford to buy in wholesale volumes.”

Rather than generate a price war and consolidation en/masse within the Kingdom’s ISP market, Al Hoymany hopes the price reductions will generate a greater level of competitiveness amongst the ISPs. “We haven’t seen particularly aggressive pricing in the market… the demand in the market has been left to grow at it’s own rate, but there is now competition building in the market,” he adds.

If Internet connection and browsing prices are to remain fixed for the foreseeable future within the Kingdom, then it’s likely that the quality of service will be the differentiating factor between the Kingdom’s ISPs. But just how soon even the larger ISPs in the Kingdom will be able to claim that they are making a profit from the Internet in Saudi is another matter — in the short term at least it appears to mean another round of investment if ISPs want to remain viable.

Says, Dr. Rahmat Khokhar, CEO of Arab Circle, “there isn’t a profit for anybody, no matter how much KACST cuts its prices. ISPs better hope that they have already made the investment in the right infrastructure that can scale to demand and that they have cash reserves to last,” Dr. Khokhar adds.
For the latest developments go to www.itp.net/news/internet.||**||

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