— or —

“What happens when the owner of a web design company reckons he’s got what it takes to be an ISP?”

On the 12th of October, a new “ISP” called Social Flu Internet launched with great fanfare, and  got  great coverage on MyADSL, under the heading “ADSL: R 8 per GB local, R 35 per GB blended”

A lot of people, including the MyADSL editorial team considered this too good to be true. This is understandable, seeing that they offered local-only@R8/Gb, and shaped@R35/Gb, and unshaped@R45/GB, when the retail price from SAIX for unshaped bandwidth is still above R100/Gb (didn’t the ADSL regulations cover port prioritisation?)

As it turns out it was a scam perpetrated by Social Flu Media’s “Internet” division. Kudos to Rudolph Muller of MyADSL for asking the difficult questions, and doing the investigation.

Of course most people that  know just a smidgeon about the industry knew that things were just “not right”.

SAIX resale structures:

Apparently, Social Flu Internet was simply a reseller of another “upstream” company’s bandwidth. Put into perspective it simply means that SocialFlu signed up with someone like Datapro, Axxess, Web Africa, or the various ISP’s that have invested in RADIUS infrastructure, as a “reseller” and received their own realms based on the “upstream” company’s wholesale agreement with SAIX.

SAIX, will not allow a company to resell their bandwidth unless they are a registered VAN, or ECS holder. This has however, left a nice niche, where ECS/VANs license holders tend to sign up “resellers” under their overall wholesale agreement with Telkom/SAIX and allow the reseller to register their own “realms” under the auspices of the wholesaler. Of course, the ECS/VANs license holder is completely liable for all usage of the realms under it’s auspices.

Social Flu’s “upstream wholesaler” hadn’t billed them since 2005.  This is a practically inexcusable fault from the wholesaler, but fortunately only to their own demise.

The reality is, that if someone offers you SAIX bandwidth they are reselling SAIX bandwidth. And whining about whether Axxess, is better than Datapro, or MWeb, or @lantic is pointless. They’re all reselling the same thing. They’re reselling a username, and a password, and gettting charged the standard rate from SAIX.

Other than that, they have very little control. It’s like signing up for a Vodacom, MTN, or Cell-C cellular package through Nashua Mobile. You just hope that Nashua Mobile’s administration and support is better.

Fraud — “I perpetrate you”:

Social Flu’s owner — Enrico Rausa’s  behaviour,  after having cottoned on to the fact that his upstream isn’t charging him for services is simply tantamount to fraud. He launched SFI’s offerings at prices so low that he would NEVER be able to pay his “upstream” bill, but he simply depended on the lackadaisic billing from his upstream  to offer him some leverage in the market.

Honestly, I don’t know what he thought he would accomplish, or whether nothing would happen, but let’s face it… If someone in the DSL market offers pricing below what other ISP’s reselling Telkom/SAIX does then “difficult questions” are going to be asked.

As it turned out,  apparently his “upstreams” asked the difficult question, and decided to investigate their records. Lo and behold they came across a an account that hadn’t been charged from their billing system since 2005.

Enrico’s retort to MyADSL questions was: “We tried something, it backfired. Send me to the gallows if you want. It is time people took a stand against the big people.” is even more inexcusable.  It’s a bit thick there on the gallows thing..

According to him – he did nothing wrong, and what went wrong is that he got caught out. Naturally Afrihost’s recent R29/Gb marketing scheme assisted in people buying into the SFI’s marketing, since it really seemed possible that prices could be dropped, and everyone has been expecting it.

SAIX resale — the facts:

SAIX charges standard rates to everyone as resellers in the market. If someone offers you SAIX quality bandwidth below the well-known  cost prices of local-only@ R19/Gb, shaped@R49/Gb or unshaped@R119/Gb then you have to consider it to be dubious. If SAIX changes their wholesale price,  then most  SAIX resellers such as  Axxess, WebAfrica and MWeb’s prices will change.  Some of them appear to be “beter” in the market by selling below cost, but not by a big margin.

If a single SAIX resellers’ price changes, then so will everyone’s. Telkom will by lynched otherwise. So anything that you see in the market, in terms of pricing is simply the loss, or gain that the ISP is willing to make, based on the basic wholesale price. Some of them will be clever and will use statistics and modelling to make sure that their price point still allows them a profit based on the fact that most users don’t overrun their CAP.

The only companies that have some modicum of fixed  control over their base  costs, are companies that subscribe to SAIX/Telkom’s IPConnect service, which is charged per Mbps (speed), instead of per Gigabyte (volume). This is basically Internet Solutions, Verizon/MTN, FNB Connect, and recently WebAfrica.

This allows ISP’s  to terminate (in a very crippled fashion) their own ADSL sessions, and provide their own international and local bandwidth. However, with SAIX/Telkom’s prohibitive IPConnect pricing, there isn’t really much space to play with in terms of pricing either,  because even on IPConnect the base cost per Gig s are so much more than SAIX itsself has to pay. Yes. TelkomInternet  itsself doesn’t pay IPConnect fees. Every ISP does. Competition Commision investigation results are “imminent” 😉

The cunning ISP however, knows how to optimise this kind of infrastructure, even against the insane disadvantage of TelkomInternet, whilst still providing a good quality service. Social Flu wasn’t even close to this. In fact, it didn’t even reach the check-out counter of Checkers. Ok, maybe it did. But it didnt’ have change.

I don’t really know how people believed in their capability to innovate, or be the “killer in the market”. Believe you me — it is way more complicated than the ADSL forumites tend to make it out to be every day…

Afrihost R29/Gb – “The catalyst”?

The reality is that, yes, a catalyst such as Afrihost’s R29/Gb offering is certainly  stimulating competition. But when analyzing the fundamentals (of which I have a very firm grasp) anyone with half a brain will realize that some business models simply aren’t sustainable, and that, simply is why most ISP’s haven’t dropped their prices. Because in 99% of cases, their upstream (SAIX) hasn’t changed their prices.

SAIX is bargaining on the fact that for most ISP’s it will simply be easier and more economical to resell access on the SAIX network, that it would be to actually get their own AS Numbers, IP space, peering arrangements and international access.

Gian Visser of Afrihost has clearly done some good statistical analysis, and some risk analysis. Afrihost “might” make it, if their userbase is big enough after the R29/Gb marketing stunt to at least break even. That’s sustainable if you can keep the costs down.

One has to also consider the additional value-added service revenue Afrihost may have gained from a “mass signup” with such a good marketing campaign. Perhaps it might even be marginally profitable… Sustainable? I’m not so sure.

I have personally bought an Afrihost 5GB account, and have killed it within the first three days of every month. Actually, I triple-killed it three times, because Afrihost, and their upstream Internet Slowlutions didn’t realise that one of the two  SAIX POD (packet of disconnect) RADIUS servers was out of comission for nearly a week.

Afrihost is certainly not going to make any money out of me, and I doubt Gian Visser will — out of this whole “buyology” scheme — in the long run.

Afrihost’s upstream — Internet Solutions will always be on the winning side because they know how to manage bandwidth (ok, perhaps that’s giving them too much credit), and they have fixed costs in terms of connectivity and IPConnect. Afrihost will always be on the “low-margin” – “high-volume” end of the game.

The  moment Afrihost tries to do something else,  Internet Solutions will pull the proverbial “cunt” on them in terms of peering, local access, etc. Just as they have with every ISP smaller than them, that grew into a peer or “threat”.

MWeb’s TV advertisements attract the kind of customers who don’t overrun their CAP’s. Marketing on MyADSL in the other hand attracts every tom-dick-and-harry that will eat their bandwidth simply because they can.

I’m not so sure you’ll be able to keep your R29/Gb promises. Believe me  — the day you can’t I will be there to call you…

The social flu fallout:

As usual, there was lots of whining on MyADSL. Lessons were learnt. Probably not enough…

This is all similar in vein as the previous “free proxy server” fraud stuff I reported on.

I also predict that there is a  set of offices in The Colloseum, Century City, Cape Town to be evacuated  in the next few weeks as well. Some customers probably lost money. An “upstream provider” definately lost money.

They tainted my surname!

What pisses me off the most about the Social Flu saga is that my surname “Diedericks” is mentioned in the article: According to Social Flu Internet Marketing Manager Gareth Diedericks, he was shocked when he found out how the business was run.

“The calm attitude shown by Enrico after the scam report made me firmly believe that everything was above board. I am still amazed at how this turned out… I really thought that this was legit and even believed that I was going to become very wealthy,” said Diedericks.“Thank you to MyBroadband for bringing this to light. I dread to think what may have happened to me or my family should this not have been discovered and Social Flu grew.”

Get rich out of reselling SAIX bandwidth? What a dumbass marketing droid… The market is saturated. The room for maneuverability is nearly nil. It’s like trying to enter the market as Cell-D. Oh but wait. Gareth didn’t actually have a clue about what he was selling, or what it really was, or how it worked, or ANYTHING.

You clearly missed the  Diedericks gene-pool-meeting where we handed out brains and common sense.

Or perhaps it was just a simple way for Gareth to cop out of something he really knew was happening. Kudos for resigning. I hope you have better luck selling insurance policies or something.

A scrape-ing-of the silicon?

“If you can think it, we can create it!” says Social Flu Media’s contact page.

Uh, yeah. How’d that work out for you?

Of course, for me to mention that Enrico,  and Gareth come from Roggebaai/Century City in Cape Town (as per co.za and other sources) might be a bit insensitive, and biased considering my recent diatribe against Silicon Cape, but then again…

Without further ado here is Social Flu Internet/Media’s swansong:  DoosDronk!

“Party, party, party” Courtesy of “Die Antwoord”