Business

Mobile data giants possibly pushed to cut rates

2019-04-26 17:10

Cutting mobile data prices to “socially defensible” levels and doing away with confusing bundles full of promotions in order to give consumers lower and transparent average rates instead, are among the far-reaching provisional recommendations to come out of the Data Services Market Inquiry initiated in 2017.

South Africa not only has outlandishly expensive prices for data, its mobile operators charge the poor far more than they charge the rich, the Competition Commission’s inquiry has found.

Using international benchmarking research, the inquiry found local data prices to be comparatively expensive in general, but particulary expensive for smaller prepaid packages.

These are precisely the data packages used by poor consumers, leading to a “potential structural problem with retail prices ... whereby poorer prepaid consumers are exploited”.

These price disparities are “inexplicable”, said the inquiry. A consumer buying a 100MB bundle will pay roughly double a MB what a consumer buying a 1 GB bundle would pay.

Flowing from this, the inquiry proposed forcefully reducing this enormous disparity by capping the additional cost of small bundles to, at most, 25% more than big bundles on a per-MB basis.

At the same time expensive out-of-bundle rates should get capped, the inquiry said in its report, which was released this week.

The share prices of the major mobile operators immediately fell this week when the report was unveiled. Vodacom, MTN and Telkom share prices dropped as much as 4%.

A representative of the DG Murray Trust, one of the NGOs that had made a submission to the inquiry, said that they were “very happy to see that much of what we presented ... was included”.

The trust had proposed that free data should be provided to public benefit organisations, which the report also endorses.

The trust also proposed that the per-MB rates for different bundle sizes be equalised, another proposal taken up by the inquiry report.

The duopoly

The main theme running through the inquiry report is the unshakably entrenched position of Vodacom and MTN in the provision of mobile data.

Vodacom and MTN’s sheer size and first-mover advantage make it impossible for newer competitors like Cell C and Telkom Mobile to compete on mobile data prices, said the report.

Cell C had tried and failed. After first aggressively dropping prices, Cell C had been forced to slowly increase them again to remain profitable, the report said.

Telkom Mobile was currently trying out the same strategy, but would likely suffer the same fate as Cell C, it speculated.

Vodacom and MTN control far more infrastructure and have national coverage. The two small operators are forced to use this infrastructure to provide roaming services covering the entire country – a privilege that the big two operators can charge for at rates that restrain competition on price, said the report.

“As the challenger networks desperately require such roaming agreements to be able to offer a national service, the incumbents have less need to contract,

which places them in a strengthened bargaining position,” reads the report.

It recommends that the “big two” should give the smaller networks “cost-based” roaming access, which would reduce their revenue, and at the same time reduce costs for the “small two”.

This would be similar to a previous intervention to reduce networks’ charges to each other through so-called termination rates – prices networks charge each other for calls made between networks. These have been aggressively regulated downwards by the independent Communications Authority of South Africa.

Spectrum

The inquiry has made a radical proposal on how South Africa should eventually manage its long-delayed digital terrestrial transition.

This transition entails freeing up spectrum currently used for television for data. This spectrum would massively increase the ability of the country’s mobile operators to roll out next-generation data services.

Almost all submissions to the inquiry complained that the years of policy uncertainty around this had driven up costs. There has been endless debate about how to allocate this spectrum between companies.

The inquiry proposed that it should be done “pro-competitively” with spectrum coming with “obligations to pass through the cost reductions”.

More importantly for Vodacom and MTN, the inquiry is proposing that the allocations to the big operators be capped, or that a part of the new spectrum be set aside for smaller companies. This would severely affect future plans MTN and Vodacom might have had, based on assumptions about access to future spectrum.

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October 20 2019