kaspaas
22-01-2004, 03:31 PM
Hi,
Below a report from Business Day.
Is deregulation and "free market" really the solution?
http://www.bday.co.za/bday/content/direct/1,3523,1498973-49567296-0,00.html
How networks made a killing
--------------------------------------------------------------------------------
Cellular network operators Vodacom and MTN have posted spectacular results in the past few days, each raking in more than R11bn in revenue and converting it into healthy profits.
MTN's huge profit of R2,1bn and Vodacom's R1,4bn in just six months were excellent news for shareholders. But what does that mean for consumers?
If the operators are enjoying margins touching 50% from some of their foreign networks, surely consumers are being charged too much for their calls?
Customers are well used to berating Telkom for its costly fees because they expect a monopoly to charge too much and respond vociferously when it does.
However, with three cellular networks, there is an automatic expectation that their prices will be competitive. Yet, Vodacom's margin for earnings before interest, tax, depreciation and amortisation across all its operations tops 32%, while MTN enjoys a 28% margin in SA.
"The cellular operators are making obscene amounts of money," says Ray Webber of the Communications Users Association of SA, a consumer protection body.
"One of our biggest concerns is that the introduction of Cell C does not appear to have brought down prices. The operators are expanding their networks into foreign countries, which is a costly business.
"But the fact that they are still making such huge profits does imply they are over-charging."
It was heartening to see South African companies rolling out telecommunications services to poorer African nations, he says, "however, it is us poor buggers back home who are funding that."
The industry regulator, the Independent Communications Authority of SA, should step in to cap their prices, the association says.
It should also investigate just how much real price competition there is, compared with how much collusion. "The cellular operators appear to be in a cushy cartel," says Webber. "Cellphones are fantastic things and people will go without food to have one, but it comes at a hell of a premium when you pay R3,60 a minute."
If domestic consumers feel hard done by, they should pity users in Nigeria and Uganda, where MTN boasts of a profit margin of more than 50%.
Granted, the Nigerians are delighted that cellphones have reached them at all, but politicians have condemned the cost of the calls and put pressure on both MTN and its rival Econet to slash their fees. Both operators have resisted, arguing that the cost of setting up infrastructure in Nigeria is so enormous that only a high fee can recoup their investments.
Moreover, both firms are already unable to cope with the huge customer take-up, and making the service affordable to more people would strain their networks.
But MTN has shown that it can act when competition makes it expedient to do so. This month, MTN cut its Nigerian tariffs and launched per-second billing, to compete with the debut of a new rival, Globacom.
CEO Phuthuma Nhleko said the price cuts showed a commitment to deliver the best value to customers and were possible because of MTN's strong performance.
Its turn around in Nigeria has been amazing, with huge up-front spending now reaping healthy profits. The swing has been so rapid that MTN Nigeria probably has cut its tariffs as soon as it was safe to do so.
But it claws in an average revenue per user of $55 a month, compared with a far more modest R207 in this country.
That cannot be entirely due to the talkative nature of its customers, and can only be explained by the fact that its services are expensive.
Vodacom's average revenue per user in SA stands at R179 a month.
Now, the company is switching on a new network in Mozambique, with no obligations to make its services affordable to the impoverished masses.
Deputy CEO Andrew Mthembu argues that the arrival of MTN and Vodacom in some countries has forced the incumbent operators, often state-owned monopolies, to slash their prices by up to 75%.
But the call fees must be sufficiently high to justify the risk of launching a network in the first place, he says.
"When you ask shareholders to support an investment they look at the risks and the returns.
"If the return on investment is the same as you'd get by putting the money in a bank then why bother."
Once revenues begin to flow and cover some of the up-front spending, the operators can bring down the tariffs to be more affordable, he says. Yet, the networks in SA are now mature, and calls fees are still rising.
Mthembu argues that the rates in SA are not only competitive by global standards, but often cheaper than in many countries with a similar gross domestic product.
South Africa needs World Class Broadband at World Competitive Prices.
Below a report from Business Day.
Is deregulation and "free market" really the solution?
http://www.bday.co.za/bday/content/direct/1,3523,1498973-49567296-0,00.html
How networks made a killing
--------------------------------------------------------------------------------
Cellular network operators Vodacom and MTN have posted spectacular results in the past few days, each raking in more than R11bn in revenue and converting it into healthy profits.
MTN's huge profit of R2,1bn and Vodacom's R1,4bn in just six months were excellent news for shareholders. But what does that mean for consumers?
If the operators are enjoying margins touching 50% from some of their foreign networks, surely consumers are being charged too much for their calls?
Customers are well used to berating Telkom for its costly fees because they expect a monopoly to charge too much and respond vociferously when it does.
However, with three cellular networks, there is an automatic expectation that their prices will be competitive. Yet, Vodacom's margin for earnings before interest, tax, depreciation and amortisation across all its operations tops 32%, while MTN enjoys a 28% margin in SA.
"The cellular operators are making obscene amounts of money," says Ray Webber of the Communications Users Association of SA, a consumer protection body.
"One of our biggest concerns is that the introduction of Cell C does not appear to have brought down prices. The operators are expanding their networks into foreign countries, which is a costly business.
"But the fact that they are still making such huge profits does imply they are over-charging."
It was heartening to see South African companies rolling out telecommunications services to poorer African nations, he says, "however, it is us poor buggers back home who are funding that."
The industry regulator, the Independent Communications Authority of SA, should step in to cap their prices, the association says.
It should also investigate just how much real price competition there is, compared with how much collusion. "The cellular operators appear to be in a cushy cartel," says Webber. "Cellphones are fantastic things and people will go without food to have one, but it comes at a hell of a premium when you pay R3,60 a minute."
If domestic consumers feel hard done by, they should pity users in Nigeria and Uganda, where MTN boasts of a profit margin of more than 50%.
Granted, the Nigerians are delighted that cellphones have reached them at all, but politicians have condemned the cost of the calls and put pressure on both MTN and its rival Econet to slash their fees. Both operators have resisted, arguing that the cost of setting up infrastructure in Nigeria is so enormous that only a high fee can recoup their investments.
Moreover, both firms are already unable to cope with the huge customer take-up, and making the service affordable to more people would strain their networks.
But MTN has shown that it can act when competition makes it expedient to do so. This month, MTN cut its Nigerian tariffs and launched per-second billing, to compete with the debut of a new rival, Globacom.
CEO Phuthuma Nhleko said the price cuts showed a commitment to deliver the best value to customers and were possible because of MTN's strong performance.
Its turn around in Nigeria has been amazing, with huge up-front spending now reaping healthy profits. The swing has been so rapid that MTN Nigeria probably has cut its tariffs as soon as it was safe to do so.
But it claws in an average revenue per user of $55 a month, compared with a far more modest R207 in this country.
That cannot be entirely due to the talkative nature of its customers, and can only be explained by the fact that its services are expensive.
Vodacom's average revenue per user in SA stands at R179 a month.
Now, the company is switching on a new network in Mozambique, with no obligations to make its services affordable to the impoverished masses.
Deputy CEO Andrew Mthembu argues that the arrival of MTN and Vodacom in some countries has forced the incumbent operators, often state-owned monopolies, to slash their prices by up to 75%.
But the call fees must be sufficiently high to justify the risk of launching a network in the first place, he says.
"When you ask shareholders to support an investment they look at the risks and the returns.
"If the return on investment is the same as you'd get by putting the money in a bank then why bother."
Once revenues begin to flow and cover some of the up-front spending, the operators can bring down the tariffs to be more affordable, he says. Yet, the networks in SA are now mature, and calls fees are still rising.
Mthembu argues that the rates in SA are not only competitive by global standards, but often cheaper than in many countries with a similar gross domestic product.
South Africa needs World Class Broadband at World Competitive Prices.