Impact of new adsl regulations on Vodacom

[vodacom3g]

The fact that they can apparently reduce prices at will smacks of profitering. Why do companies always charge as much as they can as opposed to what something is worth.

Unfortunately this is a sickening cycle that is eating through our economy.

When pricing any product (be it cars, watches, beer, whatever) there are two ways to calculate the price.

1) Do a cost analysis and work out the actual costs / user base. Most companies have to do it this way, i.e. cost + margin. This resulted in mobile data around the world being sold at anything from R40/Mb (here in SA) to R200/Mb (most of Europe) at the time.

2) Look at market factors and determine acceptable pricing. This often results in initial losses but can be made up by growing user numbers if calculated Obviously there must be some break-even point. No company want to make a sustained loss.

When Vodacom dropped the pricing from R40/Mb (beanie price) to R2/Mb (gut-feel price) it was a leap of faith jumping from point 1 to 2 and the number of users still need to reach the sweet spot, but the uptake is very encouraging with a user base that's probably bigger than all the other wireless players put together and 3G alone already around half the install DSL base!

Obviously Vodacom will want to keep and grow this market dominance (any company would) and the best way to do this is to keep on increasing the bang for your buck.

 

[TheCynick]

I'm still waiting for you guys to come back with a list of what the content should be....

http://thepiratebay.org/

 

[AirWolf]

When Vodacom dropped the pricing from R40/Mb (beanie price) to R2/Mb (gut-feel price) it was a leap of faith jumping from point 1 to 2 and the number of users still need to reach the sweet spot, but the uptake is very encouraging with a user base that's probably bigger than all the other wireless players put together and 3G alone already around half the install DSL base!

i remeber data prices being R10/mb before the current R2/mb

 

[ic]

i remeber data prices being R10/mb before the current R2/mb

which country were you in at the time? Seriously, before the R2.00/MB both Vodacom & MTN were charging ~R40.00/MB, and CellC was still trying to get people to use its GPRS [in]ActiveData.

<added>

Just realised you were probably confusing the VoIP rate that Vodacom submitted to ICASA waaay back, R10.00/MB was for VoIP only, all the rest was R2.00/MB.​

</added>

 

[AirWolf]

my data counter on my phone must have been faulty

 

[Prometheus]

When pricing any product (be it cars, watches, beer, whatever) there are two ways to calculate the price.

1) Do a cost analysis and work out the actual costs / user base. Most companies have to do it this way, i.e. cost + margin. This resulted in mobile data around the world being sold at anything from R40/Mb (here in SA) to R200/Mb (most of Europe) at the time.

2) Look at market factors and determine acceptable pricing. This often results in initial losses but can be made up by growing user numbers if calculated Obviously there must be some break-even point. No company want to make a sustained loss.

When Vodacom dropped the pricing from R40/Mb (beanie price) to R2/Mb (gut-feel price) it was a leap of faith jumping from point 1 to 2 and the number of users still need to reach the sweet spot, but the uptake is very encouraging with a user base that's probably bigger than all the other wireless players put together and 3G alone already around half the install DSL base!

Obviously Vodacom will want to keep and grow this market dominance (any company would) and the best way to do this is to keep on increasing the bang for your buck.

I think you have that backwards V3g.
Shouldn't it have been:
1) Do a cost analysis and work out the actual costs / user base. Most companies have to do it this way, i.e. cost + margin. This should result in mobile data being sold at ~10-20c.
2) Look at market factors and determine acceptable pricing. This often results in companies overcharging us just because they know they can get away with it due to little competion in the market.

Realistically it costs Vodacom in the range of 5-10c to deliver 1MB of data. If they charge between 10-20c and not R2 or even 50c it would be cost based and they would still be making 100% profit. If R40 was not a rip-off then none of the networks would be able to reduce it to R2 which is still a rip-off. They would rather stop selling it than to sell it at a loss. Vodacom et al charges R2 because they are getting away with it. I would like to see what they do when Virgin gets 3G which is currently the only reason people are not running over to them.

i remeber data prices being R10/mb before the current R2/mb

which country were you in at the time? Seriously, before the R2.00/MB both Vodacom & MTN were charging ~R40.00/MB, and CellC was still trying to get people to use its GPRS [in]ActiveData.

<added>

Just realised you were probably confusing the VoIP rate that Vodacom submitted to ICASA waaay back, R10.00/MB was for VoIP only, all the rest was R2.00/MB.​

</added>

I coincidentally remember it being R50/MB, but it could have dropped a bit after that. Strange what a memory can do to a person.


LOL @ http://thepiratebay.org/.

 

[vodacom3g]

Realistically it costs Vodacom in the range of 5-10c to deliver 1MB of data. If they charge between 10-20c and not R2 or even 50c it would be cost based and they would still be making 100% profit.

Please send me your calculations (or post here) and I'll gladly pass on to the beanies.

 

[Prometheus]

Please send me your calculations (or post here) and I'll gladly pass on to the beanies.

You're saying it costs them even less.
But no seriously, I read that IS said at the recent ADSL meetings that it costs them R44/GB. This can however not be the case for its internal bandwidth so they were probably referring to the Telkom provided bandwidth. We now have a better idea of what Telkom charges the other industry players and this figure is not the R75 they charge the public, but rather nearer to R44 which seems more inline with reseller profit margins. RPM posted some time ago the figures for what a meg of data provided over the various wireless services costs and this cost actually goes down the higher the speed of the connection gets. I think the cost was well under 1c in British Pound which would be well under 10c in Rand. Add to that figure the ~5c going towards Telkom and you get 5c minimum up to an average of 10c maximum using the various technologies.

I'll be happy to adjust my figures and apologise if I am wrong and you can provide me with the actual figures. I know however that I can't be far off with Virgin charging 50c and still making a reasonable profit and to expect 20c from the other more established networks is therefor not unreasonable.

 

[Prometheus]

Ok, memory seems to be failing me.

It will also be good to see the benefits of HSDPA being passed on to consumers. The chairman of the UMTS forum recently pointed out that HSDPA reduces the cost of cost to deliver data. He placed the cost of a Mbyte (in USD) using various technologies as:

GPRS: 0.09
EDGE: 0.04
3G: 0.02
HSDPA: 0.01

So the cost for providing data should be closer to this:

GPRS:	R0.63
EDGE:	R0.31
3G:	R0.18
HSDPA:	R0.11

Considering that this was in April already, the price should have come down a bit since then and 20c/MB should not be unreasonable for 3G and HSDPA data. Vodacom should therefor encourage uptake of 3G and especially HSDPA instead of charging people more for it so that we can get the lower data rates even faster.

 

[74466]

Well some interesting assumptions made here, which means we are still being ripped off at 50c/MB... BUT i only use like 400MB/month so at 50c my internet costs me R200.... Hmmm now that i am thinking of it, 20c * 400MB=R80

 

[ic]

Ok, memory seems to be failing me.

So the cost for providing data should be closer to this:

GPRS:	R0.63
EDGE:	R0.31
3G:	R0.18
HSDPA:	R0.11

Considering that this was in April already, the price should have come down a bit since then and 20c/MB should not be unreasonable for 3G and HSDPA data. Vodacom should therefor encourage uptake of 3G and especially HSDPA instead of charging people more for it so that we can get the lower data rates even faster.

If I understand you correctly, you would like Vodacom to bill you separately according to your chosen acces medium and the speed thereof, and then add on [separately] the other network running costs? For example, if you're using HSDPA, then Vodacom should bill you at a rate of R0.11/MB, and then add to that the rest of Vodacom's costs - including paying Telkodemonopolies for the use of its links [or in the future to recover the cost of Vodacom laying its own links], and employee salaries, etc etc etc.

If GPRS should never cost less than R0.63/MB, and EDGE should never cost more than R0.31/MB, then how is it that Virgin Mobile [using CellC's network] can charge VM customers R0.50/MB for both GPRS and EDGE? - surely Virgin Mobile is profiteering from EDGE at a rate of ~R0.19/MB and making a loss from GPRS at a rate of ~R0.13/MB...

Not everything in the real world is as simple & clear-cut as we would like it to be, what is IMO very clear is that the R2.00/MB out of bundle rate is a huge ripoff and should be drastically reduced in order for Vodacom to maintain pre-paid data customers - especially since Vodacom has seen an economies of scale increase in customers that rivals Telkodemonopolies' ADSL customer-base.

 

[MyDraadloos]

When pricing any product (be it cars, watches, beer, whatever) there are two ways to calculate the price.

1) Do a cost analysis and work out the actual costs / user base. Most companies have to do it this way, i.e. cost + margin. This resulted in mobile data around the world being sold at anything from R40/Mb (here in SA) to R200/Mb (most of Europe) at the time.

2) Look at market factors and determine acceptable pricing. This often results in initial losses but can be made up by growing user numbers if calculated Obviously there must be some break-even point. No company want to make a sustained loss.

When Vodacom dropped the pricing from R40/Mb (beanie price) to R2/Mb (gut-feel price) it was a leap of faith jumping from point 1 to 2 and the number of users still need to reach the sweet spot, but the uptake is very encouraging with a user base that's probably bigger than all the other wireless players put together and 3G alone already around half the install DSL base!

Obviously Vodacom will want to keep and grow this market dominance (any company would) and the best way to do this is to keep on increasing the bang for your buck.

I have professional respect for accountants, but a personal dislike for the lack of value they add.

While price reductions are commended I think that Vodacom underestimated the power of data / voice convergence.

"If you build it they will come" ....... No one operator yet has the magic bullet. What VG had gained on price will be offset against the tech advantage of VC and vice versa.

I think VC have not yet calculated in the economies of scale they have achieved on mobile data and will stand to lose clients because of temporary greed. After 18 September the client base will be more "mobile" and the pricing structure, billing irregularities and lack of PPDB will have customers popping their heads up like Meerkats looking for a better deal.

Is there anyone out there that has access to current International and Local pricing that could do a calculation of bandwidth costs ?

Don't expect VC not to make a profit, but at times their profits can be obscene. (like out local banks)

1 + 1 can = 1.5 or 3 ; it just depends if you are buying or selling

 

[Prometheus]

If I understand you correctly, you would like Vodacom to bill you separately according to your chosen acces medium and the speed thereof, and then add on [separately] the other network running costs? For example, if you're using HSDPA, then Vodacom should bill you at a rate of R0.11/MB, and then add to that the rest of Vodacom's costs - including paying Telkodemonopolies for the use of its links [or in the future to recover the cost of Vodacom laying its own links], and employee salaries, etc etc etc.

If GPRS should never cost less than R0.63/MB, and EDGE should never cost more than R0.31/MB, then how is it that Virgin Mobile [using CellC's network] can charge VM customers R0.50/MB for both GPRS and EDGE? - surely Virgin Mobile is profiteering from EDGE at a rate of ~R0.19/MB and making a loss from GPRS at a rate of ~R0.13/MB...

Not everything in the real world is as simple & clear-cut as we would like it to be, what is IMO very clear is that the R2.00/MB out of bundle rate is a huge ripoff and should be drastically reduced in order for Vodacom to maintain pre-paid data customers - especially since Vodacom has seen an economies of scale increase in customers that rivals Telkodemonopolies' ADSL customer-base.

I'm saying that it makes sense from a financial perspective to charge more for the slower connections. Realistically no one would want to pay more for an inferior service. A more reasonable approach would be to charge an average based on the amount of customers on the faster connections and upgrading more spots to UMTS would help reduce the cost price even further.

The projections are for all costs including equipment and installation. There is no further employee costs as the network runs automatically. The Telkom costs have been incleded at 4.5-5c/MB. See previous posts to know how I got that. This was based on prices of equipment and amount of users in April. Equipment prices have dropped since then and since most of the network is up and running now the only further costs are now bandwidth and repairs/upgrades. With VM charging 50c/MB on GPRS/EDGE connections and still making a profit I can't see why Vodacom with their 3G/HSDPA connections can't offer us 20c/MB if they can encourage users to use 3G/HSDPA.

 

[ic]

...There is no further employee costs as the network runs automatically...

surely you must be joking?

Networks require maintenance and monitoring and help desks for customers that are using the networks - this is not the 23rd century [yet] where people are 100% redundant...

 

[vodacom3g]

So the cost for providing data should be closer to this:

GPRS:	R0.63
EDGE:	R0.31
3G:	R0.18
HSDPA:	R0.11

These numbers are just for the radio link which is but a part of the total end-to-end cost.

One of the big things you overlook is the 'speed of delivery'.

Working with a megabyte of data does not take into account how long it takes to deliver said megabyte.

To match the radio link, a GPRS user should get a total transmission throughput of 60Kb/s, 3G at 384Kb/s and HSDPA at up to 1.8Mb/s.

What are the transmission costs of these speeds? Suddenly it's much more expensive to deliver HSDPA end-to-end than GPRS.

We can easily switch to a 'data amount' only model. Say you buy a 200M bundle per month. To deliver this over the month you only need a throughput of 200Mb / (number of seconds in a month) or 647 bits/s. Let's make it 1Kb/s.

This speed of 1kb/s is therefore enough to deliver your 200Mb of data over the period you bought it, but somehow I believe you're not going to be happy about it. But if we only need to provide for 1 to 3Kb/s per user the price will drop substantially.

So, as you can see, to calculate the cost of a Mb of data is an incomplete model, you have to include, at least, the rate of delivery as well.

Let's not forget those few thousand employees at Vodacom who are doing nothing all day as the network runs automatically. And there I was thinking they were building new networks, doing upgrades, support and all this other 'network' stuff. Silly me. We should fire the whole bunch and pass the cost savings on.

 

[Prometheus]

surely you must be joking?

Networks require maintenance and monitoring and help desks for customers that are using the networks - this is not the 23rd century [yet] where people are 100% redundant...

And how many people actually call a help desk to help them with their data problems? I bought my sim card, plugged it in, loaded airtime, activated it and was surfing away in minutes. All of which was done by the system without any further human intervention. The help desks were there before the use of data and we already pay a premium on calling costs to cover that. If you phone a help desk about a data problem they aren't able to help you anyway so what are they getting paid for? The maintenance and monitoring is minimal compared to putting up the network which is probably allready covered in full by the exorbitant prices we pay. And to add to that some of these so called help desks are actually paid for numbers.

These numbers are just for the radio link which is but a part of the total end-to-end cost.

Ok, let us take this one step by step shall we...

One of the big things you overlook is the 'speed of delivery'.

Working with a megabyte of data does not take into account how long it takes to deliver said megabyte.

To match the radio link, a GPRS user should get a total transmission throughput of 60Kb/s, 3G at 384Kb/s and HSDPA at up to 1.8Mb/s.

What are the transmission costs of these speeds? Suddenly it's much more expensive to deliver HSDPA end-to-end than GPRS.

You bring up this example every time this issue is discussed and it was shown to be flawed the last time and is flawed here too.

We can easily switch to a 'data amount' only model. Say you buy a 200M bundle per month. To deliver this over the month you only need a throughput of 200Mb / (number of seconds in a month) or 647 bits/s. Let's make it 1Kb/s.

This speed of 1kb/s is therefore enough to deliver your 200Mb of data over the period you bought it, but somehow I believe you're not going to be happy about it. But if we only need to provide for 1 to 3Kb/s per user the price will drop substantially.

So, as you can see, to calculate the cost of a Mb of data is an incomplete model, you have to include, at least, the rate of delivery as well.

The cost of the radio link is cheaper over 3G than GPRS. Data usage is paid for according to the amount of data transfered. This is paid for by the per mb charge we pay. If Vodacom has to pay for a link according to the bandwidth capacity then this is offset by the amount of users using it. A wider link would therefor have more users paying to use it. The model is therefor not incomplete.

Let's not forget those few thousand employees at Vodacom who are doing nothing all day as the network runs automatically. And there I was thinking they were building new networks, doing upgrades, support and all this other 'network' stuff. Silly me. We should fire the whole bunch and pass the cost savings on.

I wish I could forget about them, but I know very well every time I make a call that a very small portion of it is going towards their salaries. As for the doing upgrades on the network. Do you want me to believe that it costs more to maintain the network in the short run than to actually build it. Vodacom has already covered the cost of building the network by over-charging us. Now they can reduce their costs to a fraction to cover maintenance.

Oh and btw. The original agreement between icasa and Vodacom and MTN was that they could charge high prices so that they could recover the cost of building the networks through their very small user base. The costs were suppose to drop after about 2-3 years once their investment was recovered. But instead both networks kept on increasing their prices with icasa's approval. Is it now unfair for me to want them to reduce their prices to below accepted pricing after they were not playing fairly for over a decade and are still not doing so? You reap what you sow imo.

 

[ic]

...
Oh and btw. The original agreement between icasa and Vodacom and MTN was that they could charge high prices so that they could recover the cost of building the networks through their very small user base. The costs were suppose to drop after about 2-3 years once their investment was recovered. But instead both networks kept on increasing their prices with icasa's approval. Is it now unfair for me to want them to reduce their prices to below accepted pricing after they were not playing fairly for over a decade and are still not doing so? You reap what you sow imo.

AFAIK you don't work for ICASA or Vodacom or MTN, and I certainly know that I don't work for any of those either, how do either of us know what agreement [if any] there was|is between ICASA & Vodacom and ICASA & MTN...

Vodacom went live with its new [at the time] vanilla-3G in December 2004, which would mean that we should only expect vanilla-3G prices to drop in November|December 2006, but Vodacom already reduced contract vanilla-3G prices a few months back, which opens up further debate on the subject of pricing and whether or not Vodacom has already recovered the cost of investing in its vanilla-3G network, in the meantime Vodacom has rolled-out HSDPA to all of its 1600+ 3G base-stations, and HSDPA increases the load on backhaul links which have had to be capacity upgraded [upgrades are still ongoing as are rolling-out new HSDPA base-stations]...

If no one ever calls Vodacom's data helpdesk, then why is there a queue of customers waiting to get through to a call centre agent?

 

[ld13]

.

And how many people actually call a help desk to help them with their data problems?

Well lots of people do! That's how/why 155 started. Give them a call, there’s always a long line. There are A LOT of people out there that does not know what they’re doing. So luckily the help desk knows a little more to help those people out.

I bought my sim card, plugged it in, loaded airtime, activated it and was surfing away in minutes. All of which was done by the system without any further human intervention.

Well, how did you do that? I needed to activate my GPRS first in order to use it. Called 111 (before the time of 155), the help desk activated my GPRS, sent me the settings, and I was all set.

And to add to that some of these so called help desks are actually paid for numbers.

What? What help desk number is a chargeable-call number?

Oh and btw. The original agreement between icasa and Vodacom and MTN was that they could charge high prices so that they could recover the cost of building the networks through their very small user base. The costs were suppose to drop after about 2-3 years once their investment was recovered. But instead both networks kept on increasing their prices with icasa's approval. Is it now unfair for me to want them to reduce their prices to below accepted pricing after they were not playing fairly for over a decade and are still not doing so? You reap what you sow imo.

OMW, I didn’t know that! So are we still ‘covering’ the cost of ‘building the networks’ of the 1993/1994???
Where did you read this?

 

[vodacom3g]

The model is therefor not incomplete.

I don't think you get it it.

You don't just buy 200Mb from Vodacom. You buy 200Mb from Vodacom and expect it to come down at a certain rate. This has cost implications.

Let's try an analogy: If you have to travel from Jhb to Cpt, you don't just expect to get there, you also expect to get there in a certain time.

So you can take an ox-waggon and get there at some point but you probably would like to do it in around 2 hours, so you take a plane.

The distance never changed, but the rate at which you travelled determined the cost of the transport.

Bandwidth is the same, you don't buy 2Mb from Telkom, you buy a link that has a specific throughput rate to satisfy your speed expectation. Not your data expectation.

As explained above, I can satisfy your purchase of a 200Mb bundle by just giving you 1Kb/s.

 

[broken1]

I don't think you get it it.

You don't just buy 200Mb from Vodacom. You buy 200Mb from Vodacom and expect it to come down at a certain rate. This has cost implications.

Let's try an analogy: If you have to travel from Jhb to Cpt, you don't just expect to get there, you also expect to get there in a certain time.

So you can take an ox-waggon and get there at some point but you probably would like to do it in around 2 hours, so you take a plane.

The distance never changed, but the rate at which you travelled determined the cost of the transport.

Bandwidth is the same, you don't buy 2Mb from Telkom, you buy a link that has a specific throughput rate to satisfy your speed expectation. Not your data expectation.

As explained above, I can satisfy your purchase of a 200Mb bundle by just giving you 1Kb/s.

This is why data has differnent charges for different speeds? HSDPA bundles are more expensive than 3G bundles