Ceasefire in mobile broadband price war?
MTN have given their data subscribers something to smile about by recently reducing their 3G/HSDPA data prices. This means that MTN’s prices are now exactly the same as Vodacom’s, raising concerns that mobile data prices will go the same route as cellular call rates.
The price war begins
In the first quarter of the year there were various price reductions from the wireless broadband players, starting with rate cuts from MTN and Sentech. But it was Vodacom that won the approval of consumers by implementing a massive 61% price reduction on their 2 GB 3G/HSDPA offering.
This price war that ensued has left South Africa with mobile data prices that compare favorably with other international players – something that still holds true today. Our competitive mobile data prices are particularly impressive considering that local broadband providers pay very high rates for local and international bandwidth from Telkom.
But will the trend of competitively priced mobile broadband products continue?
With four wireless providers – namely Sentech, iBurst, Vodacom and MTN – all fighting for market share in the South African broadband arena the price war in the beginning of the year was not entirely unexpected. The situation has however changed since then.
Price war aftermath
Sentech – which according to some sources has only around 2 500 MyWireless customers left – has become close to irrelevant in the broadband space. iBurst, on the other hand, has become a significant broadband force. But their partnership with heavyweight Vodacom essentially means that the competition in the mobile market is carved up between Vodacom and MTN.
These two companies have shown with their cellular voice call rates that they are particularly talented at maintaining certain pricing levels. While the cellular providers have vehemently denied collusion on the price of cellular calls, the fact remains that there is an uncanny resemblance in rates between the various cellular operators.
A further development which may come into play is MTN’s potential acquisition of Telkom’s fixed line assets. This could significantly reduce its bandwidth and transmission costs, but it also means that there will only be two major players in the broadband space, namely MTN and Vodacom.
The good news is that the South African cellular and telecoms landscape is changing, and this may result in continued competition on price in the data space.
Where to from here?
Both Vodacom and MTN have a very strong future focus on broadband and data products. Vodacom has even formed its own ISP called Vodacom Converged Solutions – similar to MTN’s Network Solutions division.
The data and Internet arena is a fiercely competitive environment with various first tier ISPs vying for position in both the corporate and residential markets. While Telkom has a firm grip on bandwidth in South Africa, smaller players often find ways to bring innovative new solutions to the market and reduce the cost of services.
Keeping all of this in mind, it is not particularly surprising to see that Vodacom and MTN are willing to compete on data pricing. If they want to become serious contenders in the future data market they will have to compete against the likes of Telkom, Internet Solutions, Verizon Business, DataPro and many others.
While ‘mobile wireless’ and fixed line products are definitely cast in a different mould, the unique South African broadband space means that MTN and Vodacom’s HSDPA services already compete head on with Telkom’s ADSL fixed line offerings.
The result is that consumers benefit from aggressively priced mobile broadband products. What is interesting is that Vodacom and MTN’s 3G/HSDPA offerings compete favorably against the current ADSL offerings on both speed and price – something that is unheard of in the developed world. Price changes in the fixed line space will therefore have a direct impact on strategies from the wireless players.
All of this means more price reductions in future, but it is unfortunately unlikely that there will be any significant cuts for the rest of this year.
Both Vodacom and MTN have invested billions of Rands in their 3G/HSDPA networks, and there is even talk that these two operators are currently making a loss on their mobile broadband products. This is one of the reasons cited by Cell C CEO, Jeffrey Hedberg, for not investing in a third generation data network.
MTN said that South Africa already has some of the lowest mobile broadband tariffs in the world, and that another price war may even have a detrimental effect on investment.
“Our customers are getting fantastic value for money – particularly given both the performance of our network and the significant investment (both OPEX and CAPEX) in our data network. A price war at this time would serve no useful purpose and could even potentially result in a slow down in investment in our 3G/HSDPA network.”
Vodacom refused to be drawn into a discussion about further price-reductions. In response to questions about their current and future pricing policies, the company said: “When Vodacom lowered its data prices by up to 61% in March 2007, the objective was to make mobile data services more accessible and affordable to all our customers. Vodacom has pioneered access to mobile telephony, and through our global competitiveness in the data market we are aiming to achieve the same result. Vodacom will continue to develop innovative and world leading products to enhance the offerings to its customers.”
So for now MTN’s HSDPA price levels may have resulted in a ceasefire between the two cellular providers in the wireless broadband price war, but with both players vying for the top spot this truce may not hold out for too long.
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