Vodacom’s broadband pricing under fire

In March 2007 Vodacom surprised the South African broadband market when it slashed its mobile data offerings by up to 61%. Vodacom cut the price of its 1GB data bundles from R499.00 to R289.00 per month while they reduced the cost of their 2GB offering from R998.00 to R389.00.

Apart from some small changes and decreasing the price of out-of-bundle data, not much has changed since March 2007. This is despite the fact that international and national bandwidth prices plummeted over the last two years.

Consumers had been vocal about their unhappiness with the ‘unchanged’ pricing, but with MTN essentially mirroring Vodacom’s pricing another price war was unlikely. Even the newly launched 8ta’s data pricing is only marginally better than Vodacom and MTN’s.

Cell C however did not ‘play ball’ with its new mobile data offerings and introduced very aggressive pricing with the launch of its new 21 Mbps HSPA+ services.

Cell C broke from the previous cellular mould – where data pricing hovered just under R200 per GB – by launching both contract and prepaid services with pricing as low as R33 per GB.

Vodacom and Cell C’s pricing

Vodacom and MTN have yet to respond to Cell C’s pricing, but a question mark remains over whether they are able to take on Cell C’s aggressive rates. MTN has been mum on what they are planning whilst Vodacom is watching Cell C closely to see where they are going with their new data offerings.

Vodacom CEO Pieter Uys said that Cell C has made it clear that their current pricing is a ‘promotional offer’ and that their final pricing may look different from the current cost structure.

Uys further pointed out that it becomes challenging to manage a 3G network when traffic levels start to increase and that it is costly to ensure high service levels across a country-wide network.

Cell C CEO Lars Reichelt previously said that he is confident that they will not have a problem with capacity on their HSPA+ network, partly because their towers are, for the most part, served by fibre transmission links.

Apart from Vodacom’s reluctance to immediately react to Cell C’s pricing, Uys did say that they will closely follow Cell C’s moves in the market and that they will ensure that they ‘remain competitive’ when Cell C announces their ‘real pricing’.

Uys said that they will not drop prices to a level where they have to sacrifice quality. The Vodacom CEO made it clear that dropping pricing to the current Cell C level will simply put too much strain on their network which in turn will deteriorate service levels.

Upgrading their network

Uys said that Vodacom is working very hard to boost their transmission capacity – the major stumbling block in increasing its HSPA+ rollout. Vodacom currently has 1,800 active 21 Mbps HSPA+ towers, but only around 25% have adequate transmission capacity to support HSPA+ speeds.

Unbeknownst to many people, most of Vodacom’s 3,700 3G towers are already HSPA+ ready, with the rest set to be upgraded within the next few months. Vodacom further plans to add another 650 sites by March 2011, boosting its 3G population coverage and increasing capacity in areas where it is needed.

Vodacom plans to connect 1,000 towers with its own fibre by the end of the year which will not only boost its backhaul capacity but also decrease the cost of carrying traffic on its network.

These initiatives will go a long way to enable Vodacom to introduce more aggressive broadband pricing, but with a fast growing subscriber base and a natural growth in data usage it may take a lot to convince the biggest cellular provider in South Africa to match or better its 2007 price cuts.

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