Ad hoc data rates: Why so high?
Many of South Africa’s mobile network operators have recently reduced the prices, or otherwise improved the value, of their broadband products.
However, data rates for subscribers without a bundle remain unchanged, usually at R2/MB. 8ta is a notable exception here, charging R1/MB for so-called “ad hoc” data usage.
Operators offer an easy way to avoid the R2/MB charge in the form of bolt-on data packages, with the smallest package at least halving the out-of-bundle (OOB) costs to R1/MB.
It seems strange to keep ad-hoc data prices at R2/MB when you can get a substantially better rate by bolting on an inexpensive data bundle.
So we posed the question to South Africa’s mobile network operators: Why are ad-hoc data rates so much higher than the rates you can get in a bundle?
MTN SA’s data portfolio manager for enterprise markets, Surajh Surjoo, said that the ad-hoc rate of R2/MB is one of the lowest data rates in the world for no monthly commitment.
“The rate was reduced significantly from R50/MB to R2/MB and is billed in 1KB increments or a minimum of 2c per session,” Surjoo said.
He said that customers don’t use more than a few MB at this rate as they can simply buy a 10MB bundle for a R10 commitment which gives them a rate of R1/MB in and out of bundle with carry over for one month.
Is R2/MB cheap?
To investigate the claims that a R2/MB ad-hoc rate is one of the lowest in the world we looked at some of MTN’s businesses elsewhere in Africa.
MTN Nigeria charges N0.05/kB, which translates to about R2.40/MB. Mascom, MTN’s business in Botswana, charges P1.50/MB which is about R1.59/MB. MTN Ghana advertises its effective charge per megabyte (MB) if not using a bundle as GH¢0.06, or R0.28.
Looking further afield, Vodafone’s UK operation charges £1 per 25MB (around R0.47/MB), up to a maximum of £5 a day. In New Zealand, Vodafone charges $1 (NZD) per day for up to 10MB data (around R0.60/MB).
From a quick online search it seems that mobile network operators around the world all have different ways of handling ad-hoc data usage, but R2/MB isn’t a particularly good rate even compared to other networks in Africa.
Is it profitability/sustainability (again)?
Perhaps the reason rates haven’t been lowered from R2/MB is because it is somehow unsustainable in the long run.
Based on feedback from 8ta, this is not so. 8ta has had an ad hoc per-MB rate of R1 since launch and according to Vishal Phlad, executive for products and services at 8ta, it is a profitable rate.
Vishal Phlad, executive for products and services at 8ta
Then why the high price?
If lower ad-hoc rates are profitable, then why are they kept so high? The answer seems to lie in network management and planning.
Phlad said that most people finish their data bundles. Therefore, if people buy bundles it gives you an idea of how to build your network and where you need capacity, Phlad said.
“In an environment where you just use data ad hoc it makes it far more difficult to dimension your network to take into account unpredrictable costs,” Phlad said.
Vodacom offered a similar explanation to 8ta, explaining that their pricing model is designed to make it attractive to customers to commit to data bundles on a contract basis. “This provides us with more predictability on usage patterns and ultimately allows us to manage the network more efficiently.”
By encouraging contract bundle purchases at even the lowest level of 10MB and giving better OOB rates than for ad hoc data, Vodacom said they are hopefully establishing a pattern of behaviour early on with new data customers.
Vodacom added that in their recent price reductions they carefully relooked this balance and decided, that due to the fact that most subscribers don’t go out-of-bundle, to apportion the biggest possible discounts to the in-bundle rates.
According to Vodacom, the in-bundle and OOB rate are inversely proportional: If they make the OOB rate lower then they would have to increase their in-bundle rates.
Article thumbnail based on an image from Jaap Tanis (Flickr)
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