Vodacom and MTN have come under fire from the Competition Commission for their high mobile data prices, with the threat of prosecution if things do not change.
The Commission said Vodacom and MTN can cut their mobile data prices by 30% to 50%, and stated all mobile operators should provide basic free data to all South Africans.
Vodacom and MTN must also independently reach an agreement with the Commission on a reduction in the headline prices of all sub-500MB 30-day prepaid data bundles.
Siyabonga Mahlangu, group executive of regulatory affairs at Telkom, warned that these and other interventions proposed by the Competition Commission are dangerous.
Mahlangu said Telkom is very worried about the Competition Commission’s recommendations, as some of them are unconventional and can have far-reaching effects.
He highlighted that the Competition Commission had a big impact on telecoms shares, with Vodacom, MTN, and Telkom losing billions in value.
This has a knock-on effect on pension funds and trust in the economy, which means ordinary citizens are losing money.
Mahlangu added that South African telecommunications companies are supporting many other industries, including sports sponsorships which are now at risk.
He said the Competition Commission’s recommendations put jobs at risk as they will directly impact the mobile operators’ bottom line.
Lots of tax revenue
Apart from the impact on Vodacom, MTN and Telkom’s bottom line, these interventions can also hurt tax revenues.
Vodacom and MTN are two of South Africa’s most successful companies, and they contribute billions to tax each year.
According to Vodacom’s latest financial report, it paid R13.157 billion in tax in the last financial year.
MTN paid R5.430 billion in corporate tax alone, with far more contributed in taxes related to staff and other factors.
This means the two large mobile operators fund the grants of millions of poor South Africans, helping them to put food on the table and look after their kids.
Instead of threatening the profits of Vodacom and MTN through interventions like forced price cuts and free data, pro-competition measures are a more constructive way to address high prices.
OECD telecoms analyst Taylor Reynolds said competition is by far the best way to lower broadband prices in South Africa.
Reynolds said aggressive price reductions and better services in the market are always a result of competition.
South Africa’s mobile broadband market has many infrastructure players, with Vodacom, MTN, Cell C, Telkom, and Rain operating networks.
However, more can be done to increase competition in the mobile space:
- Assign more spectrum to the operators, which will lower investment costs and let them cut data prices.
- Make it easier for operators to roll out networks, which lowers operational costs and helps new players.
- Make it more affordable for ISPs to offer mobile data services, which will fuel competition.
The effect of competition on broadband prices can be seen in the ADSL market, where prices remained high for years, but plummeted after ISPs were allowed to enter the market.