For mobile network operators to reduce data prices in South Africa, they have to know that data consumption volumes will increase if they do so.
This is according to Zunaid Bulbulia, a non-executive director of Huge Group, Wits Business School adjunct professor, and former chief executive of MTN South Africa.
“Networks will allow pricing to continue to fall, if they can rely on volume to pick up,” said Bulbulia.
This is “elasticity”, and so long as the additional volumes more than make up for the drop in price – an elasticity of more than 1 – networks would do it, he said.
For example, if reducing prices to a fifth of what they are now means networks will see a tenfold increase in data consumption, it is a viable option.
However, achieving this elasticity is dependant on two factors:
- Smartphone adoption
- Network capacity
“And smartphone adoption is a function of smartphone pricing,” said Bulbulia.
You can land a cheap entry-level smartphone for $26 to $27, which is pretty affordable, but when prices break through the next thresholds of $20 and $15, then you’ll see this market pick up,” said Bulbulia.
Unfortunately, these prices can’t be forced down – except through government incentives or operators subsidising the phones.
Smartphones, and the components they are made from, have costs denominated in US dollars.
“We are we pretty much in the hands of what goes on outside the country and what goes on with our beloved exchange rate,” said Bulbulia.
If we could obtain components at prices that aren’t dollar-denominated, such as by manufacturing them in South Africa, then it may be possible to get cheaper smartphones into the market, he said.
More spectrum needed
Getting smartphones into the hands of as many South Africans as possible will be pointless if networks can’t handle the spike in data demand due to lower data prices, though.
To cope, networks need access to more international mobile telecommunications (IMT) spectrum.
The assignment of new IMT spectrum in South Africa has remained stalled for years, and the latest conflict between the Department of Telecommunications and Postal Services and industry regulator ICASA is set to delay the process yet again.