Expiring data – the other side of the story

Expiring data is a hot topic in South Africa, with politicians, the regulator, and the public calling on mobile operators to offer data bundles which do not expire.

The argument is that consumers have paid for a certain amount of data and that they should not lose this data because it “expired”.

Ferial Haffajee, for example, called expiring data the “biggest ruse and we suffer its consequences all the time”.

“Milk can expire. Fruit can expire. Meat can expire. Kleptocratic presidents can expire – thank God. But data cannot expire,” Haffajee said.

Rain CEO Willem Roos said expiring data bundles are simply there for telecommunications companies to be more profitable.

“As data expires, telecommunications companies effectively charge a higher rate per meg than advertised. Breakage essentially improves the profitability,” Roos said.

The other side of the story

These arguments sound good, especially in a country where there is high unemployment and people struggle to afford Internet connectivity.

However, what is seldom mentioned is that the price for expiring data is significantly less than non-expiring data.

Breakage and expiring data allow mobile operators to design products which cost less than what they would have if the data did not expire.

To stop operators from offering data bundles which expire will limit consumer choice and result in higher data prices.

To call for the end of expiring data bundles will therefore not help consumers, but rather limit their choice and result in higher-priced data.

The chart below illustrates how the lifetime of data influences the price. It is clear that the longer data lasts, the higher the price is.

MTN explains

Jacqui O’Sullivan, MTN SA’s executive for corporate affairs, told MyBroadband that there are many benefits to expiring data – which include lower prices and better network planning.

O’Sullivan’s full statement is provided below.

MTN provides a wide variety of data bundles to the market to suit customers’ needs and usage requirements.

A variety of prepaid bundles are available to customers, ranging from a validity of one hour to one month. These bundles can be used on prepaid and can be added on to post-paid packages.

This enables customers to select a product, which meets their volume and validity needs.

The prepaid bundles are cheaper when the validity period is the shortest. For example, a customer can purchase a small data bundle for as little as R1.50 for a short validity period.

These small purchases are typically made to update a status on social media or check and send messages without having to make a large financial commitment.

Smaller purchases allow customers more control over their spend and increases data affordability by lowering the cost barrier.

At the same time, it allows the network to be used consistently over a period so that the investment in infrastructure does not lie idle.

This is an efficient utilisation of network capacity that may otherwise not have been used.

Expiry rules are also important for data network capacity and coverage planning purposes.

MTN must take into consideration the data service requirements of customers over a specific period of time and for specified data volumes. This information is vital for planning purposes.

Planning occurs well in advance, at least 18 months ahead, due to the long lead times for network deployment.

Capacity is planned to cater for this requirement and in addition thereto to allow for a margin of headroom on the network for unexpected traffic growth volumes.

If traffic exceeds these volumes, the quality of service experienced by customers on the network will be impacted negatively.

If, however, capacity is over provided for and not utilised this in turn will impact the ability of the network operator to manage the cost of providing data to customers.

If MTN were not able to determine the data requirements of customers and the period over which it will be used (indicated by expiry periods), the quality or cost of data will be affected.

It is important to note that MTN would need to pay its upstream providers for said capacity, regardless of whether customers utilise the capacity or not.

A longer expiry period would result in a substantial increased liability on balance sheet.

MTN is not able to recognise revenue for data bundle purchases until the data is utilised.

The increased financial unearned revenue liability on the balance sheet would have a negative impact on the MTN’s overall cost of capital.

As a result, the price of data would need to increase because the cheaper bundles with shorter validity would effectively become redundant.

MTN would need to rebalance data tariffs to cater for longer or no expiry rules.

This would mean that the current discounted in-bundle rates would not be available, and customers will pay a higher tariff for data.

Vodacom explains

Vodacom told MyBroadband that data bundles with shorter expiry periods invariably cost less than bundles with a longer expiry period.

“Bundles with shorter expiry periods have been instrumental in making data more accessible to customers who have sporadic and limited disposable income,” Vodacom said.

Three years ago, bundles with one-month expiry periods were the most popular. Last year, more than 80% of the bundles bought by prepaid customers had either an hourly, a daily, weekly, or fortnightly expiry period.

“This has contributed to the more than a 40% reduction in effective data prices over the past three years,” Vodacom said.

Vodacom said that it purchases capacity on data “pipes” from other providers and offering expiring data helps them understand how much capacity it needs.

“If we over-provide capacity and it’s not used, then that data is in effect lost and can’t be resold at a later date,” Vodacom said.

“This impacts our costs and our ability to continue to bring data costs down. If we under-provide then the end result would be network congestion and a diminished user experience.”

The company said if data did not expire, it will send data prices up and will substantially limit customer choice.

“It is our belief that an environment should exist where network operators are able to compete by giving customers more options,” Vodacom said.

For example, removing expiry periods will eliminate Vodacom’s popular hourly, daily, and weekly offers.

“Of the more than 2 billion bundles that our customers will use this year, the majority are smaller and micro-bundles,” the company said.

Now read: What you are not told about mobile data prices

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Expiring data – the other side of the story