What you are not told about Vodacom and MTN’s data prices

The Competition Commission has published a final report on its Data Service Market Inquiry which slated Vodacom and MTN for their high mobile data prices.

According to the Competition Commission, there is scope for Vodacom and MTN to cut their mobile data prices by 30% to 50%.

The Commission further said all mobile operators must offer South Africans on prepaid packages “a lifeline package of daily free data”.

Vodacom and MTN must also independently reach an agreement with the Commission within two months on a reduction in the headline prices of all sub-500MB 30-day prepaid data bundles.

This, the Commission said, is to reflect the same price per MB as the 500MB 30-day bundle.

It added that Vodacom and MTN must “cease ongoing partitioning and price discrimination strategies that may facilitate greater exploitation of market power and anti-poor pricing”.

What the Competition Commission partly bases its findings on

The Commission undertook an international benchmarking of South African data prices as part of its investigations, and its finding was not a surprise.

The existing international comparisons on mobile prepaid data prices collectively indicate that South Africa currently performs poorly relative to other countries, with prices generally on the more expensive end.

The Commission partly relied on ITU data, which it said “showed that South Africa ranks poorly when compared across a worldwide selection of countries”.

It added that South Africa is considerably more expensive than the cheapest offers overseas and that we also rank poorly relative to other African countries.

It said that Research ICT Africa (RIA) RAMP index data concluded that South Africa performs poorly relative to our continental peers and that the situation has worsened over time.

The Commission’s report provided the charts below to show how expensive data is in South Africa is in comparison with other African countries.

What the ITU says about affordability

To show the affordability of mobile data at country level, the ITU provided a breakdown of prices for 500MB and 1GB mobile broadband baskets as a percentage of countries’ monthly gross national income per capita (GNI p.c.).

“Prices are expressed as a percentage of GNI p.c. to show them relative to the size of the economy of each country, thus pointing to the affordability of each ICT service at country level,” the ITU explained.

What the ITU data shows is that South Africa is actually one of the most affordable countries in Africa for mobile data.

An overview of the data supplied by the ITU concerning the affordability of mobile broadband at country level – lower is better – is shown below.

Here is another view of the same data, based on the countries which the Competition Commission listed in its 1GB data tariff charts for Vodacom and MTN.

What it shows is that South Africa’s mobile data tariffs are far more affordable to citizens than their counterparts in the countries listed.

Far larger network investments in South Africa

As mobile data is more affordable to South Africans, Vodacom and MTN therefore have the freedom to provide superior mobile data services at higher prices.

To provide these world-class mobile data services – which include country-wide coverage, excellent reliability, and high speeds – these companies need to make large network investments.

Vodacom and MTN’s network investments in South Africa are far larger than many operators in other countries, which translates into superior quality services.

It is therefore no surprise that Vodacom and MTN charge more for mobile data in South Africa than what they do in other countries where they operate.

The charts below show the difference in network investment (capital expenditure) in various countries where Vodacom and MTN operate.

Capex per subscriber

While network investment (Capex) is a fair indicator of network quality, it depends on factors like the geographical area which must be covered and how many subscribers must be served.

It is therefore not fair to directly compare Vodacom’s capital expenditure in South Africa and Lesotho, because Lesotho is much smaller with far fewer subscribers.

Instead, capital expenditure (Capex) per subscriber is a much better measure of how much money an operator spends to improve the user experience.

This figure has a close correlation with the quality of the service which subscribers receive and therefore how much a service should cost.

The Capex per subscriber for Vodacom and MTN clearly shows that their subscribers in South Africa enjoy a much better overall network experience than their counterparts in other countries.

Network coverage

Coverage, and 4G coverage specifically, is another indication of the quality of a mobile data service.

Vodacom and MTN provide far better coverage in South Africa than in other countries where they operate, as shown in the charts below.

The easy way to make data cheaper (and the cost)

The government, the Competition Commission, and millions of consumers, however, are putting tremendous pressure on Vodacom and MTN to cut mobile data prices.

There is an easy way to make mobile data cheaper, as illustrated in this article – cut network investment.

The money saved on network investments can be passed on to consumers in the form of lower mobile data rates.

The consequence, though, is an impact on network quality. The lower the Capex, the lower the network quality and coverage.

South Africans currently enjoy world-class mobile networks from Vodacom and MTN with near-ubiquitous 3G and 4G coverage.

Should the mobile operators start to reduce their network investments, the quality of their network will start to fall behind global standards.

This will be a sad day for South Africa, where world-class services are few and far between. Vodacom and MTN should be commended for building excellent networks – not ostracized.

A lack of spectrum in South Africa

Vodacom and MTN have also highlighted for years that the lack of spectrum is one of the main factors that drive high data costs in South Africa.

“For more than a decade, government and regulators have failed to release the spectrum that the mobile industry has so critically required to bring down the cost to communicate,” MTN said.

Vodacom said that the Commission has downplayed the role of spectrum in reducing data prices, while ICASA is aware of its role in achieving cheap and high-quality mobile broadband.

“Vodacom has consistently stated that delayed spectrum allocation has impacted the rate at which data prices could have fallen,” the network told MyBroadband.

The charts below clearly show that Vodacom South Africa and MTN South Africa have significantly less spectrum than in other African countries where they operate.

This is the single biggest issue which should be addressed before the government or Competition Commission begin pointing fingers about high data prices.

Competition is the way

Many people call Vodacom and MTN a duopoly, blaming them for ripping people off for years with high mobile data prices. This is nonsense.

Nobody needs to subscribe to Vodacom or MTN’s mobile data products. It is a proactive choice which many people make because of these operators’ excellent networks and other benefits.

People have the option to use Telkom, Cell C, or Rain. They even have the choice of using free Wi-Fi hotspots in their area.

If you are unhappy about Vodacom or MTN’s prices, the solution is simple – move. Telkom and Cell C offer excellent alternatives with country-wide coverage thanks to national roaming agreements.

I would also love lower mobile data prices, but not at the expense of network quality. And this is the crux of the matter.

South Africans have choice. They can choose between expensive, high-quality mobile data products and more affordable options which may not offer the same performance.

To force all operators to only offer affordable mobile data products instead of allowing different operators to innovate and compete is counterproductive.

The long-term solution is simple – the government and ICASA must hand out spectrum, make it easier to roll out networks, and ensure a competitive market.

It has worked in markets across the world, and it will work in South Africa.

Now read: Don’t punish Vodacom and MTN for the government’s failings

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What you are not told about Vodacom and MTN’s data prices