Afrihost launched its first mobile data products on 20 August 2013, offering 5GB of mobile data for R145 per month on a month-to-month contract.
This is the best priced mobile data product of its kind in South Africa, but to sweeten the deal Afrihost threw in a free Huawei MiFi device for the first 1,000 sign-ups.
Demand for the service far exceeded supply, and Afrihost decided to give away more free devices to avoid disappointment.
In the end Afrihost gave away over 8,000 free MiFi devices. Afrihost said that the total cost of the devices and promotional 3GB free data amounted to over R22-million in value.
This raises the question of why a mid-sized Internet Service Provider (ISP) is giving away R22 million in value to its subscribers, and where it gets the money to do so.
Afrihost explains mobile plans
Afrihost director Greg Payne said that they funded the initial 8,000 free modems, delivery via courier, and the RICA costs out of the company’s existing cash flows.
“Afrihost is in the process of securing debt with a local bank and will be looking at more funding in the future to extend affordable broadband to more South Africans,” said Payne.
Payne said that their funding will be in the form of debt, and not equity. He also dismissed industry speculation that MTN helped to fund their mobile product launch.
Why Afrihost Mobile?
Payne said that their entrance into the mobile data market is aimed at making Internet access more affordable to more South Africans.
“ADSL will not bridge the digital divide easily, but we believe an offer such as this – 5GB for R145 per month, all in – will go a long way to bridge the digital divide,” said Payne.
Afrihost Mobile’s business model
When Afrihost launched its R29 per GB ADSL products a few years back – at a time when the usual price was between R50 and R70 per GB – many industry players called it unsustainable.
Afrihost is now doing the same in the mobile market, but the situation is different. There is no Seacom which will bring cheaper international bandwidth, and prices are already at all-time lows in the mobile market.
Payne said that they have a have a standard commercial agreement with MTN, but that the cellular operator has given them some commercial flexibility in getting their new mobile service going.
“For the last year, MTN has been an outstanding wholesale supplier to Afrihost for ADSL services and now they are extending that to mobile data,” said Payne.
“This was always part of the strategy in terms of moving our ADSL network over to MTN,” he said.
“We don’t believe there is another 1st tier network provider in South Africa that could have offered the network, pricing, and systems flexibility at the wholesale level that MTN has proved they can offer.”
Afrihost’s initial offer is a 2GB mobile data product for R145, but the ISP is giving subscribers an additional 3Gb of data free of charge until the end of February.
“At that point, we will re-evaluate how we price the service, but Afrihost remain committed to bringing great value to our clients – that means great service at a great price,” said Payne.
Selling mobile data cheaper than MTN
Afrihost Mobile is currently selling mobile data cheaper than MTN offerings, but this is unlikely to continue after February 2014.
“We obviously can’t sell data cheaper than MTN for the long term, without funding the loss from our hosting business,” said Payne.
“This special will, however, entice users to try us out for six months and Afrihost believes that there will be users who port over from other service providers to MTN to enable them to experience the customer service that Afrihost has become famous for,” said Payne.
“If we are successful in doing this, it will be a win for both MTN and Afrihost.”