MTN CEO Rob Shuter recently said entry-level and out-of-bundle data prices are high, and need to be addressed.
Vodacom CEO Shameel Joosub has also said they are focused on addressing high out-of-bundle pricing.
Shuter highlighted two major problems with how data is priced in South Africa:
- Entry-level pricing for data for someone who did not buy a data bundle on the MTN network is high.
- When a person goes out-of-bundle after depleting a data bundle, they are put on a high tariff.
Shuter is correct that these are big concerns from mobile subscribers, and that pricing needs to change.
The solution to the high entry-level and high out-of-bundle prices is remarkably simple, however: don’t charge people exorbitant rates when they go out-of-bundle.
Vodacom found the solution to this problem in 2009 with its Broadband Advanced service, where out-of-bundle rates were the same as in-bundle rates.
Vodacom charged a premium for its Broadband Advanced data products, as it knew it was what the market wanted.
Using this, it is easy to create a commercial model which combats high out-of-bundle prices and exorbitant entry-level data rates:
- All data is sold per bundle, where the out-of-bundle rate is equal to the in-bundle rate for the lifetime of the bundle.
- The per-MB price for data decreases as the bundle size increases, which encourages large data bundle purchases.
- Larger data bundles have longer lifespans, which again encourages large data bundle purchases.
Here are examples of how this will work:
- A consumer purchases a 10GB bundle for R599, which is valid for 30 days. The subscriber will pay 6c per MB in-bundle and out-of-bundle for the next 30 days.
- A consumer purchases a 20MB Internet Daily bundle for R5, which lasts until midnight that day. For the day, the subscriber will be charged 25c per MB in-bundle and out-of-bundle.
When the data bundle expires, the subscriber is prompted to purchase another data bundle to lock in a new data rate.
The concept of “out-of-bundle” therefore disappears, and the days of jumping between 5c in-bundle and R1.50 out-of-bundle along with it.
Why this has not happened
If this concept has existed for years, and it has been proven it is what subscribers want, why has it not been implemented?
The reason is an obvious one – mobile operators are making buckets of money thanks to out-of-bundle rates and high entry-level data prices.
The revenue generated from out-of-bundle prices has the added benefit of significantly strengthening an operator’s bottom line.
The profit margin on data priced at R1.50 per MB is obviously much higher than in-bundle rates, which are as low as 5c per MB.
Mobile operators have become addicted to these profits, and when Shuter says the industry must find a solution to the problem, he is not talking about the one proposed above.
The networks will focus on a solution which makes up for the potential loss in profits and does not hurt their bottom line.
With many CEOs living from one financial report to the next, it is hard to convince them to make a decision which can hurt the company financially – even if it is only in the short term.
As Vumatel CEO Neil Schoeman recently said, “mobile operators have been very naughty regarding the price of data”.
It is not clear what will convince Vodacom, MTN, and the other operators to remove high out-of-bundle prices, but it will be a sensible decision to take the short-term financial knock before data prices once again become a political football.
If prices don’t change in the near future, legislation may be put in place to force an adjustment – which can do serious damage to these companies.