What you are not told about mobile data prices

High mobile data prices in South Africa are making headlines with politicians, the public, and regulators putting pressure on operators to make mobile Internet access more affordable.

To make Internet access more affordable, and therefore more accessible, is indeed a noble quest and should be supported.

However, what is happening is that half-baked arguments and poor research are painting South African operators as the enemy when they are, in fact, our biggest ally in this quest.

By this I am definitely not saying that the operators are not out to make as much money as they can from their subscribers. In fact, this is exactly what I expect them to do.

My argument is that it is easier to achieve affordable Internet access for all in South Africa by working with Vodacom and MTN, rather than against them.

I also believe many good things are already happening in this regard and that the government should support these initiatives.

So, let me explain why I think South Africa is on the right track and what the government can do to accelerate the process.

What we usually see, and get angry about

When politicians, journalists, and regulators want to show how expensive mobile data is in South Africa, a comparison is often done between local prices and a handful of other African countries.

Even better is if the pricing comparison involves the same company, like MTN, with operations in many African countries.

This is exactly what ICASA did in its 2017 study about mobile data prices.

ICASA showed that the price of a 500MB data bundle from MTN was far more expensive in South Africa than in Uganda, Ghana, and the Ivory Coast.

What followed was predictable – outrage, anger, and calls for the government to deal with the greedy corporates who are ripping off their defenceless subscribers.

After all, look at this price graph.

What you are not told

There is no disputing that MTN’s mobile data prices are more expensive in South Africa than in other countries where it operates.

However, this only tells part of the story. We must look at what exactly people are paying for to accurately compare prices.

For example, it would be inaccurate to say South Africans pay more for broadband if we compare the local price of a 100Mbps FTTH connection with 512kbps DSL services in other countries.

When we look at network quality, MTN offers a far better product in South Africa than in other countries where it operates.

According to its latest financial report, MTN SA’s LTE population coverage is 75%, much higher than Uganda (7%), Ghana (33%), and the Ivory Coast (29%).

MTN’s 98% 3G coverage is also superior. In Uganda and Ghana, for example, many subscribers only have access to 2G (GPRS/EDGE – the dial-up of the mobile world).

This raises the question: Do you want to pay the same as your counterparts in Uganda and Ghana, but only get 2G access?

The chart below shows the 4G and 3G population coverage of MTN in the countries listed in the pricing comparison.

Investing in better networks

One of the easiest ways to make products more affordable is to reduce the cost to manufacture them.

Take a PC, for example. You replace the Intel Core i9 CPU with a Celeron chip and ditch the Nvidia GeForce RTX 2080 Ti for an Nvidia GeForce GT 1030.

The computer will be much cheaper, but the performance will be significantly worse than the more expensive machine.

The same holds for a mobile network. An operator can either stick with its old network or invest in the latest network technologies like 4G, 4×4 MIMO, and 3 Carrier Combining (3CC).

These latest network technologies require a very large network investment, referred to as capital expenditure (CAPEX).

In South Africa the mobile operators, specifically MTN and Vodacom, decided to go the high-quality route.

They invest in the latest network technologies, and in return the price for data is higher than in other countries where network investments are lower.

These network investments go far beyond 3G and 4G coverage and are best illustrated by the annual CAPEX per country.

To create an equal playing field, the CAPEX per subscriber, which shows how much money MTN invested in its network for each subscriber on that network, must be considered.

This clearly shows that MTN’s South African subscribers are getting a far superior product than their counterparts in other regions and should therefore expect to pay more.

Are operators making exorbitant profits?

The link between network quality, CAPEX, and data prices can be difficult to understand and explain.

Luckily there is another measure which can be used to see if a mobile operator is making excessive profits – EBIDTA (earnings before interest, tax, depreciation and amortization) margin.

A very high EBIDTA margin can point to excessive profits and an environment without enough competition to keep prices in check.

Comparing the EBIDTA margins of MTN’s operations in this article shows that South Africa is on par with other countries.

Network investments should be encouraged

Back to my initial statement that South Africa is on the right track.

To make mobile data and Internet access more affordable, one of the main ingredients is excess network capacity.

Here is a simplistic view of the situation:

  1. A mobile operator invests in its network, which creates excess capacity.
  2. To optimise the benefit of this investment, its network must run close to capacity. An empty network is a poor business practice for any operator or ISP.
  3. To fill up this excess capacity, an operator must encourage its current users to consume more data and/or attract new users to start using data.
  4. Money is a very limited resource for most people, which means operators typically improve their value proposition to encourage subscribers to use more data or sign up new users.

A good example of this phenomena is night-time data. Instead of network capacity being wasted during this quiet period, operators give data away for free to add value for subscribers.

It is therefore encouraging that Vodacom and MTN are investing billions into their networks each year.

They continually increase their network capacity, which puts pressure on them to ensure that this additional network capacity is used.

This is achieved by making sure more people use their service – hence increasing the Internet penetration rate in South Africa,  and decreasing data prices to encourage higher usage.

Helping operators to get more network capacity

One of the easiest ways to help operators increase their network capacity is for the government to give them additional spectrum.

Additional spectrum will enable operators to immediately “switch on” LTE across their network.

It will also make it easier and more affordable for operators to roll out networks and reduce CAPEX.

This CAPEX saving can be passed on to consumers in the form of lower mobile data prices.

Some of the spectrum can also be given to new players, which can start to roll out networks and bring additional competition to the market.

This valuable resource has been wasted for over a decade and it is high time for the government to act on President Cyril Ramaphosa’s instruction to get this done.

Competition is key

The most important component to make all of this work is competition. The impact of Telkom’s decade-long monopoly in the fixed-line market is a reminder of why competition is needed.

The logic behind this is simple: Smaller operators cannot compete against Vodacom and MTN on network reach and quality, which means their only option is to offer more affordable and innovative products.

If these products are sufficiently attractive, customers will start to dump Vodacom and MTN in preference of these smaller players.

This will, in turn, force Vodacom and MTN to react with more consumer-friendly products to prevent losing market share.

This is already happening in South Africa, with Telkom, Cell C, and Rain offering significantly better value propositions than Vodacom and MTN.

Another game changer is the new roaming agreements which will provide Telkom and Cell C’s subscribers with LTE access on Vodacom and MTN’s networks respectively.

This means Telkom and Cell C can continue to offer great value, with the added benefit of great LTE coverage across South Africa.

Technology is also playing its part in increasing competition and keeping operators on their toes.

Dual-SIM phones, for example, enable consumers to use Rain’s uncapped data option in its coverage areas, and fall back on Vodacom or MTN outside these areas.

A bright future

South Africa is in a great position to be a leader in the mobile Internet access arena.

We have world-class mobile networks, a competitive market with five national operators, and continued network investments into the latest technologies.

The government will do well to focus its energy on getting additional spectrum into the hands of operators – existing and new – and making it easier and cheaper for operators to roll out networks.

Competition and the need for continued profits have already resulted in Vodacom and MTN rolling out brilliant networks across the country.

The same two market forces can be used to drive down the price of mobile data and make the Internet accessible to all South Africa.

It may not be as easy as tweeting “shut up Vodacom” or painting mobile operators as exploitative capitalist monsters, but it will help to build a healthy mobile industry which benefits consumers.

Now read: MTN has the best mobile network in South Africa

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What you are not told about mobile data prices