MTN’s insanity of charging extra for LTE

Accessing LTE on MTN’s network will cost you an extra R39 per month. It’s managing this by charging for a separate value added service on contract (in the same way it does for other random services like itemised billing and caller line identity). This means prepaid customers can’t access LTE, at least not until MTN figures out how to charge for it (probably not anytime soon).

Aside from being extremely shortsighted, it’s also hard to see why MTN’s decision is not underhanded, given that these types of charges tend not to ever disappear (witness itemised billing and caller line identity). Itemised billing, for example, has the potential to net MTN over R75m a month if every contract subscriber has the service (at R17.20) active (most do). And this money’s been rolling in for over a decade.

Operators will argue that the problem with LTE (4G) is that there isn’t any precedent. Except there sort of is: the jump from 2G (GRPS and EDGE) services to 3G that played out from 2005. Because of the significant jump in speed, operators had to figure out ways of charging for larger amounts of data. R2 per MB didn’t cut it. Vodacom’s original 3G service, for example, was priced at R599 per month for 1GB of data.

For LTE, Vodacom has taken the route of not charging extra. Given that it’s increasingly relying on parent Vodafone for guidance on products and services, there were no doubt serious deliberations at Vodacom about how to charge for its higher speed mobile broadband. It’s no help looking at the UK because Vodafone UK doesn’t yet have active 4G services (rival EE has exclusive access until later this year and is charging a premium for LTE services right now).

Interestingly, Vodafone Germany is limiting LTE access to its premium contracts (basically Vodacom’s new RED plans). Everyone else on contract is limited to different speed 3G services, depending on their plan (eg. 7.2Mbps or 21.6Mbps).

Also, its structured its data-only tariff plans in tiers, according to volume of data and maximum speed (up to 21.6Mbps, 42.2Mbps and 50Mbps (LTE)). LTE is not available to prepaid customers.

CEO of the UK’s Three network, Dave Dyson sees the value in not being shortsighted in pricing decisions. At the launch of its 4G services, he said: “As we add the next wave of technology to our Ultrafast network, we’ve listened to our customers and thought long and hard about the right way to do it. We don’t want to limit Ultrafast services to a select few based on a premium price and we’ve decided our customers will get this service as standard.”

Back to MTN.

Already, subscribers who want to access LTE need a 128k SIM which is likely going to cost over R100 (seeing as MTN reserves the right to “require you to pay a reasonable charge for the SIM swap process”).

Already, LTE is limited to very high-end devices (only a handful of smartphones and USB modems support LTE). This means MTN is going to be charging extra to customers who probably spend close to (or more than) R1 000 with the operator a month.

Already, LTE is only available in limited areas. MTN, for example, only has around 300 live sites in three cities (by comparison, Vodacom has more than double that number). And it’s a fairly immature technology (that will improve over time) rolled out on existing spectrum – as opposed to spectrum more suited to the purpose (the allocation of which is stuck in the kind of regulatory limbo we’ve become used to in SA).

Already, the current pricing of data bundles simply doesn’t make sense for LTE. You could easily burn through 2GB of data in minutes, so any LTE subscribers are immediately hamstrung by pricing.

In the short term, what could this R39 per month fee actually net for MTN?

Even at 100 000 LTE subscribers (extremely unlikely for at least the next 12 months given the limited coverage and number of devices), it would mean an extra R3.9m a month. Sounds a lot, but it’s 1/1000th (0.001%) of MTN’s monthly revenue in South Africa.

It’s a hassle… an unnecessary extra fee which will artificially boost ARPU (average revenue per user) in the near term, but further erode customer trust and loyalty.

What does the future hold for the SA market? Vodacom can’t quite go back on its decision to allow LTE access for free. Cell C won’t charge a premium for 4G, given its aggressive approach on pricing. Who knows what Telkom Mobile will cook up, but it’s hard to see it also trying to challenge an effective duopoly with anything but price.

My money’s on some sort of tiering (based on speed) being put in place over time – which is not a bad thing. Most obviously, it would allow for the introduction of unlimited data services. At a throttled maximum speed (eg. 7.2Mbps), the mathematics around pricing of uncapped (or soft-capped) mobile data products starts to make sense.

* Hilton Tarrant contributes to ‘Broadband’, a column on Moneyweb covering the ICT sector in South Africa. The R39 a month charge for LTE is just another reason for him to port away from MTN in the next few months.

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MTN’s insanity of charging extra for LTE