Free airtime demands from R2K: are they reasonable?

The folks behind the admirable campaign against the so-called Secrecy Bill (or more properly, “Protection of State Information Bill”), Right2Know have embarked on a quest for free basic mobile telecommunications in South Africa.

Among their demands is that SMS messages should be free, that ICASA should regulate the cost of airtime and data to stop profiteering, and that everyone should get a free basic amount of airtime and data in the same way we have free basic water and electricity.

While their campaign is likely borne from noble intentions (the right to freedom to receive or send information in the Bill of Rights, they say), it seems to be based on a number of faulty assertions.

Below follows a list of the statements R2K made in a press release it recently issued, along with our perspective on their statements.

The right to communicate is a basic human right. Section 161b. of our Bill of Rights gives everyone the freedom to receive or impart information or ideas;

For many people our rights only exist on paper, but 82.9% of South Africans have cellphones that could make our right to communicate real;

Those are the noble intentions we spoke about earlier.

SA has the 6th highest mobile phone charges in the world. Profiteering by the cellphone companies makes communication expensive for the majority of people;

Sixth highest in the world? That’s pretty bad. It’s also not entirely clear where R2K got that statistic from. In their “Right2Communicate” activists’ guide, R2K cites the “Measuring Information Society 2012” study by the ITU, but the actual study seems to rank SA 100th out of 161 countries, not 77th out of 82.

Look, mobile prices in South Africa are very, very high, with the World Economic Forum ranking us 117th out of 144 countries (which is still in the bottom 30 for those counting) and Research ICT Africa placing South Africa 30th out of 46 African countries.

Isn’t that shockingly poor enough?

Professor Srinivasan Keshav
Professor Srinivasan Keshav

The cost of SMS is about 2.6cents, so companies are making up to 3,000% of profit on a SMS;

This statement comes from work published by Srinivasan Keshav, a professor at the University of Waterloo in Ontario, who said that the true cost of an SMS for an operator is less then 0.3 US cents, which at the time (November 2012) was about 2.6 South African cents.

South Africa’s network operators, as one might expect, dodged the issue of SMS costs when we asked them about it. More recently, in response to R2K’s demands, a Vodacom spokesperson said that R2K’s statement ignores the fact that the network has to be built and maintained and the entire corporate infrastructure supported for anything to be transmitted.

The bottom-line is that based on the information we have, operators are charging far more to send an SMS than it costs them to transmit it, and R2K are probably in the right ballpark on this one.

That said, R2K’s demand that SMS be free is not reasonable. Cheaper SMS I can get behind, but free (dare I say it?) is not sustainable. Incidentally, Cell C, Telkom Mobile, and Virgin Mobile offer some pretty competitive pricing on SMS.

Pre-paid users are often charged more than contract users, thus deepening inequality in SA;

In lieu of compelling evidence presented by R2K, this claim, along with their demand that pre-paid users should not cross-subsidise contract users, are dubious.

Since 2010, when Cell C took an axe to mobile data prices, the unified cries of “What about us poor contract users!” echoed throughout the MyBroadband forums.

Contract users did eventually see price cuts to the bundles available to them, but they definitely don’t always benefit first from price cuts.

A possible reason for this if one looks at the financial results reports from mobile operators is that, as expected, churn is far higher on pre-paid than on contract.

It would be prudent then for operators to try and offer pre-paid users incentives to stick with them. Lower prices make a pretty sweet incentive.

World Bank 2009 Economic growth per 10 percentage point rise in broadband penetration
World Bank 2009 Economic growth per 10 percentage point rise in broadband penetration

Cellphone services have been privatised.

Asked why they think privatisation is a bad thing, R2K’s Alison Tilley said that she believes the right to health is a useful comparator.

“There are private health care providers, but that is only really affordable for those in formal employment, and even then, the out of pocket expenses can be crippling,” she said. “For the right to health to mean anything, there have to be public health care providers.”

She went on to say that when everyone has access to healthcare, it increases the welfare of those in the private system and the public system.

“Similarly, we know that access to bandwidth is one of the factors that directly benefits individuals, and benefits the economy,” she said.

Tilley raises an interesting philosophical discussion, but I’d like to take a more pragmatic perspective on the issue. Let’s compare and contrast the private sector telecommunications offerings against attempts at a public service, shall we?

In the private sector corner we have the likes of Vodacom and MTN: companies that have almost the whole of South Africa’s population covered. Cell C deserves an honourable mention for being the upstart trying to shake up the market with not just lower broadband prices, but lower call and SMS charges as well.

There is also the perhaps lesser-known alternative telco space where voice-over-IP and wireless access providers in South Africa are competing fiercely against the big guys for end-user attention.

In the public sector corner we had Sentech MyWireless, an abject failure that has been shut down. Government’s track record when it comes to providing or assisting with the roll-out of telecommunications services has been generally poor, in fact.

The market is dominated by MTN and Vodacom, and they set the terms of trade for the rest of the industry;

Why are you marching on Cell C then?

Nicholas Hall
Nicholas Hall, Michalsons Attorneys

The Consumer Protection Act says that pre-paid vouchers must be valid for 3 years. However, many cellphone users lose money each month because their airtime, SMS, and data bundles expire after one or two months;

This is an interesting discussion that we have covered in some detail in the past.

Legal expert Nicholas Hall has argued that there is a case to be made that the CPA provisions only extend to the actual voucher before it is redeemed and not the actual value you get after it is loaded.

As is the case with untested laws, Hall has gone on to say that the National Consumer Commission can make the opposing argument that the CPA must always be read to benefit the consumer.

Operators warn that extending roll-over to such a long period would mess up their business model and could actually end up making things more expensive.

If the intention is to disrupt operators’ business models and then see where we end up, then go for it. However, a more reasonable place to start would be to push operators to implement saner data roll-over policies.

There is no transparency in the cost of communications, and it is nearly impossible to compare the prices of different packages across networks;

To compare different packages across networks that would imply they would all need to be structured the same, which is not necessarily desirable.

If we say that any package must have absolute SMS and voice prices to compare them to deals on other networks like a per–100g price at a supermarket, then it would limit an operator’s freedom to try interesting things to win customers.

Telkom Mobile, for example, lets you accrue minutes (anytime, any network) if someone calls you, and you get 50 free SMS messages to use until midnight after you send 5 on a particular day.

The interconnection rates, rates that a cellphone network charges another network to terminate its calls on that network, are excessively high and benefit the domination by MTN and Vodacom;

A 3-year downward glide path ICASA laid down in regulations has just finished and the regulator has just begun its market review to look at the possibility of further changes to call termination rates.

The responsibility of ICASA (Independent Communications Authority of South Africa) is to regulate telecommunications, but it is weak, lacks independence, and is underfunded.

No arguments here, though ICASA has made some encouraging noises of late. So will marching on them really make a difference?

There’s no doubt that mobile communications in South Africa is expensive and it is admirable of Right2Know to want to take a stand. Inaccurate statements and unreasonable demands will do more harm than good, though.

What we need is more affordable telecommunications, and practical solutions to bring costs down for the end-user while allowing operators to maintain their profitability to keep their shareholders happy, and the means to continue investing in their network.

We can certainly work towards free access for all South Africans, but demanding it at this stage of the game just isn’t productive.

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Free airtime demands from R2K: are they reasonable?