Price war!
SA consumers have been waiting years for the sort of price wars that have driven down the cost of broadband in Europe and the US. MTN, which has slashed the cost of accessing the Internet using its cellular network, may have just triggered one.
When MTN unexpectedly announced deep cuts in the cost of using its cellular network to access the Internet two weeks ago, it made it clear that it was going to compete on price to win subscribers from rival operators. It also triggered an almost immediate reaction from two of its rivals, wireless operators Sentech and iBurst
Vodacom, which, until now, has been the price setter in the cellular data market, is also understood to have been caught off-guard by MTN’s move. Vodacom is likely to retaliate with aggressive price cuts of its own soon. It has little choice.
MTN’s move is significant. Vodacom has taken an early lead in mobile broadband and has been quicker than MTN to create a third generation (3G) cellular network using high speed downlink packet access (HSDPA), technology that theoretically allows download speeds of up to 1,8Mbit/s.
Accessing the Internet using wireless networks has traditionally been much more expensive than fixed-line solutions based on digital subscriber line (DSL) access. But with MTN’s recent price cuts, accessing the Internet using mobile phones is now significantly cheaper. MTN is hoping to attract more data customers and drive more traffic to its network. But its advantage may be short-lived as other operators respond with price cuts of their own.
Let’s look at the numbers. MTN’s new top end product offers 2GB of data a month for R399 (excluding the cost of a modem) for speeds of up to 1,8Mbit/s (real-world HSDPA speeds are closer to 1Mbit/s). Telkom’s slower 512Kbit/s DSL product costs R660,92/month (R461,92 for DSL and telephone line rental plus R199 for 2GB of bandwidth from TelkomInternet). That means that, for a slower service, Telkom is charging 65% more than MTN. This despite MTN and other operators still being heavily reliant on Telkom for providing them with international bandwidth on the Sat-3 submarine cable that links SA with Europe.
iBurst, which offers speeds of up to 1Mbit/s, doesn’t have a 2GB option, so direct comparisons can’t be made. But its 1GB product costs R469/month, which is more expensive than MTN’s 2GB product. Vodacom, on the other hand, charges an even pricier R1098/month for its 2GB HSDPA product, or R878/month for its slower, plain vanilla 3G option. Vodacom’s offerings include the cost of the 3G modem but are subject to a 24-month contract.
iBurst and Sentech have already responded to MTN’s price cuts. iBurst hasn’t lowered its prices, but it is giving most of its 24-month contract subscribers an extra 500MB of bandwidth a month. Sentech has introduced new products that are much cheaper than its previous options. It has also increased the speed of its services. Its low-end products, aimed at dial-up users, are particularly affordable. But Sentech lacks the wider coverage offered by its rivals and this will hobble any gains in market share it hopes to make.
All eyes are now on Vodacom and Telkom. Vodacom is understood to be formulating a response to MTN. But Telkom, whose broadband offerings are now among the most expensive in the market, says it has no immediate plans to cut its prices.
With second network operator Neotel about to enter the market, Telkom’s monopoly over access to Sat-3 about to come to an end, and the mobile operators intent on achieving the sort of market share in data services that they have in voice, SA looks set for more price cuts. Consumers, rejoice!
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