{"id":380206,"date":"2020-12-21T07:00:28","date_gmt":"2020-12-21T05:00:28","guid":{"rendered":"https:\/\/mybroadband.co.za\/news\/?p=380206"},"modified":"2020-12-21T08:30:40","modified_gmt":"2020-12-21T06:30:40","slug":"how-to-cut-mobile-data-prices-by-50","status":"publish","type":"post","link":"https:\/\/mybroadband.co.za\/news\/columns\/380206-how-to-cut-mobile-data-prices-by-50.html","title":{"rendered":"How to cut mobile data prices by 50%"},"content":{"rendered":"

A recent agreement<\/strong><\/a> between President Cyril Ramaphosa and Communications Minister Stella Ndabeni-Abrahams requires her to ensure mobile data prices are reduced by 50%.<\/p>\n

This is a positive development. Lower data prices will result in more people going online and help to grow the economy.<\/p>\n

What is important, though, is that the target is achieved through market forces and not a price-cut instruction to mobile operators.<\/p>\n

To instruct mobile operators to cut data prices is tempting because it is easy and will gain a lot of political and public support.<\/p>\n

Such an instruction is, however, similar to the late Zimbabwean President Robert Mugabe\u2019s 2007 order<\/strong><\/a> to cut the price of basic goods and services by half to fight the high inflation rate.<\/p>\n

Anyone with a basic economic understanding knew it would not achieve anything constructive and will cause more harm than good. They were proven right.<\/p>\n

Instead of going the populist route, Ndabeni-Abrahams should focus on enabling operators to reduce prices through competitive forces.<\/p>\n

The easiest way to achieve this is to give them more spectrum and make it easier to roll out infrastructure.<\/p>\n

These interventions will lower the input costs to offer mobile data and encourage retail price cuts.<\/p>\n

If you are sceptical about this strategy, you just have to look at the ADSL market to see the result.<\/p>\n

ADSL prices remained stubbornly high for years because of high local and international transit prices.<\/p>\n

The moment SEACOM landed and free and open peering took off, transit prices plummeted, which lowered input costs.<\/p>\n

What followed was a revolution in the ADSL market, with capped and uncapped prices reducing rapidly.<\/p>\n

The same can happen in the mobile data market if mobile operators are supported through more spectrum and other interventions.<\/p>\n

Intentions versus results<\/h3>\n

Millions of South Africans who have been paying high prices for prepaid and out-of-bundle data see things differently.<\/p>\n

They want the government to intervene by forcing Vodacom and MTN to cut prices and even give away free data.<\/p>\n

So pervasive is this view that the Competition Commission ordered Vodacom and MTN to reduce data prices in 2019.<\/p>\n

Consumers celebrated this intervention, but for the Competition Commission and the government to interfere in retail pricing in a competitive market is dangerous.<\/p>\n

The intention may be noble, but the consequences of ill-informed policies can cause damage which is felt for years or even decades.<\/p>\n

A good example is Telkom. The ANC government gave the company a five-year monopoly in the fixed-line market in exchange for Telkom improving telecoms infrastructure in South Africa.<\/p>\n

Telkom had to roll out 2.8 million new fixed lines, of which 1.7 million were earmarked for historically under-serviced areas.<\/p>\n

The intention behind the Telkom monopoly was mainly to improve access to communications services in underserved areas. Noble indeed.<\/p>\n

The outcome, however, looked quite different. The new fixed lines disappeared soon after they were rolled out and telecoms prices in South Africa rocketed to unaffordable levels.<\/p>\n

South Africa\u2019s fixed-line and broadband prices were so high that only the wealthy could afford them.<\/p>\n

Telkom\u2019s monopoly resulted in the exclusion of poor people from the fixed telecoms market \u2013 the exact opposite of what was planned.<\/p>\n

The country also lagged in broadband access for years because of Telkom\u2019s poor ADSL rollout and its high data prices.<\/p>\n

One would have expected the government to acknowledge that it had failed and roll back this disastrous decision. This did not happen.<\/p>\n

When the DG of Communications was confronted with the fact that Telkom\u2019s services were unaffordable, he dismissed it as \u201cout of context\u201d.<\/p>\n

He said that people should look at the history and the big picture as regard to the development of infrastructure and service delivery of telecommunications in South Africa.<\/p>\n

\u201cThe Telecommunications Act 103 of 1996 states that Telkom should offer affordable services and Telkom and feels that they are delivering affordable services,\u201d he said.<\/p>\n

And this illustrates the problem. Telkom\u2019s monopoly resulted in high prices and poor service delivery, but politicians happily defended their decision.<\/p>\n

In fact, the government decided to extend Telkom\u2019s monopoly despite overwhelming evidence of the damage it did to the local telecoms market and the economy.<\/p>\n

The damage done by the government\u2019s decision to double down on its failed ideology is still felt in the local telecoms market two decades later.<\/p>\n

The chart below shows the decline of fixed lines in South Africa. The decline after 2000 happened despite the strong demand for ADSL after its launch in 2002.<\/p>\n

\"Telkom<\/a><\/p>\n

Competition to the rescue<\/h3>\n

The latest data from StatsSA shows that 90% of South African households rely solely on mobile services to stay connected.<\/p>\n

Fixed lines are a luxury in South Africa, with only 7.2% of households having a landline in their dwelling.<\/p>\n

In poor provinces like Limpopo, Mpumalanga, North West, and the Eastern Cape, landlines are nearly non-existent.<\/p>\n

This raises the question of why the mobile industry was so successful in covering South Africa while Telkom failed spectacularly.<\/p>\n

One reason is that wireless networks are much easier and more affordable to roll out than fixed lines.<\/p>\n

There is another equally important reason \u2013 competition.<\/p>\n

Unlike the fixed-line market which only had one player \u2013 Telkom \u2013 the mobile market initially had two players \u2013 Vodacom and MTN.<\/p>\n

They were fierce competitors who pushed billions into their networks to try to outdo each other in coverage and network quality.<\/p>\n

When Cell C launched in 2001, the race heated up even further, which resulted in nearly 100% population coverage.<\/p>\n

The rivalry between Vodacom and MTN continues to this day and as a result, South Africans have access to world-class mobile networks.<\/p>\n

The chart below shows the percentage of households who have a functional landline and cellular telephone in their dwellings by province.<\/p>\n

\"Landlines<\/a><\/p>\n

Ideology nearly trumped common sense<\/h3>\n

Most people take it for granted that they have country-wide 3G and 4G coverage with excellent speeds. This is mainly a result of a competitive mobile environment.<\/p>\n

What few people know is that competition was nearly blocked by the ANC.<\/p>\n

In early 1993 cabinet ministers authorized two cellular licences, and the licences were put out to tender in April 1993.<\/p>\n

Telkom was awarded half of one license. It then partnered with Vodafone and the Rembrandt Group to form Vodacom.<\/p>\n

In September 1993 Mobile Telephone Network (MTN) was announced as the winner of the second cellular licence.<\/p>\n

The table was set for the rollout of cellular services in South Africa, but this did not happen without significant battles to achieve this favourable outcome.<\/p>\n

The ANC alliance was not happy with the proposed cellular regime, saying that it represented a unilateral restructuring of the telecoms industry \u2013 \u201ca form of privatization through the back door\u201d.<\/p>\n

The ANC was opposed to privatising the public telecommunications network and wanted cellular to be a separate, autonomous parastatal service offered by Telkom.<\/p>\n

A lot of political wrangling and compromises on both sides ultimately resulted in the issuing of two mobile licences.<\/p>\n

Vodacom and MTN subsequently became two of the most successful companies in Africa and provide millions of South African citizens with communications services.<\/p>\n

This success was mainly based on creating a competitive cellular environment, selecting the GSM standard, and the speedy licensing of the mobile operators.<\/p>\n

Let competition do the work<\/h3>\n

The government should learn from its previous mistakes and trust in competition to achieve lower mobile data prices.<\/p>\n

It should give spectrum to operators and make it as easy as possible for them to compete without any restrictions.<\/p>\n

While government interventions like forced price cuts may have noble intentions, the long-term effects can be disastrous.<\/p>\n

Overly regulated industries, especially when accompanied by uncertainty, suffer from a lack of investment, innovation, and competition.<\/p>\n

This should be avoided to ensure South Africa remains at the forefront of mobile telecoms in Africa.<\/p>\n

This is an opinion piece.<\/em><\/p>\n

Now read: The truth about mobile data prices in South Africa<\/a><\/h3>\n","protected":false},"excerpt":{"rendered":"

The best way to reduce mobile data prices in South Africa is not the easy or popular route, but it will achieve the best long-term results.<\/p>\n","protected":false},"author":2,"featured_media":380214,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_sma_x_autopost_status":"idle","_sma_x_autopost_error":"","_sma_x_post_id":"","_sma_facebook_post_id":"","_sma_instagram_post_id":"","_sma_threads_post_id":"","_sma_x_attempts":0,"footnotes":""},"categories":[21],"tags":[569,355,1952,35,42,28964,16544,109,41],"class_list":["post-380206","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-columns","tag-anc","tag-cell-c","tag-cyril-ramaphosa","tag-headline","tag-mtn","tag-robert-mugabe","tag-stella-ndabeni-abrahams","tag-telkom","tag-vodacom"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/380206"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=380206"}],"version-history":[{"count":1,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/380206\/revisions"}],"predecessor-version":[{"id":380570,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/380206\/revisions\/380570"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media\/380214"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=380206"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=380206"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=380206"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}