The Competition Commission published its much-anticipated final report on its Data Services Market Inquiry last week, confirming revelations that South Africa’s cost of data services, particularly mobile prepaid data pricing, is high when benchmarked against the country’s peers.

The Competition Commission’s ‘Final Findings and Recommendations of the Data Services Market Inquiry’ report finds that the combination of a highly concentrated market and a duopoly of the two leading operators, Vodacom and MTN, result in excessively high data prices.

The Competition Commission’s market inquiry into high data costs, started in August 2017, unpacked the general state of competition in data services, examined any features that prevent, distort or restrict competition and reviewed the cause of high data prices.

“This followed persistent concerns expressed by the public about the high level of data prices and the importance of data affordability for the South African economy and consumers,” says Competition Commission commissioner Tembinkosi Bonakele.

“We have noted that there have been recent price reductions, but the duopoly must reach an agreement with the commission on a significant reduction in prices,” the commissioner says.

The report shows that priced-based competition in the mobile markets is inadequate, with the retail mobile market remaining stubbornly concentrated.

However, mobile operators Vodacom and MTN say a lack of access to spectrum remains a significant inhibitor of efforts to lower data prices, and that the Competition Commission’s report does not fully account for the impact of the long-standing issue of limited spectrum and contradicts the viewpoint of the Independent Communications Authority of South Africa (Icasa), which is conducting its own data pricing inquiries.

“For more than a decade, government and regulators have failed to release the spectrum that the mobile industry has so critically required to bring down the cost to communicate. “To simply lay the blame for data costs at the foot of the operators is wrong,” says MTN South Africa CEO Godfrey Motsa.

The company has invested more than R50-billion over the past five years to compensate for a lack of spectrum.

“The spectrum crunch has resulted in MTN South Africa having to invest up to more than double per subscriber than what is seen, on average, with other fixed and mobile operators,” he explains.

Vodacom adds that there is a significant difference in opinion regarding the impact of the continuous delays in allocating available spectrum.

“Icasa says there are a number of reasons spectrum assignment is critical to achieving cheap, high-quality mobile broadband, whereas the Competition Commission has downplayed the role of spectrum in reducing data prices,” it says.

While Vodacom affirms that the delayed spectrum allocation has impacted on the rate at which data prices could have fallen, the company has reduced the effective price of data by 50% since March 2016.

Bonakele says that there is scope to reduce prices by 30% to 50%.

“It is immediately evident that there is a significant difference in opinion between the Competition Commission and Icasa on a number of issues that are critical to data prices in South Africa,” Vodacom asserts.

The company highlights Icasa’s conclusion, drawn from its analysis of international mobile data prices, that South Africa’s prices are “neither extremely high nor very low” in relation to countries similar to South Africa in terms of size and level of development, while the Competition Commission states that South Africa currently performs poorly relative to other countries with prices generally at the more expensive end.

Both MTN and Vodacom plan to review the commission’s report in greater detail.

Final Findings

The retail pricing structure of mobile data is antipoor and lacks transparency, with an assessment of all mobile operators’ headline retail prices demonstrating that consumers of small data bundles pay “inexplicably” more on a per-megabyte/gigabyte basis, says Competition Commission chief economist James Hodge.

Further, South Africa’s postpaid packages, while still high, are better priced than prepaid offers, indicating a potential structural problem with retail prices in South Africa.

The findings in the retail market also point to potential challenges in the wholesale market, where roaming arrangements and terms have been unfavourable and have constrained price competition.

The wholesale market has failed to provide wholesale network access for purposes of retail competition in the form of mobile virtual network operators.

Finally, the inquiry finds that addressing the fixed-line supply gap – the backbone in the supply of household and business access – will be critical to the provision of alternative data services, such as WiFi.

Recommendations
The Competition Commission has identified a series of final immediate and intermediate recommendations to address the high cost of data across the value chain.

Several recommendations and measures, with immediate implementation, will provide immediate relief for low-income consumers, combined with initiatives to improve mobile price competition and greater infrastructure alternatives for consumers over the medium term.

Within two months, Vodacom and MTN are required to reduce their tariff levels and align their headline prepaid sub-500-MB, 30-day prices with those of similar postpaid packages, failing which the Compeition Commission will pursue prosecution for excessive pricing.

All mobile operators are required to offer all prepaid subscribers a ‘lifeline package’ of daily free data to ensure data access on a continuous basis.

Further, all mobile operators are required to reach an agreement with the Competition Commission within three months on an industrywide approach to the zero-rating of content from public benefit organisations and educational institutions.