The share prices of South Africa's two largest mobile operators, MTN and Vodacom, fell on Wednesday, after the Competition Commission announced that international benchmarking had confirmed that the country performs poorly in terms of data pricing, with unnecessarily high prices, particularly for mobile prepaid data.
Competition Commissioner Tembinkosi Bonakele told media at the release of a provisional report on the commission's Data Services Market Inquiry, that the country’s prepaid mobile data prices faired poorly internationally and among its Brazil, Russia, India, China and South Africa, or Brics, and Southern African Development Community, peers, noting, in particular, that MTN and Vodacom have lower data prices in other markets in which they operate.
The commision’s chief economist James Hodge added that international benchmarking typically makes use of the “cheapest tariff available”, which means that, all factors considered, South Africans probably pay significantly more for data than reported.
Along with compiling data from the Independent Communications Authority of South Africa (Icasa) and the International Telecommunications Union, the commission received 30 submissions from stakeholders, including civil society organisations, operators and regulators, held three days of public hearings in Pretoria and used other data sources to draft the provisional report, which found that the duopoly of MTN and Vodacom were able to maintain high headline data prices owing to the highly concentrated nature of the local mobile market, resulting in prices that are discriminatory and anti-poor.
Bonakele noted that an assessment of headline prices demonstrate that consumers with small data bundles pay “inexplicably” more on a per megabyte basis.
“Relative to a 1 GB bundle, a consumer buying a 100 MB bundle will pay roughly twice as much on a per megabyte basis. A consumer buying 50 MB will pay three times more and a consumer buying 20 MB will pay up to four times more,” he explained.
Additionally, a 20 MB bundle valid for a day is about 66% more expensive than a one-month 1 GB bundle. The validity period also makes it more likely that the smaller bundle will expire, whereupon low-income consumers are subject to “punitive” out-of-bundle rates.
The result is that usage levels among prepaid users has remained flat, while postpaid user levels have increased exponentially.
Bonakele noted that competition within the sector was extremely poor and that when smaller and newer entrants dropped prices in an effort to gain greater market share, MTN and Vodacom were largely unaffected, given their consumer base and access to infrastructure, to the point where Cell C had to raise it prices.
“On headline data prices, Cell C has historically been more aggressive and yet the larger two networks have found it profitable to not follow their pricing downwards. As a result … Cell C has recently determined that it cannot win sufficient market share by lowering prices and has proceeded to raise them …”
Additionally, he noted that operators prefer that consumers use promotional packages or competition bundles, rather than for the operators to decrease headline prices.
While the commission noted that a lack of spectrum has unnecessarily raised costs for operators, Bonakele noted the release of spectrum would not necessarily result in data cost reductions for the consumer.
He also noted that data pricing lacked transparency, commenting that “consumers don’t know what they’re buying … they’re told there’s a special and have to hope that it’s a real special.”
Moreover, Hodge noted that apartheid spatial planning, as well as the reality that fixed line infrastructure is predominantly based in higher income areas, meant that higher income consumers were afforded more opportunities to “offload” onto public, business or household WiFi, which rural and lower income consumers could not.
The provisional report suggests immediate relief on data prices, including a commitment by operators to reduce headline tariffs levels to the current effective level of charges, inclusive of occasional promotions, thereby ensuring lower average rates. Hodge noted that this would be revenue-neutral for operators.
This would also include a commitment to reduce sub-gigabyte bundles, to a “socially defensible” range of the 1 GB price.
Hodge explained that currently a 1 GB bundle works out to about 15c/MB, while a 100 MB bundle costs around 29c/MB, and that the commission is asking operators to commit to something in the range of around 19c/MB or 25% higher on a per megabyte basis.
Other recommendations included enhancing price-based competition, enhancing price transparency, governmental support of free public WiFi in low income areas, governmental assisting in reducing the cost of investment in backhaul and last mile infrastructure in low-income areas, perhaps through incentives, changes in regulation to promote a more competitive environment.
Economic Development Minister Ebrahim Patel welcomed the report, which he described as, “quite fundamental to our future economic prospects”, given that access to data and online services has become integral to all sectors of the economy including financial, health and education services.
While reluctant to engage directly with the specific content of the report, he noted that it had far-reaching implications in a world where data and access to data has become a new currency.
“Academic literature indicates a strong relationship between Internet access and gross domestic product performance, which means that the country requires the lowest possible data prices to remain competitive.”
The inquiry into the cause of high data prices, called for by Patel, started in September 2017 and had been extended from its initial completion date of August 31, 2018. Bonakele called for submissions and comment on the provisional report. This public consultation period will conclude on June 14.
The full report is expected to be released later this year.
MTN's share price on the JSE closed the day down 2.66%, while Vodacom's share price was down nearly 5%.