Competition Commission inquiry confirms SA data pricing is ‘at more expensive end’

17th May 2019

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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The Competition Commission’s provisional report on its data inquiry has confirmed recent revelations that the cost of data services in South Africa, particularly mobile prepaid data pricing, is high when benchmarked against the country’s peers.

Similar to the Independent Communications Authority of South Africa’s (Icasa’s) previous observations, the commission’s provisional preliminary findings and recommendations report, based on an analysis of the market and a variety of submissions, reveals that South Africa currently performs poorly relative to other countries, with prices generally at the more “expensive end”.

“South African prices compare poorly to other Brics (Brazil, Russia, India, China and South Africa) and South African Development Community countries, while mobile operators charge higher prices in South Africa than they do in the other countries in which they operate,” says Competition Commission commissioner Tembinkosi Bonakele.

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

The Competition Commission finds that the retail pricing structure of mobile data is anti-poor 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 permegabyte/gigabyte basis.

“For example, relative to a 1 GB bundle, a consumer buying a 100 MB bundle will pay roughly twice the price on a per-bundle basis for the same data period validity. A consumer buying a 50 MB bundle will pay up to three times more and a 20 MB bundle up to four times more,” Bonakele says.

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

In general, data pricing lacks transparency, which undermines price competition.

“Operators prefer to make use of promotions and free data rather than to drop headline prices. As a result, few consumers know what they really pay per megabyte,” Bonakele says.

In response to the report, Vodacom argues that the research used by the commission involves data prices in 2016 and 2017, while average data prices have dropped 57% in the past three years and 34% over the past calendar year.

“The information used is outdated and does not take into account hourly, daily, weekly and fortnightly bundles, which [constitute] 80% of our sales volumes in prepaid offerings,” it said in a statement.

“In addition, the commission’s provisional report does not take into account that countries used in its comparisons have already licensed their fourth-generation spectrum. This has the effect of driving down their cost of producing a gigabyte of data.”

As the cost of delivering mobile services varies considerably across countries, Vodacom believes that an analysis of prices should incorporate crucial aspects such as the amount of spectrum allocated, population coverage and network quality.

The commission’s findings also show that a lack of spectrum and cost-based facilities access are driving costs higher.

“The failure to release high-demand spectrum, owing to delays in digital migration, has raised the costs of mobile operators unnecessarily. This is because operators need to compensate for the lack of spectrum by increasing the volume of base stations,” the provisional report outlines.

Vodacom agrees, noting that this is the most significant obstacle to reducing input costs and, by extension, data prices, with no new spectrum allocated in South Africa in the last 14 years.

However, other costs also impact on the price of data.

“Some of the costs are set by governments, such as taxes, spectrum licence fees, import duties and rental fees for undersea cables. Others relate to the geographic size of a country, its population density and the availability of fixed-line infrastructure that connects mobile base stations with the rest of the network.”

However, the commission notes that, while the release of spectrum will reduce operator costs, this will not necessarily result in price decreases unless there is competitive pressure on operators to do so.

Another big cost driver is passive infrastructure, such as base stations and high sites, as well as ducts and poles for fibre backhaul. The promotion of infrastructure sharing could substantially reduce operating costs and ensure the rapid deployment of competing infrastructure.

Another finding by the commission is that price-based competition in mobile markets can be improved materially.

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.

“The legacy of apartheid and the economic characteristics of fixed-line infrastructure mean that this market has . . . primarily serviced wealthy, historically white, urban areas, [in the absence of] some form of intervention, [and will continue to do so].

“In this respect, the market is failing [the] lower income and rural households that most need the benefit of lower data prices, and require alternatives to mobile where there is a pricing structure that exploits this position,” Bonakele says.

Addressing the high cost of data will require commitment from mobile operators to reduce the headline tariff levels to the current effective level of charges, inclusive of occasional free data and promotions.

The report urges operators to reduce the price of bundles of less than 1 GB to within the range of the 1 GB price and, provisionally, to a maximum of 25% higher on a permegabyte basis.

Another recommendation is an industrywide approach to the zero-rating of content from public benefit organisations and educational institutions.

“Absent such commitments, regulators should coordinate around legislative or regulatory means to achieve such outcomes,” Bonakele says, adding that this could include investigations by the commission into excessive pricing, amendments to the Electronic Communications Act or additions to Icasa’s End-User and Subscriber Service Charter Regulations.

Beyond the

immediate measures, the commission says that this should be followed by the urgent assignment of high-demand spectrum and cost-orientated access to a broader range of facilities to reduce infrastructure costs.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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