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Operators push consumer data spend

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 27 Aug 2014
SA's mobile operators have no choice but to look to data to protect their revenue.
SA's mobile operators have no choice but to look to data to protect their revenue.

With voice and SMS revenue steadily declining and data usage on a steep incline, mobile operators have no choice but to transform their business strategies to maximise data revenue, with consumers often getting the short end of the stick.

While it is no secret data is starting to constitute larger chunks of consumers' cellphone bills, industry observers say overspend is becoming more of a problem as operators look to optimise revenue for data provided and consumers remain largely in the dark as to the true cost of data.

Recently, third operator Cell C introduced two changes to the way it charges for data. In April, the operator cancelled its flat-rated data offering and introduced out-of-bundle (OOB) rates over 550% higher than the 15c in- and out-of-bundle rate customers were used to paying. About three months later, Cell C increased the billing increments on its data products to 25KB, meaning users could end up with higher bills (in bundle) or reach OOB rates quicker, as data transfers used are rounded off to, in some cases, higher amounts than they previously were.

But, says BMI-TechKnowledge director Brian Neilson, Cell C is probably no different to other operators in this regard, as operators will, in all likelihood, "have to find ways of managing their profit margins slightly". The mobile data price war is not sustainable, notes Neilson.

"About the Cell C moves, they certainly come across as 'sneaky tactics'. Operators have always made their profit margins on 'breakage', so this is a case of turning back the clock, and perhaps they could have done it differently. I think they considered the various options and this one probably seemed to be most reasonable from a marketing perspective, as it does not upset the 'headline price point'."

Cell C has defended the moves, saying it still has some of the lowest data rates available on the market. "The out-of-bundle data rate was increased to 99c per MB, which is still very competitive when compared to other industry players. Cell C adjusted this rate to ensure it could provide customers with a discounted rate when they purchase the higher end bundles."

Vodacom spokesperson Richard Boorman says it is not a case of enticing consumers to pay more, noting the operator's average effective price per MB in SA is down 30% year on year. Operators have a balancing act on their hands, he says. "Operators have to [balance] the affordability of data and network investment. Cut prices without investing and you end up very quickly with a congested network."

In the dark

Will Hahn, principal research analyst at Gartner, says the job of the communications service provider today is largely tied up with making sure mobile data (the one remaining money-maker among the legacy portfolio) continues to grow, as access continues to commoditise and shrink.

The key question, he says, is whether users know what data costs. "The answer, nearly everywhere in the world in my opinion, is no." Hahn says the world has shifted from a voice- oriented world, to one that revolves around data - and the cost of data cannot be quantified in the same way per-minute voice rates, for example, and SMS charges can.

"Data doesn't care how long you've been 'on', but only how much of it you are using. Who knows what it 'costs' to download Google, and then again for the first page of search results, and then again for the Wiki link you clicked on from that list? The difference between the fastest talkers on the planet and the slowest is not even close to the delta between a person who reads their e-mail online and one who watches YouTube."

Antony Seeff, CEO of Tariffic - a start-up that launched last year to combat the problem of cellphone overspend - says consumers are largely in the dark when it comes to how data is charged for and how to manage their spend. Tariffic analyses cellphone bills and advises corporates on how best to lower their bills, without changing their usage behaviour.

"We often find consumers are confused about OOB rates; the necessity for add-on data bundles; and an understanding of how much data they use on a monthly basis. To this point, analysis from our system indicates that approximately 24% of all data usage is due to OOB usage, while OOB costs (for data) amounts to approximately 28% of total monthly spend.

"Consumers also manage their out of bundle data costs more poorly than other OOB costs (such as for voice and SMS), as is indicated in the fact that 65% of OOB spend is due to OOB data costs. This may be due to poor consumer education regarding data costs or the ease at which consumers can consume more data."

Data tactics

Seeff says there are a number of ways - hidden or overt, intentional or unintentional ? in which operators are able to raise their average revenue per user (ARPU) via data, including unlimited contracts (where data is capped), unused data not rolling over, the introduction of faster data connectivity through LTE, lack of consumer education, and advocating the use of corporate access point names.

Tactics operators may look to employ, based on notions Tariffic has garnered in the market, he says, include a number of moves:

1. Operators may charge different rates for different types of data used: ie, charge more for voice over IP calls, etc. The converse of this, of course, is that operators may charge less (or charge nothing) for certain usage, such as what we are currently seeing with MTN's Internet Services offering Cliff Central streaming for free.
2. Operators may decide to make data bundles cheaper and increase the OOB rates, which if marketed in a certain way, may be misleading to consumers.
3. Telkom Mobile currently offers free WiFi usage for customers on any of its thousands of WiFi hotspots. It may decide to charge for this service at some stage in the future.
4. Operators may advertise apps which land up being significant data hogs.
5. Operators may, although unlikely, charge a premium for LTE usage.
6. Operators may restructure tariffs to increase inclusive voice value but decrease data value, which may be misleading to consumers.
7. Operators may begin implementing peak and off-peak billing structures for data usage.
8. Many consumers now have separate data contracts for their tablets or 3G cards. Operators may find clever ways to market a single-contract solution for voice and data (even though this currently effectively exists) at some kind of a premium price.

Boorman notes the data boom is a worldwide phenomenon. "The average monthly consumption on smartphones on our network increased 45% to 312MB per device. Our data traffic in SA is up 70% year on year, and that's primarily on the back of increasingly affordable smart devices and increasing usage on existing devices. The average data usage per smartphone globally last year was over 500MB per month and in the US it's now well over 1GB a month."

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