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Only brief relief from MTR shake-up

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 24 Feb 2015
Voice prices are likely to settle at lower levels in 2015, but SA is still one of the most expensive countries in Africa.
Voice prices are likely to settle at lower levels in 2015, but SA is still one of the most expensive countries in Africa.

Although the institution of the lowest mobile termination rates (MTR) SA has ever seen has brought about temporary and superficial relief for consumers, SA is still not leading in terms of affordable tariffs in Africa, as South Africans have come to expect.

This is according to the latest report from Research ICT Africa (RIA), the product of an in-depth evaluation of SA's mobile telecoms market, post the Independent Communications Authority of SA's (ICASA's) latest attempt to level the playing field for the country's four mobile operators.

Termination rates are the fees operators pay each other to carry calls on their networks. ICASA pitched a challenge mobile operators' way last year with its shake-up of MTRs - one of the revenue streams Vodacom and MTN in particular had come to enjoy.

In September, after protracted resistance from the "big two" in particular, the authority decreed MTRs would remain at 20c (half the previous rate of 40c) until the following September, after which they would drop to 16c, and then 13c in the final year to September 2017.

Still steep

RIA says generally, the 20c rate for Vodacom and MTN is about at the cost of an efficient operator, and MTRs no longer pose an obstacle to competition. However, the research group shows SA still ranks among the most expensive countries in Africa when it comes to voice.

The mobile price war heated up for a moment in 2014, when Cell C and MTN both decreased prices in the second quarter through promotions (MTN's 1c per second and Cell C's 50c product). However, the two withdrew these in the fourth quarter of 2014 to replace them with less generous promotions.

"Mobile prepaid voice prices in SA have come down significantly in the last year, from 99c to 66c per minute. The 50c promotion may just have been an attempt by MTN and Cell C to test the price elasticity of its subscribers. Vodacom, the dominant operator, is currently the most expensive operator and Telkom Mobile the cheapest for mobile prepaid voice," says RIA.

SA's operators rank 14 out of 17 African countries on the RIA Mobile Pricing Index in terms of the dominant operator (Vodacom) and is ninth in terms of the cheapest product. While this is a "major improvement" on rankings in the 30s in previous years, the country is still not leading on the continent as South Africans have come to expect, says RIA.

When compared to the rest of Africa, SA's cheapest product is five times more expensive than the cheapest product in Africa.

Playing field

ICT expert Adrian Schofield says the price war between SA's operators has been less about the effect of the reduced MTRs and more about the battle for market share.

"The consumers are winning in the short term, although not as much in reality as in perception. What seems a good deal today may be less so tomorrow and must be considered in conjunction with quality of service and inconvenience of switching networks."

That prices in other markets are significantly lower than in SA means it is possible for the operators to be more efficient, says Schofield. "The recent noises about retrenchments are a sign that pressure on revenues is focusing attention on costs to maintain margins."

RIA notes Cell C and Telkom Mobile are also short-lived winners in this scenario. "Revenue is a function of price multiplied by quantity. The asymmetry may result in higher off-net prices and thus lower off-net call volumes, and not more termination rate revenues as desired by the smaller operators."

Schofield says Telkom and Cell C are the "also-rans" in the South African market and must either join up to become a viable third force or become the target of the dominant operators, which will reduce the competitiveness of the market in the long term.

At the end of the day, at least, voice prices are likely to settle at lower levels in 2015, says RIA. Ovum analyst Richard Hurst believes that, while the current MTRs are levelling the playing field to a certain extent, the current market environment has gone as far as it can with the MTRs.

"[While we may] see some further reductions in voice and SMS tariffs, the danger is that in the current environment operators may be testing the floor price and their margins."

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