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'Unjustified' mobile price hikes under microscope

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 22 May 2015
Although recent price hikes were completely legal, the move amid what has been an ongoing price war is questionable.
Although recent price hikes were completely legal, the move amid what has been an ongoing price war is questionable.

The National Consumer Commission (NCC) is not about to let go of the issue of sudden price increases introduced by three of SA's mobile operators in as many months.

The consumer watchdog instigated an urgent investigation in late March following a series of mid-contract price hikes by Cell C, Vodacom and MTN in short succession. It is now set to meet with the Independent Communications Authority of SA (ICASA) to determine the most effective course of action.

Meanwhile, the latest report from Research ICT Africa (RIA) has found - at least for the two listed operators Vodacom and MTN - the said postpaid price hikes were not entirely justifiable. "The claim by operators that increased input costs necessitate price increases is not reflected in current annual financial statements."

The research body says the operators' short-term money move may have adverse long-term effects. "Disgruntled contract subscribers may move to prepaid, where some excellent high-value products are now offered, or simply buy data bundles to use over-the-top (OTT) [platforms] like Skype for voice and WhatsApp for text services."

Worth the fight

Although the operators are within their rights to increase rates - despite contract customers having signed on the dotted line to accept the original, lower prices - the question of whether they were wise to do so remains.

Author of the RIA report, Safia Khan, points out, even though there has been strong consumer backlash in the media, the unilateral increase in tariffs was legal. "[However,] increasing postpaid prices and reducing the amount of bundled minutes, SMS and data may lead to consumers substituting traditional mobile services through OTT services."

Local analysts say, while there may not be any legal recourse consumers can take, it does not mean the NCC's efforts are in vain. ICT expert Adrian Schofield says there is merit in investigating the price hikes - especially in view of Vodacom commenting earlier this week that it increased prices to be able to reduce them again.

"I cannot follow that logic. It also cannot be coincidence that [all three operators] raised prices within a short time frame."

Schofield says, where there are dominant players in a lucrative market, there is always the risk they will seek to manipulate the market to maintain their margins. "That's why the NCC should investigate any apparent manipulation."

Service migration

Khan says operators are counting on postpaid subscribers not moving to prepaid for several reasons, including conveniences such as never running out of airtime.

However, BMI-TechKnowledge director Brian Neilson says SA will likely see a gradual increase in migrations from contracts to prepaid, as part of an ongoing trend, which may be helped along by the entry of new mobile players in the market.

While migration might be slow, with many consumers adopting what Schofield says is a "better the devil you know" attitude, mounting incentives - including price hikes, more OTT services, poor service and network issues - will eventually push consumers to shift, say commentators.

Ovum analyst Richard Hurst says the more noticeable movement will be to OTT. "Consumers are likely to move their basic services to more usage of OTT services, which will cause further revenue erosion and entrench the OTT players even further in the market."

The current postpaid and prepaid subscribers are unlikely to change their habits as yet, adds Hurst. "But we may find a more gradual adoption of the so-called hybrid packages for voice and data."

Independent telecoms researcher Spiwe Chireka says, with all the focus that has been placed on the prepaid arena, the time has come to ensure postpaid services and costs are also fair and justifiable. For this reason alone, she says, it is worthwhile for the NCC to look into the recent price increases.

NCC spokesperson Trevor Hattingh says the commission has received information from ICASA, which the regulator requested from operators, which the NCC will assess to determine what move would guarantee the best outcome for consumers.

ICASA had requested the operators to give feedback around how they view the legality of their price increases, the motivation behind them and what alternatives were considered.

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