A lack of spectrum allocations in high-demand frequencies - a process that has been postponed several times - is an aspect that is holding up further price relief for consumers, says MTN.
Last December, it seemed that allocations would finally go ahead, but the Independent Communications Authority of SA (ICASA) indefinitely postponed the allocation of high-demand spectrum in the high-demand ranges earlier this year. It said this was to make sure communications minister Dina Pule's policy direction on high-demand spectrum is “taken into consideration”.
Allocating more spectrum in the 2.6GHz and 3.5Ghz ranges has been on the cards since 2006, but invitations to apply for frequency in the bands were withdrawn in June 2010. Since then, there has been little movement towards auctioning the spectrum, which is vital for operators to move to the next generation of technology.
However, the current situation is unclear, as neither ICASA nor the Department of Communications have responded to a request for clarity regarding the process.
Frustrating
Karel Pienaar, MD of MTN SA, says one of the factors limiting further price drops is a lack of more spectrum. He says this is a factor, among others, holding operators back from being more competitive, especially in data costs.
In March, Pienaar said a lack of spectrum is the biggest inhibitor to rolling out services and dropping prices. He explained that MTN is at the point where it must have more spectrum or else services will become degraded. It has already passed this point of degradation in dense areas.
The lack of access to high-demand spectrum is “a bit frustrating for all of us”, says Pienaar.
Richard Hurst, Ovum's emerging markets analyst, says a key issue hampering a decline in prices is the hold-up in allocations of more spectrum, as more consumers on the network would lead to further congestion.
Hurst notes that SA is still relatively more expensive than other parts of the world, although prices are expected to come down due to regulatory and market pressures.
However, Vodacom spokesman Richard Boorman does not think spectrum and pricing can be linked. He points out that in the quarter ended June, its average effective price per Mb was down 26% year-on-year. “Clearly other factors do come into play.”
Some movement
Pienaar notes, however, that the department is doing a lot of work behind the scenes, and much has happened in the spectrum space, such as the introduction of a new pricing regime.
Administrative incentive pricing of spectrum through regulations was implemented by ICASA in April this year. It seeks to incentivise spectrum users to make the most effective and efficient use of radio frequency spectrum using higher frequencies and coverage in rural areas.
The new fees reduce the incentive to hoard spectrum, and frequency is not 'owned' by a licensee, but rather that they have a right of use. Some operators will pay less, and others more, which will encourage those who pay more, but are not using the spectrum, to give up the frequency.
Pienaar says spectrum is a finite resource and needs to be used to the best benefit of all. He says government needs skills to evaluate its use and there needs to be legislation that allows it to be reallocated if the frequency is not used. “There has been some movement.”
Price relief
Pienaar points out that the telecommunications sector has not increased prices in the past 20 years, but the cost of communication has come down. Last year, the effective cost of prepaid declined by about 30%, while data dropped by an average of 40%, he adds.
However, despite the delay in the issue of high-demand spectrum, the local market is very competitive, says Pienaar. In addition, MTN is investing in its next-generation network and will spend another R5 billion this year.
Pienaar says the group has invested at about that level every year recently. The spending gives it new levels of efficiency and capacity, he explains.
Boorman says Vodacom invested R7 billion in its South African network in the 2012 year, which focused on the radio access network renewal project, transmission and new base stations, with the aim of increasing capacity and coverage. He says lower pricing affecting capacity depends on planning and network investment.
Vodacom expects continued downward pressure on pricing, says Boorman. “There's a proven link between Internet penetration and gross domestic product growth. The challenge is to balance price reductions and capacity.”
Share