Local mobile operators are increasingly turning to data as their voice revenues continue to come under pressure; however, narrow margins and market constraints are likely to stifle major benefits for consumers.
MTN is the latest operator to confirm this pattern, reporting yesterday that, in the six months to 30 June, its local outgoing voice revenue dropped 8.6%, while data revenue gained 13.7%. The company stated data accounted for 23.4% of its total South African revenue of R19.16 billion, during the period.
Furthermore, MTN saw the number of smartphone users on the network increasing by 31.1%, to 5.3 million, and data traffic surging by 117%, to 20 petabytes.
While this means data is fast becoming the main price battle front for mobile networks in SA - as voice revenue continues to be eroded by lower interconnect rates - market analysts caution that large significant data price decreases are unlikely to be sustainable over the long-term.
Ovum analyst Richard Hurst says data costs "still have a lot to give", but adds that data margins are not as high as for voice revenue. Currently, he says, SA's ongoing spectrum dearth and relatively low Internet penetration are market factors that could put a damper on further significant data price reductions.
CEO and president Sifiso Dabengwa yesterday told media that MTN is getting to the stage where it needs additional spectrum as, in some parts of the country, network quality is being adversely affected by delays in issuing more frequency.
Hurst says it is unlikely government will move on the spectrum issue in the near future, as its commitment to developing coherent ICT strategies remains questionable, and the recent split of the communications ministry has created even more confusion around the state's ICT ambitions. "As for increasing Internet connectivity in the country, there seems to be a real haphazard approach to this issue by both the private and public sectors."
Boosting capacity
Similarly to MTN, SA's biggest mobile operator, Vodacom, is also being forced to lean on data to bulk up its falling voice revenues. Reporting its quarterly numbers recently, Vodacom revealed that it shed a hefty R409 million in revenue, due to lower mobile termination rates in the first three months of the year.
Meanwhile, MTN's local data revenue for the period saw growth of 18.4%, to R2.9 billion, making up 25.8% of its entire service revenue. The operator said it achieved a substantial 30.3% reduction year-on-year in the average effective price per megabyte, but added this was offset by a 70.1% increase in data traffic.
Both operators are steadily investing in additional network capacity to support surging data traffic, with Vodacom adding 473 long-term evolution (LTE) sites, bringing the total to 1 389 during the previous quarter. Additionally, the company added 293 3G sites to its network, bringing the total to 754.
MTN said yesterday it added 1 716 2G sites, and 2 332 3G sites across its entire group, and also rolled out 39 LTE sites, and 1 211km of fibre. Of these, 220 2G sites, and 400 3G sites were added in SA, while the group also built 19 LTE sites, and rolled out 780km of fibre.
Fear and loathing
Hurst says consumers are stuck in a culture of fear, trying to avoid bill shock and paying out-of-bundle prices. "Consumers are currently being charged for what they consume, and are not enjoying the benefits of always-connected broadband."
Hurst says it is time government finally stepped in and took a serious look at SA's spectrum debate.
World Wide Worx MD Arthur Goldstuck says MTN saw an average 38.1% decrease in per megabyte prices, but this was mainly reflected in the costs of big data bundles. This has not filtered through to the bottom end of the market, where data prices remain "exorbitant", he says.
Brian Neilson, director at BMI-TechKnowledge, previously also weighed in on the current data price war, saying competition in this space is likely to continue for now. However, he questions how long the situation will remain sustainable, as data margins continue to be squeezed. "How long can the operators continue to drive down prices, without losing revenue?"
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