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Telcos argue about why data prices are high

Paula Gilbert
By Paula Gilbert, ITWeb telecoms editor.
Johannesburg, 19 Oct 2018
SA's four major mobile operators made presentations at the CompCom's Data Services Market Inquiry yesterday.
SA's four major mobile operators made presentations at the CompCom's Data Services Market Inquiry yesterday.

Mobile operators yesterday tried to explain to the Competition Commission (CompCom) why data prices are not where consumers want them to be.

The smaller telcos blamed the dominance of larger players, while the majority of operators agreed that a lack of spectrum is a major factor.

All four of SA's major mobile operators made complex presentations at the CompCom's Data Services Market Inquiry in Pretoria yesterday. The CompCom has been holding public hearings from Wednesday to look into the state of competition in the data services sector, after mounting pressure from consumers to have data prices fall.

Telkom CEO Sipho Maseko called for better competition in the telecoms sector, calling out Vodacom and MTN for their "enduring dominance" which Telkom believes has been "detrimental to consumers and also in the long-run detrimental to competition".

"Effective competition will deliver value for money to customers, but the current duopoly structure and the second-mover disadvantages faced by later entrants inhibit this from arising," Maseko said.

Calling MTN and Vodacom a "duopoly" is nothing new; it is something Cell C and Telkom have been saying for years, and Maseko told the commission that Telkom wants regulated access to dominant mobile operator infrastructure.

"We have been an aggressive challenger in the market through lower prices, better value for money and innovation, but even with all of that, we have found it quite difficult to close the market share gap that exists between ourselves and the larger dominant players in the market," Maseko told the commission.

He said that despite Telkom investing over R11 billion in capex, Telkom Mobile still has only 5.5% subscriber share after eight years. According to Telkom, Cell C's subscriber share has grown by just 2% since 2011. Maseko said Vodacom and MTN's subscriber shares have not changed significantly, despite aggressive pricing by new entrants.

Cell C CEO Jose Dos Santos agreed the Vodacom, MTN duopoly has held back the smaller operators.

"Cell C played a large role in saving the South African consumer R47 billion between 2010 and 2015 through price competition, despite the lack of regularity support and at great cost to its own financial position. Cell C has adopted the role of consumer champion and disruptor in the market to reduce prices to consumers by attempting to meet the duopoly head-on.

"MTN and Vodacom benefited from a first mover advantage, exclusive access to prime sites and land on a long-term basis. New municipal restrictions make further site acquisitions more onerous."

He said Cell C's current market share is between 12% and 13%, while MTN and Vodacom together hold more than 80% of the market share, 18 years after Cell C was launched.

"The increasing of real competition is the only solution [to high data prices] and the reason for lack of real competition is the regularity failure that we face in SA," Dos Santos said.

Maseko said 94% of all broadband connections in SA are mobile and 75% of all broadband connections use the Vodacom or MTN networks.

"Consumer perception on data costs and cost to communicate is formed by the price Vodacom and MTN charge end-users," Telkom's presentation said.

Since 2016, South Africans have been calling for mobile data prices to come down under the social media banner #DataMustFall.

The CompCom in August 2017 announced it would run an inquiry into the high price of data services in SA, which officially kicked off this week. In June 2018, the Independent Communications Authority of South Africa held its own public hearings on the cost to communicate in the country.

Spectrum scarcity

Discussions over a lack of spectrum came out once again, with operators reiterating what they have been saying for years: that a lack of access to high-demand spectrum is keeping prices high.

MTN SA CEO Godfrey Motsa told the commission that data prices would come down if more spectrum was assigned. "The urgency of us getting spectrum is long overdue; the urgency is now."

Motsa said capacity is a major issue impacting why data prices can't come down.

"We launched a WhatsApp bundle for R10 for 1GB valid for 30 days and we saw flames. We were loved by customers but hated by the engineers, because we congested the network, because we do not actually have the capacity so we had to price up. People always challenge us, asking why it is only Telkom who is bold around taking prices way down. The main reason for us is the constraint we have on the capacity and everybody is clear, the biggest issue is [a lack of] spectrum.

"One of the easiest ways to reduce prices is to increase the speeds. To do this, you need to increase capacity. To get that capacity, you need to get spectrum otherwise all you do is keep building more 3G sites and when you do that you have less room to actually reduce the prices."

Motsa said MTN spends far more on capex than it does on dividends to shareholders, and over the last four years, it has spent over R40 billion on building its network. He noted MTN is already dropping its data prices and "in the first half of this year the effective rate on the yellow network is down 27%".

"Are data prices higher than they ought to be? At MTN, we believe data prices are competitive, with the current conditions in the South African market," Motsa said.

Vodacom CEO Shameel Joosub also told the commission that if the operator was assigned more spectrum, it would bring down the cost of data bundles, but said it would not be immediate.

"We have got to manage all of the complexities and also if we get spectrum tomorrow, you have got to roll it out first and take it through the 13 000 base stations around the country, so it doesn't all happen immediately, but yes, it will start to drive down the underlying costs and you will start to bring down the different price points.

"But are we going to be sitting here in two years' time having the same discussion because the spectrum is still not allocated? Customers want data prices to fall faster, and they are right, but we need help to be able to achieve it."

Joosub explained that if Vodacom lowered the price of a data bundle by R1 "that is a R540 million impact to the bottom line, just using the 45 million or 46 million customers you have today, so that is the impact so you have to manage that".

He said Vodacom also has a lot of capacity constraints. "Vodacom has carried Cell C for 18 years on its network, so they don't use their spectrum on our network, they use our spectrum so we are even more constrained, and Telkom has been using MTN's network, and we are now using Rain's network so there is a lot of cooperation happening from that perspective.

"Some of the smaller players are saying they need better wholesale prices. I could give you better wholesale prices but I don't have the capacity to give you, I am struggling for capacity so what do you want me to do? Make my situation even worse? I'm having to go to Rain to ask them to give me capacity because I don't have spectrum, so you want me to sell something I don't have?"

When it comes to spectrum, Telkom called for the assignment of sub-1GHz spectrum to operators that do not have access to such spectrum and asked for "equitable assignment of high-demand spectrum".

"We are the only ones who don't have sub-1GHz spectrum, and if you don't have sub-1GHz spectrum, your rollout costs are a lot higher because you have to build sites a lot closer to each other and you have to rely a lot more on roaming for getting in-building coverage," Maseko said.

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