Telcos hit back at CompCom data report

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The Competition Commission found that price-based competition among mobile operators is inadequate.
The Competition Commission found that price-based competition among mobile operators is inadequate.

South Africa's mobile operators have mixed reactions to the Competition Commission's (CompCom's) wish list for changes to SA data prices.

This after the commission last week released a provisional report from its data services market inquiry, launched in August 2017, with a long list of recommendations for SA's telecoms operators.

Since 2016, South Africans have been complaining about the high price of data through the social media banner #DataMustFall, and both the CompCom and Independent Communications Authority of South Africa (ICASA) initiated inquiries into data pricing.

The CompCom's report states, among other things, that SA data prices are too high, are anti-poor and that retail price structures lack transparency. One of the key issues MTN and Vodacom highlighted is that the information used is outdated and does not reflect current data prices.

MTN claims a lot has changed in the mobile data pricing sector in the past 18 months.

"The commission's studies appear to have largely relied on data from 2017, which will not consider changes in 2018 and this year. In 2017, MTN's effective rates reduced by 30%; in 2018, by a further 28% and year-to-date reductions for 2019 are at 18%. Cumulatively, the average cost of data on MTN SA's networks has more than halved in the last three years," the group said.

MTN said it in February also cut its out-of-bundle data rate by up to 75% for prepaid customers, to 29c/MB.

"The research used by the commission shows data prices in 2016 and 2017, when average data prices have dropped by 57% in the past three years. The information used is outdated and doesn't take into account hourly, daily, weekly and fortnightly bundles, which is 80% of our volume sales in prepaid offerings," Vodacom added.

Vodacom plans to make further submissions and comments to the commission by the 14 June deadline and said it will also use this round of consultations "to provide accurate data, which does not seem to have been built into the provisional report".

It said it has already "announced a significant reduction in out-of-bundle prices by up to 70%", in addition to fully complying with ICASA's End-User and Subscriber Services Charter Regulations; with these initiatives resulting in a 34% decline in average data prices in the past calendar year.

Vodacom said that in recent years, there has been a significant shift by prepaid customers to hourly, daily, weekly and fortnightly bundles, and monthly bundles now account for only 22% of prepaid bundle sales compared with 66% in 2015.

MTN added the telecommunications sector is, by nature, highly complex.

"Buying data is not like buying electricity or fuel. Important micro segments exist that should allow customers to buy for their own usage patterns and needs, and there is significant risk in proposals to create some sort of standardised pricing for this sector," MTN adds.

Benchmarking battle

The commission called out Vodacom and MTN for allegedly charging higher prices in SA than they do in their other African operations, saying: "SA currently performs poorly relative to other countries, with prices generally on the more expensive end."

However, both operators hit back, saying the research does not give a true picture of the situation.

Vodacom said an analysis of prices across different countries that does not take into account crucial aspects such as amount of spectrum allocated, population coverage and network quality "is not particularly useful as the cost of delivering mobile services varies considerably across countries".

"Some of the costs are set by governments, such as taxes, spectrum licence fees, import duties and rental fees for undersea cables. Others relate to the geographic size of a country, its population density and the availability of fixed-line infrastructure that connect mobile base stations with the rest of the network."

Vodacom points out that countries with enormous populations can leverage economies of scale, while the more urbanised population also makes it easier to cover from an infrastructure perspective. MTN added it costs considerably less to build a mobile network in a small country with a relatively concentrated population, where the topography is largely flat.

"For this reason, it is necessary to compare countries on several comparative criteria to achieve truly comparative sets of information. These elements appear not to be adequately considered in this preliminary report," MTN said.

Vodacom called out the commission for an inaccurate graph published in the report. It clarified that the Vodacom group has operations in SA, Tanzania, Mozambique, Democratic Republic of the Congo and Lesotho. It said that contrary to the research used in the commission's report, Vodacom does not have operations in Angola or Nigeria, nor does Vodacom operate in Egypt, Vodafone does.

The graph, which was supposed to compare Vodacom's African operations on pricing, also included Vodafone's operation in Albania, which is not even in Africa.

The inaccurate graph used in the CompCom report.
The inaccurate graph used in the CompCom report.

Vodacom added the report does not take into account that some countries compared have already licensed 4G spectrum and this "has the effect of driving down their cost of producing a gigabyte of data".

MTN agreed that international benchmarking on pricing requires more than a simple price comparison to determine the state of competition in a market. The telco also explained that mobile network operators around the world compete intensively on non-price factors such as network quality and coverage.

"While it may be tempting to cite the costs of 1GB of data in, eg some central and North African countries, the quality of the data experience and the reach of the coverage is critical, as networks offering customers an inferior experience can offer discounted pricing due to limited capital investment in network infrastructure."

The MTN group operates in 21 countries in Africa and the Middle East but the CompCom report only compared data pricing, from 2017, in 13 of its operations, including SA.

A table of MTN's 2017 pricing in some of its operations.
A table of MTN's 2017 pricing in some of its operations.

Cell C more on board

Cell C had a more positive reaction to the report, with chief legal officer Graham Mackinnon telling ITWeb the telco "is pleased the findings support the contentions that Cell C has been making for many years, that the lack of support for challenger networks and resultant concentration of the market in the hands of dominant players is a critical factor in data prices not reducing in SA".

"The commission's view is that current regulations fail to address the strategic behaviour of these dominant incumbents," he said.

This after the commission's report said that "with the exception of Vodacom and MTN, there was consensus from the submissions that price-based competition among mobile operators was inadequate, including the ability of the challenger networks of Cell C and Telkom Mobile to effectively constrain the two first-movers".

The CompCom believes there is considerable scope to improve price-based competition in the mobile data services market.

"The retail mobile market has remained stubbornly concentrated despite the entry of two challenger networks over time. Vodacom has a share in mobile services more generally, and data services specifically, that exceeds the thresholds used in the Competition Act for a conclusive determination of dominance. MTN has constantly skirted around the threshold level where there is a rebuttable presumption of dominance. These shares have barely changed over time."

Spectrum crunch

The commission admitted a lack of access to high-demand spectrum was a contributing factor for high data costs.

"It seems to be common cause that the failure to release high-demand spectrum due to delays in digital migration has left mobile operators with both insufficient spectrum and a lack of access to favourable low frequency bands, raising costs unnecessarily," the report said.

"MTN welcomes the commission's further recognition of the importance of spectrum in providing affordable access to data services. The spectrum crunch that has beset SA for a decade has undoubtedly hindered the health and growth of the industry," said MTN SA CEO Godfrey Motsa.

He said that out of the 21 countries MTN works in, only its operations in Afghanistan, South Sudan and Yemen have less spectrum than SA.

The commission called for the urgent assignment of high-demand spectrum but warned that although more spectrum will reduce operator costs "this will not necessarily result in price decreases unless there is sufficient competitive pressure on mobile operators to do so".

According to Vodacom, "unquestionably, the most significant obstacle to reducing input costs and, by extension, data prices is the fact that no new spectrum has been allocated in SA in the last 14 years".

"Lengthy delays in completing the digital migration and allocating 4G spectrum has curbed the pace at which data prices could have fallen."

High-demand spectrum in the 700MHz and 800mMHz bands can only be allocated to mobile operators once digital migration is completed. SA was supposed to migrate from analogue to digital terrestrial television in June 2015 but still has not.

"A prime example of how timely allocation of spectrum at reasonable market-related terms can positively impact data prices is in neighbouring Lesotho, one of the first countries in the world to assign 5G spectrum," Vodacom added.

Mackinnon, however, highlighted that the commission also recognised that any assignment of high-demand spectrum by the state should not be undertaken only on the basis of revenue maximisation to the fiscus but must factor in the impacts on competition if lower costs are to translate into lower prices.

"This supports national policy which requires government to ensure maximum public value is derived from the use of spectrum which is a finite resource and a national asset," he said.

Big spenders

MTN says over the past 10 years, its SA operation has spent more than R77 billion on capital investments to increase both urban and rural coverage.

"This extraordinarily large outlay has been necessitated by MTN needing to effectively build itself out of the spectrum shortage. In the absence of spectrum, more infrastructure is required to boost the coverage with what little spectrum is available, all of which comes at huge costs."

MTN said it now covers 99% of SA with 3G and 90% of the country with 4G.

Vodacom said it has invested R26.7 billion in its network over the past three years and has committed to spend R50 billion over the next five. This includes additional rural investment. Vodacom said in this calendar year, it will connect an additional 200 villages, taking its 2G and 3G coverage to over 99.9% and 4G coverage to over 90% of SA's population.

Telkom did not respond to a request for comment by the time of publication.

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