Vodacom, MTN lose R22bn on data ruling

Watchdog gives firms two months to slash internet connectivity prices

MTN and Vodacom lost R22bn of their combined value on Monday, after the competition watchdog gave the two dominant mobile phone operators two months to slash internet connectivity prices or face prosecution.

The ultimatum is likely to be seen as a victory for consumers, whose social media and street campaign against expensive data gained traction in 2017 when the Competition Commission set up an inquiry into the sector. For MTN and Vodacom, which control about 70% of the SA mobile industry, it comes as a blow to one of their biggest profit sources as data sales constitute an important source of their revenue in SA.

The share price of MTN, which makes R12.9bn, or a third of its SA revenue, from internet connectivity sales, dropped as much as 8.4% to levels last seen in March when the company was in court in Nigeria to defend $2bn (about R29bn) in tax evasion charges.

At close of trade, MTN’s share price was 6.4% lower at R86.46, its biggest one-day drop since September 2018. Vodacom, the

market leader, dropped 5% to R115, the biggest one-day fall since January. Vodacom annual data revenue of R24bn accounts for 43% of its SA sales, according to its latest financial results.

“The market may be starting to realise that the monopoly that these companies have been holding for the last number for years could be starting to wane,” said Lester David, a trading desk analyst at Unum Capital.

The commission’s final report said MTN and Vodacom had to independently reach an agreement with the regulator on substantially reducing prices within two months of the release of the report.

The commission said there was scope for price reductions of 30%-50%.

“The strategy in SA for the two dominant operators has been to maintain the high pricing levels of 30-day prepaid data bundles, despite headline price reductions by challenger networks,” the commission said.

“This is in stark contrast to their behaviour in the other African markets in which they operate, where there have been reductions in the 30-day prepaid data bundle prices. This indicates that they are more capable of price discrimination strategies in SA, where they dominate.”

The findings have also turned the spotlight on the government’s failure to auction spectrum – a radio frequency that allows mobile phone operators to send voice and data over the airwaves – which mobile operators have long argued was vital to bringing the cost of internet data down.

“For more than a decade, [the] government and regulators have failed to release the spectrum that the mobile industry has so critically required to bring down the cost to communicate,” MTN said in a statement.

“To simply lay the blame for data costs at the foot of the operators is wrong.”

MTN said it had to compensate for the lack of spectrum by spending more than R50bn in the past five years to build a network covering 95% of the population with 4G-enabled smartphones, without having been allocated long-term evolution (LTE) spectrum.

LTE or 4G is a standard for wireless internet connectivity, allowing for faster speeds and stable connections. Vodacom defended the pricing of data in SA, saying consumers were benefiting from “much higher quality” in terms of LTE coverage and internet speed than those elsewhere in Africa.

A month ago, the Independent Communications Authority of SA, the industry regulator, said that it would start auctioning spectrum for both 5G and 4G bands in the second half of 2020.

The release of the spectrum is essential for the expansion of broadband services and is among the most important structural reforms that President Cyril Ramaphosa’s government could make to shore up an economy that has achieved no growth in 2019 so far.

Telkom, SA’s main fixed-line operator that is seeking to expand its mobile and data offerings to take on Vodacom and MTN, welcomed the report, as did Cell C, the No 3 mobile operator, which last week rejected Telkom’s takeover offer.