Data findings ‘not so onerous’

Rate cuts would have limited impact on networks’ revenue

● The Competition Commission’s proposed shake-up of the data market may only dent the short-term revenues of Vodacom and MTN, which have been given an ultimatum to drop prices or face prosecution.

The commission’s report on its two-year inquiry into why data prices are so high, which was released on Monday, was hailed as a victory for consumers but drew criticism from the telecoms operators and industry analysts.

Analysts said price cuts would let consumers get more data for their rand, but were unlikely to result in higher overall spending. This would mean lower shortterm revenues for the network operators, whose shares on the JSE dropped when the report was released.

Dobek Pater, a director at Africa Analysis, says: “Investors will [still] be interested in the large operators as data is only a single component of their future revenue bouquet, although a significant one.”

Pater says the operators have in any case indicated their intention to reduce capital expenditure in coming years. In the face of declining voice and data revenues they plan to cut costs by sharing infrastructure, “while they try to develop replacement revenue through other services”.

The commission believes there is scope for a 30%-50% reduction in data prices.

Philip Short, an analyst at Old Mutual Investment Group, says: “Looking at what revenue stream this is targeting, it is only for bundles that are less than 500MB in size, and would represent a single-digit revenue percentage for the mobile players. Then one must also consider price elasticity: if prices drop, would users use more data, thereby affecting revenue less?”

One of the issues the industry is unhappy about is the commission’s use of benchmarks based on other countries in Africa and further afield.

Short says the commission’s reference point for data tariffs is “a bit stale” because Vodacom has, for example, dropped prices 25% since the date when the commission established the company’s rates.

Pater says data prices are continuously dropping and the commission’s recommendations will merely expedite the trajectory by “a year or two”.

Byron Kennedy, spokesperson for Vodacom, says: “Vodacom has consistently stated that delayed spectrum allocation has impacted the rate at which data prices could have fallen.

Vodacom has reduced the effective price of data by [about] 50% since March 2016.”

MTN says it disagrees with the commission’s analysis and recommendations and will “continue to engage constructively, and vigorously defend against overbroad and intrusive recommendations”.

Among the commission’s findings was “a prima facie case for excessive pricing against Vodacom and MTN”. Poorer, low-volume customers paid higher permegabyte prices and could afford only short-validity bundles.

Competition in mobile markets was also inadequate, placing smaller rivals Cell C and Telkom Mobile at a disadvantage and entrenching the dominance of the big two.

The commission said while operators objected to its use of international comparisons of data prices, “little evidence has been forthcoming from Vodacom and MTN despite being present in many of the comparator countries”.

The industry has also highlighted that the commission’s report is at odds with a similar inquiry by the Independent Communications Authority of SA (Icasa), published a week ago.

Icasa concluded that data prices were neither significantly high or low in relation to other comparable countries, while consumers in SA enjoyed better data services than those elsewhere in Africa.

The commission also called for a daily “lifeline package” of free data for prepaid subscribers, and for Vodacom and MTN to conclude an agreement with it on the price reductions.

“In all likelihood,” Pater says, “the recommendations will be challenged and the market will carry on as is until either the legal challenge has been concluded or the regulatory environment has changed.”

Likely changes included new high-demand spectrum being allocated to operators and new wholesale regulations being implemented.

It would represent a single-digit revenue percentage for the players