SPECIAL REPORT This is why data still costs you twice what it could
Why is data in South Africa so expensive? Why does it 'expire'? And is there anything that anyone can do about it? This is the first in a four-part series.
Following years of delays and with an election looming, government is pushing for the release of radio frequency spectrum in aid of lower data prices.
Spectrum, or radio frequency spectrum, is essential to radio and television stations' ability to broadcast and mobile operators' ability to provide data to consumers. It is a limited national resource, owned by South African citizens, and assigned by the Independent Communications Authority of South Africa (Icasa) "to entities that apply and want to provide services to the South African public", says Icasa spokesperson Paseka Maleka.
Vodacom CEO Shameel Joosub has said the availability of spectrum could bring down data prices by "almost half".
But the bad news for consumers is that a lot has to go right before the much-hyped expected drop in data prices linked to spectrum becomes a reality.
In 2016, then-minister Siyabonga Cwele approached the courts to prevent Icasa from proceeding with an auction of spectrum – in part because broadcasters were still using some of the spectrum Icasa was planning to assign to mobile players.
Ironically, the reason why this spectrum was not yet available was the delay in digital migration (the switchover from analogue to digital broadcasting that would free up spectrum), which is a government-led process.
Digital migration, which was supposed to be completed seven years ago, has been plagued by policy flip-flops and a tug of war about conditional access, which would determine whether broadcasters could use the "decoders" South Africans will need once digital migration has been completed to offer pay-TV services.
In the judgment that granted a temporary interdict against Icasa, the court notes the hold-up in the assignment of spectrum, dating back to 2010.
"For one or other reason, there have been delays in [the minister of telecommunications and postal services] expediting development, much to the irritation of all concerned, not excluding the consumers."
Eight years later, in September last year, President Cyril Ramaphosa referred to the release of spectrum when announcing his economic stimulus and recovery plan. And less than a week after that, Cwele and Icasa jointly announced that they had buried the hatchet by settling the court matter.
In his earlier announcement, Ramaphosa had said government would begin "the process for the allocation of high-demand radio spectrum to enable licensing", which would "unlock significant value in the telecommunications sector, increase competition, promote investment and reduce data costs."
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The 700MHz, 800MHz and 2.6GHz bands are expected to be licensed by the end of the current financial year, says Maleka. "Icasa will only license as soon as policy issues have been finalised."
He says this spectrum is "mostly already available and licensees will only have to wait for digital migration to progress before rolling out in some areas".
The new deadline for the completion of digital migration is July 2020.
The spectrum will be assigned by way of an auction and Icasa will determine the reserve price, "based on market dynamics".
Vodacom says its CEO's assertion that more spectrum could almost halve the price per megabyte (MB) of data is based on the assumption that the spectrum "is acquired at reasonable market-related terms and prices".
"Acquiring spectrum at a price that is significantly higher than its fair value would have an adverse impact on input costs and, with it, limits the ability to reduce effective data prices.
"Acquiring spectrum with a condition, for example, that requires us to build a network that delivers 4G connectivity to 100% of the population with download speeds above 100 Mbps would require a staggering investment in the network. This would naturally increase input costs and could, in fact, result in higher rather than lower data prices," a spokesperson explains.
When Icasa wanted to auction spectrum in 2016, the reserve price was R3bn.
A recently released GSM Association report found that high spectrum prices could translate into high mobile tariffs, particularly for consumers who use small amounts of data. (GSMA "represents the interests of mobile operators worldwide".)
The ifs and buts
MTN believes that a lack of spectrum is the "primary obstacle" to the decrease of data prices.
However, the company's chief legal services officer, Graham de Vries, says there are many factors that influence MTN's costs and it would not make sense to "pin your hopes" on one factor – such as the availability of spectrum – while other input costs may increase at the same time. "Say, for instance, the exchange rate goes down by 20% and we get extra frequency – that may not necessarily mean that costs will be less because you still have to import equipment so that the very frequency that you now have can be 'switched on', so to speak, on the network."
De Vries says mobile operators in South Africa have had to take a more expensive route because of the lack of spectrum. "We've had to densify the network. We had to go and put in more and more base stations, because we did not and do not have enough frequency."
Getting access to additional spectrum should improve the situation. However, all spectrum is not equal. "For instance, 2.6GHz is much higher in the frequency band. Just the science behind it says you can only send that particular frequency over short distances … If we only get 2.6GHz, that is not really going to help that much. Because it sets an expectation that you can roll out better or more efficiently in the rural areas [whereas] you have a high frequency band, which means you actually have to roll out more base stations."
De Vries says if MTN gets access to spectrum in the 2.6GHz as well as 700MHz and 800MHz bands and "everything else stays equal", a lower cost base is possible and those savings "may actually be passed on to the consumer within a competitive environment".
Erna Korff, Telkom's managing executive for product development, doesn't believe there is a direct relationship between the availability of spectrum and data prices.
"I think [a lack of spectrum] definitely does have an impact on the quality [of the service] and the customer experience."
She says a lack of spectrum might also restrict growth and prevent operators from being more aggressive. If this affects volumes, it could impact the ability to reduce prices.
Korff believes more spectrum would allow operators to provide more data for the same price. "So that will most likely be what the operators will do. Not that they will reduce their prices, but they will be able to give much more for the same price."
Asked whether halving prices could mean that a R99 bundle might in future cost R49.50 or that a consumer would pay R99 as before but get double the amount of data, Vodacom said it could be a combination of both "plus whatever innovations might be pervasive in the market once spectrum is allocated. In a fiercely competitive market, competitors react in different ways to remain both competitive and differentiated from each other".
Cell C's Candice Jones, senior manager for external communications, says the availability of spectrum alone will not decrease data prices.
The company – which told MPs in 2016 that it would be hard to reduce data prices immediately after spectrum had been assigned to it – argues that the way in which the spectrum is assigned would determine the effect on prices in the long run. "We can't have a system that allows dominant players ways to gain access to spectrum while excluding the smaller operators from gaining access to that resource. It is ultimately the smaller players that drive down costs through competition," says Jones.
What is spectrum?
This is known as frequency and is measured in hertz (Hz). "Depending on their frequency, radio waves can pass through solid objects and travel long distances. This makes them useful for mobile communications, broadcasting and many other wireless applications," explains the GSM Association's Spectrum Handbook.
Says MTN executive for corporate affairs Jacqui O'Sullivan: "Different radio stations all use different frequencies [for example, 947 broadcasts on 94.7 megahertz (MHz)] and no two stations can use the same frequency in the same area as the two broadcasts would then interfere with each other. The other important consideration is that wireless signals are distance dependent, which is why listeners can't tune into their favourite Joburg radio station when they are in Cape Town – the signal just doesn't extend that far."
She says cellphones work in much the same way. "Mobile operators can't transmit signals over the same frequencies in the same areas, at the same time."
Frequencies are grouped into bands, ranging from very low frequencies (VLF) to extremely high frequencies (EHF). Each of these bands has a number of typical uses, for example, VHF and UHF are associated with television broadcasting.
This set of frequency bands is known as the radio frequency spectrum or spectrum.
Read the next part in our week-long series on Fin24 tomorrow.
* Sources: Scientific American, ScienceABC.com, NASA, WhatIs.com, rfpage.com, Encyclopaedia Britannica and GSMA