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The duopoly of Vodacom and MTN have had a torrid week – share prices took a nose-dive after Competition Commissioner Tembinkosi Bonakele hammered them with a two-month deadline to bring data prices down, or else!
In addition, the Commission has instructed that the telecoms companies must provide a basic amount of free data to consumers. There is the obvious shock value of a government regulator instructing a private company to convert what is regarded as a private good into a public one. But beyond that is the acknowledgement in the requirement that data is now like water and electricity – an essential.
The Data Market Inquiry is the strictest regulatory market intervention in a year which has seen several. The Competition Commission also brought out an exhaustive Health Market Inquiry in October 2019 and it recently intervened to stop shopping malls from giving exclusive leases to big retailers.
Arcane narrative
The competition public narrative in South Africa is arcane. This is because the duopoly of Vodacom and MTN are big advertisers across the media, with whom they foster excellent relationships. But these can elide into an alliance that is often too close: this week showed why.
On the whole, media commentators took the side of Big Telco arguing with it that Bonakele was wrong and that his recommendations amounted to regulatory overreach.
But it could also be argued that Vodacom and MTN (Telkom and Cell C are smaller players in this debate) have refused stakeholder pressure (in the #datamustfall campaign) to reduce prices to hold onto their super-profits. And those profits are super – the annual Ebitda margin is at just under 40% for both companies.
"For Vodacom, the South African operations have consistently seen materially higher earnings before interest and tax (EBIT) and earnings before interest, taxes, depreciation and amortisation (Ebitda) margins over time, as well as higher returns on capital, employed (ROCE)," notes the data market inquiry.
MTN and Vodacom are two of the finer companies of the modern South African economy, started by the liberalisation of the telecoms market when apartheid entered the ANC licenced new operators.
Phuthuma Nhleko of MTN and Alan Knott-Craig of Vodacom were the start-up captains of teams which built really fine mobile communication companies from scratch. The yellow and red colours of the two brands are now multinational and recognised as African and global leaders. Their teams and their tech smarts are legendary and admired internationally. But as data began to surpass voice, the two arguably became over-focused on profits and less focused on consumers.
Data prices are too high, and people know that, if the popularity of the #datamustfall hashtag is anything to go by. You also realise this when you travel in the rest of Africa and abroad where data costs are low enough to make them ubiquitous through affordability.
Data costs are sky-high
Mobile communications companies have excellent communicators, who use the occasionally impenetrable language of technology to pull the wool over critics’ eyes. They will spam you with acronyms to show why data costs in South Africa are not high.
But now the Data Market Inquiry has cut through that, to reveal that across metrics, we are paying extremely high data prices. These charts tell the story.
"The ITU (International Telecommunications Union) also finds that South Africa ranks poorly relative to other African countries as a group (on prices)…Research ICT Africa…concludes that not only does South Africa perform poorly relative to our continental peers, but this has worsened over time.
"This result is independent of exchange rate fluctuations and is driven by headline prices declining in other countries but not South Africa," according to the data market inquiry. It goes on with evidence of over-charging for pages and pages.
The Inquiry has been a long and exhaustive one, and the industry made significant contributions to the draft report where it attempted to show that its prices in South Africa are not unreasonably high and that the government’s failure to release the spectrum along which data travels year after year after year is a big contributor to high prices.
The migration of television from the analogue to digital (which would free up spectrum) is at least a decade overdue. State capture took its toll on policy and execution in successive iterations of the administration in the Department of Communications.
But the Competition Commission did not buy the arguments of the telco operators. "The Commission does not find any of these arguments compelling and remains of the view that poorer consumers in South Africa are being unduly exploited relative to wealthier consumers…this outcome is in part driven by the lack of competition in the data market and the lack of data alternatives of the poor relative to the wealthy, such as fibre to the home and Wifi in the workplace," says the data inquiry. The theme of data apartheid is laced through the findings and the recommendations, which explains why the Competition Commission wants operators to provide a free basic package of data.
Will data prices fall anytime soon?
Behind the digital apartheid that the Competition Commission has identified is the bigger elephant in the transmission line. And that is slow government. Speaking on a panel at President Cyril Ramaphosa’s recent investment summit, the Communications Minister Stella Ndabeni-Abrahams said she was not to blame for holding up cheaper data costs as she had ensured a spectrum allocation policy paper was released.
The minister was proud that it had taken her oversight of the Independent Communications Authority of SA only eight months to achieve. Eight months! If you extrapolate the time it took to release only a paper version of a mooted spectrum allocation policy, you can bet that it will be years before the eventual policy will be implemented at a speed to bring down data prices.
The policy paper is also already the subject of numerous objections to its ideas of spectrum architecture and Bonakele just added to the bundle with his own recommendations. He wants a "…licensing arrangement which promotes affordability and access over revenue generation". These might include spectrum caps on larger operators, asymmetric assignments for smaller players (to encourage competition) and set-asides for new entrants such as the wholesale open-access network (WOAN). You can see how a spectrum allocation bun-fight is shaping up.
The Competition Commission’s two-month hard deadline for mobile operators to bring down the cost of pre-paid data bundles is likely to see court action or at least delays in implementation as Big Telco swings big lawyers in Bonakele’s direction. All of this means that the data pricing debate is only at a beginning, not an end.
