Mobile pre-paid data in South Africa is expensive, compared with most sub-Saharan Africa countries, the Competition Commission has unsurprisingly found.  Data prices that are charged in the country by telecommunications titans, Vodacom and MTN, are higher than those they charge in markets outside of South Africa.

These are the provisional findings of the competition watchdog’s inquiry into data services, which began in August 2017, that was released on Wednesday.

For Vodacom and MTN, the provisional findings are a damning assessment of how their dominance has been unchecked by regulators. For long-suffering consumers, who repeatedly complained about high data costs as seen in the #datamustfall movement on social media, it’s arguably a relief.

“We have awarded operational licenses to several mobile operators over many years. Instead of having an oligopoly in the market, we have a duopoly. Our regulations have not worked from a competition point of view,” says Competition Commissioner Tembinkosi Bonakele.

He says MTN and Vodacom, which are early pioneers in the telecommunications industry because they were founded in 1994, have become so big that they cannot even be challenged by smaller competitors Cell C and Telkom.  

A concentrated environment – like in South Africa – results in the pricing of services being influenced by a few players.

In reaching its provisional findings, the Competition Commission relied on the 2017 report on mobile tariffs by Independent Communications Authority of South Africa (Icasa), which was set up in 2000 to regulate the telecommunications sectors.

According to the report, Vodacom charged $11.06 (R147) for a 1GB bundle in South Africa in 2017 while it charged consumers $8 (R107) for the same bundle in the Democratic Republic of Congo, Lesotho ($7.54), Angola ($3.32), and Nigeria ($2.77).

The same trend emerges for MTN. For a 1GB, MTN charged its South Africa-based customers $11.95 (R159) in 2017, while it levied a cost of $8.34 (R111) in Uganda for the same bundle, Ghana ($4.43), Ivory Coast ($3.37), Nigeria ($3.15) and Rwanda ($2.32).

James Hodge, the Competition Commission’s chief economist, says the watchdog cannot rule at this point whether MTN and Vodacom are engaging in anti-competitive behaviour as its findings are still at a provisional stage. This might leave the door open for the commission to make the anti-competitive finding, as the Competition Act tasks it to probe such features in the market.

Telecommunications companies respond

Vodacom and MTN say they are reviewing the commission’s provisional report and will provide comments to it before the June 14, 2019 deadline.

A Vodacom spokesperson says the company remains committed to reducing the cost to communicate in South Africa as part of its ongoing pricing transformation strategy.  “For example, Vodacom recently announced a significant reduction in out-of-bundle prices by up to 70%.”

MTN SA corporate affairs executive, Jacqui O’Sullivan, lamented the commission’s report largely relying on data from 2017, which “will not consider changes in 2018 and this year.”

“Much has changed in the mobile data pricing sector in the past 18 months. One such significant change was MTN’s decision in February of this year to cut its out-of-bundle (OOB) data rate by up to 75% for pre-paid customers,” says O’Sullivan.  

The mobile data business is big for both companies especially at a time when the voice market globally is in structural decline. Vodacom’s data business in South Africa grew by 13% to R23.4-billion for its 2018 financial year, with the business contributing 43% to its service revenue (R54.6-billion).

Meanwhile, MTN’s South Africa data business recorded revenue of R12.9-billion for its 2018 full year, which was close to the revenue generated from outgoing voice calls (R13.7-billion) and higher than the revenue generated from incoming voice calls (R1.9-billion).  

Fewer people are making voice calls given the proliferation of text-based systems that rely on data.  In the sub-Saharan Africa context, more consumers are accessing the internet on mobile phones that require data.

The poor hit hard

Underscoring the importance of data in a digital and 21st-century economy, Media Monitoring Africa’s executive director, William Bird, who testified before the inquiry, believes that access to the internet and the need to communicate should be considered a basic human right. And failure to do so, he warns, would effectively take the country back to the dark days of apartheid.

It’s the poor that are hit hard by high data prices. “Lower income consumers may be exploited to a far greater degree relative to wealthier consumers,” says Bonakele.

The Competition Commission found that consumers of small data bundles, generally being poor consumers, pay more on a per MB basis.  “A consumer buying a 50 MB bundle will pay up to three times more and a 20MB bundle up to four times more.”

Poor customers, unlike wealthy customers, don’t have access to many connectivity options such as fibre to the home and Wi-Fi.

Beyond MTN and Vodacom, the commission says the government’s chronic delays in allocating additional radio frequency spectrum to telecommunication operators can be blamed for high data prices. The delays have resulted in MTN, Vodacom, Cell C and Telkom having insufficient spectrum and lack of access to favourable low-frequency bands, which raises their operational costs.

The issuing of a policy direction to Icasa for the licensing of high-demand radio frequency spectrum is part of President Cyril Ramaphosa’s efforts to use the telecommunications sector as a vehicle to grow South Africa’s struggling economy.  But the government’s delays are undermining Ramaphosa’s efforts to grow the economy beyond the two percent mark on an annual basis.

However, the Competition Commission’s Hodge says the allocation of more spectrum doesn’t necessarily mean that mobile operators will lower their data prices.

Thus, the Competition Commission has recommended that telecommunications companies must commit to reducing the price of sub-1GB packages to “within an objectively justifiable and socially defensible range” of current levels. Other recommendations include more regulatory scrutiny for telecommunications companies and the development of alternative infrastructure such as free public Wi-Fi by the government.

($1 = R13,32 – the annual average exchange rate in 2017 according to Nedbank quoting Reuters figures)