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SPECIAL REPORT Are we being overcharged for data? How SA stacks up against 9 peer countries

Jan 16 2019 18:30
Liesl Pretorius, Fin24

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 third piece in a four-part series.

The recently commenced market inquiry into mobile broadband services is set to determine whether we are being overcharged for data by the 2019/2020 financial year.

The market review process of the Independent Communications Authority of South Africa (Icasa) will "establish the facts of the matter", spokesperson Paseka Maleka said when asked whether the regulator’s research shows that South Africans are being overcharged.

South African telecommunications companies concede that data prices can go down further. But how far behind are we exactly?

In an earlier benchmarking exercise, Icasa found that South African data prices were "not the highest" compared to other Southern African Development Community (SADC) and BRICS countries.

However, South African customers of MTN and Vodacom paid among the steepest prices for data, ranging from 500MB to 2GB, compared with customers in other countries in which these companies operate.

In its report, based on 2017 data, Icasa describes as concerning the fact that MTN’s 500MB data bundle (valid for 30 days) was the most expensive in South Africa, "since 500MB is the most preferred data bundle [of] low-income earners".

MTN’s response is that this bundle (which has since been replaced by a 600MB bundle) makes up "less than 1%" of its bundles.

According to MTN, "… the majority of MTN’s low-income customers prefer to purchase daily and weekly bundles that allow them to control their spend, based on the pay-as-you-go principle afforded by shorter validity bundles".

Asked what determines prices in the countries in which it operates, Vodacom said the costs of delivering mobile services "varie[d] considerably" depending on the country.

"Some of the costs are set by governments, such as taxes, spectrum licence fees, import duties and rental fees for undersea cables.

"Others relate to the geographic size of a country, its population density and the availability of fixed-line infrastructure that connects mobile base stations with the rest of the network."

A spokesperson gives the example of a country with a large population, where operators could leverage economies of scale, or a country with a less urbanised population, which requires investment in rural infrastructure at high costs.

MTN executive for corporate affairs Jacqui O'Sullivan says comparing like with like would mean comparing countries or operators that face similar costs.

Local telcos cite several factors that make it expensive to operate in South Africa, including:

  • A lack of radio frequency spectrum;
  • High input costs such as labour, property, energy and company tax;
  • Battery theft and vandalism at base station sites;
  • Costly, time-consuming applications to municipalities;
  • The cost of rolling out and upgrading the network (network equipment is priced in dollars); and
  • "The topology of South Africa, including population, density [is another factor].  If South Africa were flat and had a large population density in all areas, it would of course have been less expensive to service than the reality."

'Appropriate peers'

MTN considers "appropriate peers" for comparison with South Africa to be Algeria, Egypt, Morocco, Turkey, Mexico, Saudi Arabia, Colombia, Peru and Venezuela.

This selection of peer countries is based on a combination of factors, including:

  • Topography;
  • The proportion of the population that is urban;
  • A country’s economic characteristics (indicators such as GDP per capita);
  • Its ICT Development Index ranking;
  • The mobile penetration rate;
  • The quality of service of 2G, 3G and 4G and whether 5G has been introduced;
  • The number of base stations per square kilometre; and
  • The proportion of prepaid versus contract customers (an indicator of income).

"Choosing peer countries that have similar characteristics allows us to focus on price differences and those price differences are not clouded by the impact of non-price factors," explains O'Sullivan. 

In MTN’s view, an "accurate" comparison would not only focus on price but would also consider affordability and service quality (which includes download speeds and coverage).

"As long as the debate is focused on price and price alone, generally, South African mobile operators are not the cheapest but are also not the most expensive overall."

If we give MTN the benefit of the doubt, how then does South Africa compare with its nine "appropriate peers"?

  • Icasa benchmarking exercise

Of the nine peer countries, only Egypt and Morocco featured in the regulator’s benchmarking exercise. Both outperformed South Africa.

Vodacom charged more than nine times the price for 1GB and 2GB bundles in South Africa compared with Vodafone’s prices in Egypt.

The cheapest average price of 500MB of data in South Africa was "almost ten times" more expensive than in Morocco.  

The authors of the report note that factors such as coverage and service quality were not considered in their analysis.

  • Research ICT Africa

Dr Onkokame Mothobi, senior researcher at Research ICT Africa, says when prices alone are considered, South Africa ranks 35th out of 49 African countries, based on the cost of the cheapest available 1GB data bundle in the first quarter of last year.

The other African countries deemed to be appropriate peers by MTN – Algeria, Morocco and Egypt – all had better rankings.

But Mothobi warns against considering price alone. "The thing is … you should also consider other factors like coverage [for example, what proportion of the population has access to 3G and 4G] and the quality of the data service."

  • Telecommunication Development Bureau

When affordability was taken into account, peer countries Turkey, Saudi Arabia, Egypt and Algeria fared better than South Africa in the 2016 edition of the Measuring the Information Society Report of the Telecommunication Development Bureau (part of the United Nations’ agency for ICTs, the International Telecommunication Union).

South Africa ranked 85th out of 178 countries. The highest-ranked peer country was Turkey, at 40, and Venezuela was ranked the worst, at 124.

  • GSMA Mobile Connectivity Index

Based on affordability, six "appropriate peers" were ranked higher than South Africa, according to the 2017 GSMA Mobile Connectivity Index. These are: Saudi Arabia, Algeria, Peru, Mexico, Morocco and Egypt.

Affordability is defined as "the availability of mobile services and devices at price points that reflect the level of income across a national population".

  • Inclusive Internet Index

In the 2018 edition of the Facebook-commissioned index, South Africa was ranked 52nd, based on the price of a 500MB prepaid mobile data plan as a percentage of monthly income. It ranked 51st for the contract equivalent, out of 86 countries.

Peer countries Turkey, Egypt, Saudi Arabia and Mexico were ranked higher than South Africa for prepaid affordability.

In the case of contracts, Turkey, Saudi Arabia, Venezuela and Peru performed better than South Africa. Mexico and South Africa were tied at number 51.

  • Alliance for Affordable Internet (A4AI)

The A4AI considers internet access to be affordable if 1GB of mobile prepaid data (broadband) costs 2% or less of the average monthly income in a particular country.

At 2.5%, South Africa doesn’t meet this "1 for 2" affordability test. Egypt, Turkey, Mexico, Peru and Morocco have better scores than South Africa.

A4AI’s submission to the Competition Commission’s Data Services Market Inquiry contains a calculation, based on 2011 World Bank data, according to which the poorest 20% of South Africans would have to spend 19% of their monthly income to buy 1GB of data.

While none of the above comparisons consider the quality of service, South African data prices are average at best when compared to its "appropriate peers" based on affordability research.

Research ICT Africa has done a price comparison that takes quality into consideration, however this was only done for operators within South Africa.

Mothobi says that when Vodacom and MTN’s data prices in South Africa are adjusted for quality (using upload and download speeds as a proxy), their prices are cheaper than that of other local operators.

"Vodacom and MTN have larger revenues and are able to invest that into their network," he says.

Enter: Rain

According to a MyBroadband price-only comparison, newcomer mobile data provider Rain largely outperformed established players for data ranging from 1GB to 5GB.

Rain’s standard price is 5c per MB.

Asked why MTN isn’t offering these prices, O’Sullivan said Rain, as a mobile data provider that doesn’t offer voice services, has different cost structures to MTN.

She added, "Rain does not have any coverage obligations [licence obligations to cover certain areas within a set time period] which means that networks may be deployed only in high-value urban areas."

Rain CEO Willem Roos confirmed that it didn't have coverage obligations. He estimated that Rain’s network – which is focused on metros and large towns – covered 'almost half the population" by the end of October last year.

He would, however, not say how many users Rain had.

Erna Korff, Telkom’s managing executive for product development, says as a new player Rain can be "very aggressive" with pricing. "It’s a new operator, they’ve got lots of spare capacity [their network is not fully utilised] and their drive would absolutely be to get market share …

"And I think also, like all of us, they are learning a lot about network utilisation and customer experience and making sure that we are able to provide the quality of service that customers are paying for."

Roos says Rain does have a lower cost base, "given that [we are] a start-up and had the opportunity to build the latest generation network, and our focus is on being data only".

"By keeping our costs low and employing the latest technology, we can provide customers with a fair deal: affordable, fast mobile data that never expires."     

Based on the available research, Mothobi says, it is possible to conclude that South African data prices are high but not that South Africans are, in general, being overcharged.

However, Mothobi says, consumers at the lower end of the market are paying too much. Competition from, among others, fibre to home, has forced mobile operators to reduce prices for large amounts of data. But those who use small amounts of data have not seen a similar reduction in prices.

mtn  |  cell c  |  vodacom  |  sa economy  |  telecoms  |  data costs
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