Vodacom and MTN have been given an ultimatum by the Competition Commission to reduce prepaid monthly mobile data bundle prices within two months – possibly by between 30% and 50% – or face prosecution in terms of the Competition Act.
These reductions will be in addition to the most recent price reductions by Vodacom and MTN.
This was one of the major recommendations contained in the final report of the data services market inquiry released by the commission on Monday.
It was also recommended that Telkom Openserve reach an agreement with the commission within two months on substantial reductions in the price of IP Connect (the wholesale ‘internet protocol’ product through which third-party internet service providers connect to Telkom’s network) to remove excessive pricing concerns.
Tembinkosi Bonakele, commissioner of the Competition Commission, said on Monday the report found that the market for data services in South Africa is highly concentrated with a duopoly of the two leading operators, Vodacom and MTN.
Bonakele said data prices are excessive, which may violate the provisions of the Competition Act.
“We believe strongly as a commission this requires strong and decisive interventions.
“We have noted that there have been recent price reductions but we do recommend in the report that Vodacom and MTN must independently reach an agreement with the commission on substantial and immediate reductions in pricing, especially of pricing of prepaid bundles, which we have found to be more expensive than the so-called contracts and reflect a bias against the poor.
“We think there is scope to reduce these prices in the region of 30% to 50%. We have decided that we will give the industry two months to act on these recommendations, failing which we will consider a prosecution for excessive pricing,” he said.
Bonakele said the commission is saying to the industry “it’s up to you”.
“If we are able to reach an agreement for you to address our concerns, that’s fine. If not, I think we have reached a stage as a regulator where we say that this must be an issue that is considered for referral to the Competition Tribunal.
“We will see now what is the response to the recommendations,” he said.
“We cannot continue debating. We have done enough of that and think the industry must now come on board.”
Deputy commissioner Hardin Ratshisusu said in terms of the Competition Act, the commission has the option to refer the matter to the tribunal, start a new case, or enter into a settlement agreement with the affected firms.
“We do urgently implore them to engage with the commission constructively. If they engage constructively with the commission, we are confident that we will reach an amicable solution which will benefit consumers and will take our economy forward.
“Indeed there will be hefty penalties at the end of the day for those that do not wish to cooperate with the commission,” he said.
Bonakele said a second major issue that led to the inability of other operators to effectively compete is the issue of infrastructure sharing, which is largely a regulatory issue.
He said the commission believes that infrastructure, especially essential infrastructure, should be subject to regulation.
The report has recommended legislative changes that should set pricing standards for different types of facilities to facilitate cost-based access to infrastructure facilities.
Minister of Trade and Industry Ebrahim Patel said it is clear there is a competition problem in the data services market because prices are higher than they should be, higher than in many other markets elsewhere in the world, and profitability levels are high.
Patel said this reflected potentially anti-competitive outcomes that may be the subject of an investigation into excessive pricing.
He added that the inquiry also found that the structure of and practices in the market result in discrimination against lower-paid consumers, that roaming markets are not working or not working as well as they should, and that something should be done about it.
“These are quite significant recommendations that seek to address the issue of retail prices and seek to remove the differential in the pricing charge to lower-income consumers and high-income users of data services,” he said.
The report made a number of recommendations to enhance price-based competition, including that Vodacom and MTN reach an agreement with the commission within six months to ensure that their national roaming agreements with other networks are priced, at a minimum, at wholesale rates that reflect a reasonable discount on their own effective retail rates.
It also recommended the development of alternative infrastructure to provide data services in lower-income areas and small secondary cities and towns, and that government at all levels must actively promote the development of free public Wi-Fi in low-income areas, including government buildings, commuter points such as train stations and taxi ranks, and public spaces such as parks, shopping areas and government service offices, as well as the creation and entry of community networks.
The report recommended that a single government department or agency be designated as responsible for driving these initiatives across the different departments and levels of government.
Other recommendations contained in the inquiry report include that all mobile operators must reach an agreement with the commission within three months:
- To offer all prepaid subscribers a lifeline package of daily free data to ensure all citizens have data access on a continued basis.
- On a consistent industry-wide approach to the zero-rating of content from public benefit organisations and educational institutions.
- To inform each subscriber monthly of the effective price for all data consumed.
MTN said it had noted the release of the report on data pricing and would study the full report once it was received from the commission.
Vodacom said it would engage the commission on the report.