Ramaphosa’s pseudo-economics won’t lower data prices by 2024

President Cyril Ramaphosa recently directed communications minister Stella Ndabeni-Abrahams to cut the price of data by 50% by 2024. This not only shows that government thinks it is immune to the laws of economics, but also that it operates under the assumption that it can solve a problem it helped create. Only an economy freed from the pseudo-economics of misguided public policy will deliver the lower data prices everyone wants.

It is generally assumed that that the perceived high price of data in South Africa is due to the arbitrary greed of data providers. While there is always (rightly) a measure of self-interest at play, this assumption fails to capture a host of factors that contribute to the cost of data in South Africa.

The compliance costs on the data industry are great and increase every year. There have been proposals that data providers and mobile network operators be compelled to provide free data to some educational institutions. If certain recently proposed amendments to the Electronic Communications Act are to be enacted, data providers will also be compelled to share the infrastructure in which they invested billions of rands with their competitors.

This infrastructure was built by network operators — private companies — not government patronage. Load shedding and theft are constant threats to data networks for which the providers have to pay. The poor state of our economy – another result of ill-conceived government policy, particularly the Covid-19 lockdown – exacerbates matters. With less money in the economy, it follows that all enterprises, not excepting the data industry, are suffering.

Other factors such as South Africa’s low-density population means that a single data-transmitting tower covers fewer people in rural areas. This means the cost per gigabyte is higher, as in some areas data providers cannot commercially justify the construction of more towers.

Price controls

Part of Ramaphosa’s direction to Ndabeni-Abrahams is to enforce price control of data. In other words, instead of creating a regulatory environment conducive to lower data prices, she is meant to force data prices down without addressing the root causes of why they may be relatively high in the first place.

Her department’s hogging of radio frequency spectrum – necessary for providers to increase capacity and lower costs – goes a long way to keeping prices artificially high. Rather the minister auction off all available spectrum than engage in destructive market interference.

Indeed, prices are an economic and not a political phenomenon determined by forces like supply and demand and scarcity and abundance. This means that when one tries to use political will to determine prices, various unforeseen and usually unintended – invariably detrimental – consequences result.

Thus, even if government diktat succeeds in superficially lowering data prices, there will be downstream repercussions. In a few years, for instance, we might notice the quality of our data connections are not on par with those elsewhere in the world because data providers will be less inclined to invest in infrastructure. Heaven forbid that government should attempt nationalise the infrastructure as it planned to several years ago, as this would be disastrous for consumers. This is only one example of an unforeseen, unintended outcome that can result from artificial meddling in the price signal.

Data providers do not want prohibitive prices. If A and B can afford the high price of R150/GB, but all the other 26 letters of the alphabet can only afford R50/GB, a data provider will only have R300. But if they could lower their price to R50/GB, they would have R1 300. It is in the interest of data providers to keep their costs as low as possible to ensure they have as the widest possible market penetration. They also don’t want their customers only buying 1GB/month, but multiple, as that means more revenue. There is no rational reason for data providers to have prices so prohibitively high that most consumers are excluded. In other words, their prices are high due to factors beyond their control.

Ndabeni-Abrahams was also directed to have the Electronic Communications Act amended to fix competition issues in the data industry. Government’s track record in competition policy does not bode well for the data market. Traditionally, government believes that more regulation will increase competition. In 2020, for instance, we saw the Gauteng Township Economic Development Bill, which proposes to outlaw retail competition from foreign nationals in South Africa’s townships – a perverted conception of increasing competitiveness if ever there was one.

But if the minister truly wants to grease the wheels of competition in the telecommunications industry, she should set about dismantling the various regulatory burdens that are at best inconvenient for the big data players, but insurmountable to any entrepreneur who may want to break into the industry. A good start will be to abandon any notion of price control.

Above all, however, the government in general must embark upon a programme of wholesale deregulation, privatisation and liberalisation across the length and breadth of the economy, to ensure economic growth, investment and freedom of choice for consumers. This is the solution to any issues we might have with highly priced goods or services.

• Martin van Staden sits on the executive committee and the Rule of Law Board of Advisors of the Free Market Foundation. He is pursuing a doctorate in law at the University of Pretoria and is co-author of The Real Digital Divide: South Africa’s ICT Policy (2017)

This article was published with the permission of TechCentral, the original publication can be viewed here.