South African data prices not dropping fast enough

South Africa’s mobile network operators are not only charging more for data relative to the other countries in which they operate, but the gap between those prices keeps widening as data costs fall faster in other countries.

The two largest operators Vodacom and MTN are the biggest culprits of overpricing charging “considerably higher” prices than they do in other parts of the globe.

Using data from the Independent Communications Authority of South Africa in a provisional report on the prices of data in the country, the Competition Commission showed that while 1GB of Vodacom data costs $11.6 in South Africa, the same bundle was close to 90% less in Egypt at $1.12 and in Nigeria at $2.77. Closer to home Vodacom charges $7.54 for 1GB in Lesotho.

Similarly, MTN’s prepaid 1GB data bundle is priced at $11.95 in South Africa however the same bundle was $0.14  in Iran or $3.15 in Nigeria. In Zambia, 1GB of MTN data would set you back $3.41.

Two years after the commission established the Data Market Inquiry to look into the costs of data, its findings released on Wednesday gave credence to the public outcry that mobile operators are charging exorbitant prices.

Data prices are anti-poor 

The most “disturbing” finding in the report is that poor low-income consumers may be “exploited to a far greater degree” than their wealthier counterparts.

These customers opt to buy smaller data bundles as they are more affordable however the commission’s assessment of headline retail prices showed that in the end, they paid “inexplicably more on a per MB/GB basis”.

“The retail pricing structure of mobile data is anti-poor,” Tembinkosi Bonakele, commissioner at the Competition Commission told the media.

For instance, compared to the costs of buying 1GB, a consumer buying 100MB will pay almost double on a per bundle basis for the same data period. Vodacom currently sells 1GB of data valid for 30 days at R149 while 100MB is R29. If the same consumer continues to buy the 100MB bundle until they hit the 1GB mark, they will have spent R290 in total.

On top of paying more for lower bundles, lower-income consumers were also far more likely to be subject to punitive out-of-bundle rates which account for up to half of the money they spend on data, unlike consumers who buy larger bundles and are less likely to run out of data.

Chief economist at the commission James Hodge said network providers were invited to comment on this discrepancy during the first leg of the hearings and argued that the gap between the smaller and larger bundle rates reduced when you considered hourly bundles, promotional data or free data that was offered to consumers.

“I suppose from the commission’s perspective to be told that someone who wants to use 100MB over a month must rather use it in the next hour in order to get a cheap price isn’t a way of compensating,” said Hodge. “Invariably that data will expire and the effective price will be much higher”.

What was of further concern is that poor consumers were also just being exploited for being poor. Hodge explained how network providers were more willing to drop prices for wealthier consumers because they were more likely to use the data liberally and spend more meaning revenue does not deteriorate to the same extent.

Hodge said headline prices for data had also remained relatively unchanged over the past few years with network providers opting to provide users with data specials which gives the impression of cheaper rates.  The lack of transparency about costs makes it difficult for consumers to compare prices across networks and inhibits price competition in the industry.

Vodacom and MTN say data is falling

Both Vodacom and MTN noted the commission’s report and said they would be studying it further in order to make submissions and comments by June 14 for the final report.

In the interim, the network providers stressed the efforts they have made to lower costs.  Vodacom’s spokesperson noted that it had recently announced a drop to its out-of-bundle prices by up to 70%.

MTN spokesperson Jacqui O’Sullivan added that the commission was largely reliant on outdated data from 2017 which does not consider the changes that have happened in the mobile pricing sector over the past 18 months.  

“One such significant change was MTN’s decision in February of this year to cut its out-of-bundle data rate by up to 75% for pre-paid customers,” said O’Sullivan.

However, at the press briefing, Hodge said while network operators claim that data prices are falling in South Africa, “the gap is widening over time”.

Immediate cost relief 

Some of the recommendations to provide immediate relief on data prices include mobile operators committing to reducing their headline tariff levels and locking them to the average price that a user would pay for data plus free bonus and promotional data.

“That leaves the operators revenue neutral because it does not dig into their revenue because that’s what they are effectively charging but it does mean that all consumers can benefit from that,” said Hodge. The greater price transparency would also promote price-based competition.

The commission also wants network providers to reduce the price of bundles lower than 1GB to an “objectively justifiable and socially defensible range of the 1GB price”. The provisional level is a cap of 25% higher on a per MB basis. This will provide real price relief particularly to lower-income consumers who mostly use small data bundles.

The commission acknowledged the need to urgently assign spectrum and other essential facilities which will reduce infrastructure costs for network providers.  

Minister of Economic Development Ebrahim Patel said data was essential to building a skilled and competitive economy especially in the context of the “fourth industrial revolution” which has changed the face of core services in society such as healthcare, education and skills development.

“This is about more than simply a problem of high data prices,” said Patel. “It’s the entire economy that is affected by this”.