Commission mulls ‘functional separation’ at Vodacom, MTN

The Competition Commission has floated the idea of enforcing functional and/or accounting separation on South Africa’s large mobile operators — a move that would not be dissimilar to what it required of Telkom a few years ago — to promote competition in the mobile broadband industry in South Africa and bring down prices.

This is one of a wide range of interventions proposed in the commission’s provisional findings and recommendations following its inquiry into the data services market, announced at a media conference in Pretoria on Wednesday.

Though the commission doesn’t specifically name MTN and Vodacom in the context of functional and accounting separation, it’s clear that it is referring to these two companies in its findings.

If implemented, this regulator-imposed separation should facilitate the entry of new mobile virtual network operators (MVNOs), which piggyback on network infrastructure providers, the commission said. To date, only Cell C offers wholesale services to MVNOs.

Though government’s proposed wholesale open-access network (Woan) is one way to address what the commission calls “market failure”, more immediate regulatory intervention is required while the Woan is being established.

“Some form of functional and/or accounting separation may be required of the larger networks if there is to be greater transparency as to the costs of the radio access network and core network relative to the retail services,” the commission said.

Lessons from Telkom settlement

“Such separation may also provide more appropriate incentives to the network layer to engage in fairer access pricing to third parties relative to the operator’s own retail division. These are certainly some of the lessons from the Telkom settlement agreement with the commission, which is widely perceived as having had a transformative impact on wholesale infrastructure access in fixed lines.”

The commission has proposed a number of other short-term in intermediate interventions — more about these will be published on TechCentral later today.

The provisional report, released two weeks before South Africa goes to the polls, follows the launch of the inquiry in August 2017 in response to a request by economic development minister Ebrahim Patel. “This request followed persistent public concerns about the high cost of data in South Africa,” Bonakele said at Wednesday’s media conference.

The purpose, Bonakele said, was to assess the state of competition “in every stage of the value chain for the provision of data services to identify areas of market power where consumers might be exploited or excluded … or determine other structural, behavioural or regulatory issues that might impact pricing”.

The commission found that mobile data prices in South Africa are high when benchmarked against a wide selection of countries, including other countries in Africa. The country, it said, compares poorly with other members of the Southern African Development Community and other members of the so-called Brics countries of Brazil, Russia, India, China and South Africa.

“The retail pricing structure is anti-poor and lacks transparency,” said Bonakele. Lower income consumers pay disproportionately more per megabyte or per gigabyte than high-income users, he said. This can be as much as four times more for those buying small data bundles.

Bonakele said the operators’ pricing also lacks transparency.

Interested stakeholders have until 14 June to make written submissions to the commission’s report. The commission will then have “further engagements” before publishing the final report. – © 2019 NewsCentral Media

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