Vodacom to cut broadband prices - TechCentral

Vodacom to cut broadband prices

Vodacom Group CEO Pieter Uys

Vodacom is planning to cut its mobile broadband tariffs soon to ensure its products remain competitively priced.

Group CEO Pieter Uys admits Vodacom’s “general data tariffs” — those outside special offers — need to be adjusted. “At that level, we are not 100% competitive, and there will be movement around tariffs in general.”

Though Uys is reluctant to put a specific date on the announcement of new tariffs, he says the company is working hard to ensure the network is ready to cope with increased demand from subscribers.

That includes putting in its own fibre-optic transmission infrastructure to its base stations and lessening its reliance on leased circuits from Telkom.

The mobile data market has become more competitive in the past year, with Cell C introducing special offers that many industry executives believe are not sustainable in the short term.

However, both Vodacom and MTN recently reacted to Cell C’s promotion of 2GB of data and a modem for R149/month with similar special offers of their own. Vodacom, for example, is offering a dongle and 2GB of data, with another 2GB that can be used late at night.

“Two new competitors came into market last year. One launched with a very attractive promotion. We didn’t follow initially but there has been more and more pressure and questions asked [of us],” Uys says. “In the end, competition forces you to ensure you are competitive.”

However, consumers shouldn’t expect a dramatic reduction in general data tariffs to the levels being offered as part of special deals, Uys cautions.

TechCentral believes an analysis of Cell C’s data tariffs provide insight into the quantum of the reduction that consumers may be able to expect from Vodacom.

Cell C charges R150 for 500MB of data, or 30c/MB. Vodacom’s equivalent product costs R185, or 37c/MB. Vodacom’s product is therefore 23% more expensive.

When it comes to larger bundles, Cell C fares even better. A 3GB bundle from Cell C costs R400 (13c/MB) against Vodacom’s R565 (18c/MB), making the latter’s product 41% pricier.

Uys says Vodacom’s tariff models are built around the radio frequency spectrum it has access to and projected demand for data services. “Into that we have built tariff declines, increased usage and good elasticity on data,” he says. By elasticity, Uys means increased usage from consumers as prices fall, helping to offset at least partially a fall in revenue.

He says it’s not possible simply to cut data prices in half given the load on the network. “You can’t just take what you have and make it bigger,” he explains. “At some point you have to build more sites and reduce site sizes, requiring an incremental increase in investment.

“If we halve the tariffs today on data, the quality [of the network]will go out of the window. The networks just cannot support it.”

Uys says the business model for data will continue to deliver returns for Vodacom, but only if it builds its own transmission infrastructure and continues to cut costs and improve efficiencies. Already, it’s invested in a number of new submarine cable systems and is working with rivals MTN and Neotel to build a national backhaul network that links the country’s towns and cities.

It’s also extending its own fibre to its base stations to lessen its reliance on Telkom.

“At the moment, if I put more capacity through the sites, I have to order more [lines]from Telkom,” he says. “However, if we put in our own transmission, it’s a once-off capex layout. That link is so big you’ll never have to put in more capacity, so whatever load you throw at it there’s no congestion. It makes this whole commercial model around data work.”

However, Uys says it’s crucial operators like Vodacom get access to more spectrum, especially in the coveted 2,6GHz band, so they can keep up with surging demand, especially in metropolitan areas. The Independent Communications Authority of SA is meant to auction off access to the band later this year.  — Duncan McLeod, TechCentral

13 Comments

  1. Good news! I’ve personally been up Vodacom’s ass to sort this out… they claim better prices but don’t offer them!

    At last we get some truth from the horse’s mouth!

  2. The key is that out-of-bundle rates on smartphones remain very high. Vodacom will continue to make a pile of cash from new smartphone users who don’t have data bundles.

  3. Deja Vue: “He says it’s not possible simply to cut data prices in half given the load on the network.”

    ???

    I thought we were safely beyond this silly fig leaf…. after all the 43Mbs upgrade talk!

  4. Consider deploying the 2.6 GHz band in the Metropolis. It is essentially a Metropitan Area Network and good for capacity. For the rural areas you need a network for coverage and the 800 MHz band would be good for this. Other you should consider re-farming the 1800 MHz which will be a balance for both coverage and capacity. This band will provides better capacity than the 800 MHz band and better coverage than the 2.6 GHz band.

    Tests have been conducted where 10 MHz band in the 1800 MHz gave speeds of 70Mbps as opposed to the 2.6 GHz giving a speed 50 MHz. So the 1800 MHz band can be re-farmed for the LTE technology. The voice services can then be transferred to the 800/900 MHz band.

  5. may i suggest you implement a dynamic billing algorithm that takes into account time of day, device location, and network conditions at that location, and then calculates a spot data price for given user?

    Im willing to spend R20 right now to stream an hour long Google I/O conference video. Its almost 22:00, and your network is quiet where i am, and probably your backhaul as well. (im getting 12Mbps on Speedtest to London) – but i wont be watching, because me being a dynamic organic being with unique online behavior is not compatible with that big guy in a nappy with a curl on his head you call a billing system.

    if the algorithm is smart enough, users will generally perceive better value, and you will make more money from idle time on your network. I can even build this system for you if the mighty Vodacom is interested. ; )

    Its time to futurethink.

  6. What about those who signed for R249 PER MONTH for 600MB with Vodacom few months ago and now the price for 2G is R149. What happens to the difference, is it just profit for the service provider or is Vodacom benefitting from this. The elasticity in the pricing of a minute or MB is a ploy to confuse consumers and at times can be outright discriminatory. Icasa must regulate this range and put possible caps.

  7. Andrew Wes on

    MTN is being really quiet about trying to compete in this space; either they have something planned or they are just happy for their customers to drift to the opposition.

  8. Nothing to get excited about here. He has been saying for months they will reduce prices but never commits to numbers or a date. He’s obviously trying to buy time hoping Cell C will discontinue offering it’s “special”. It must really be damaging to Vodacom. I can’t see them do it though while Vodacom sounds so uncertain and even if Vodacom does reduce its prices it will be in Cell C’s interest to continue with it to gain customers.

  9. Nkosana Mtshizana on

    I thought there was only one company in South Africa that discourages its consumers from excessively using its services and that is ESKOM, but now Vodacom SA has also jumped onto the band wagon. ICT especially when you refer to telecoms is a game of numbers and economies of scale, you are compelled to pitch at competitive tariffs whilst retaining market share and growing it in order to mitigate the eroding revenues brought by competition.

    This is a golden opportuntiy where operators like Vodacom SA are confronted with a scenario whereby CAPEX outlay is immediately justified by a growing market that is yearning for affordable broadband data. It is an interesting phenomenon of CAPEX outlay and almost instant ROI. Therefore I do not comprehend the CEOs pronouncement especially since we all KNEW almost a decade ago that broadband demand will grow exponentially. Using the various yardsticks our GDP per capita favours positive ARPU in this domestic market, and in the region collectively the broadband penetration is sitting at below 15% from 5% in 2007. Evidently every operator must digest these forecast figures if they are serious about ramping UP.

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