A theory on why R2/MB still exists - TechCentral

A theory on why R2/MB still exists

hilton-tarrant-180Allow me to venture a theory… The reason out-of-bundle mobile data rates are (largely) still R2/MB is to help shore up operators’ cratering voice revenue.

R2 is an arbitrary number, a relic from over a decade ago, but it’s a stubborn one that’s showing no signs of disappearing anytime soon. Let me explain.

These days, the answer could lie in the data usage of voice calling on over-the-top (VoIP, or voice over Internet protocol) services like WhatsApp, FaceTime, Google Hangouts, Facebook Messenger and Skype.

Actual use will vary because of network conditions, but a FaceTime (audio) call will use approximately 500KB to 700KB per minute. One oft-cited statistic is 3MB for a five-minute call (600KB/minute). A test by Android Authority has Google Hangouts using an average of 681KB, WhatsApp 741KB and Skype 875KB/minute respectively. Facebook Messenger uses the most compression and is the most efficient of the more popular apps, using 333KB of data per minute, on average.

At R2/MB out of bundle, this works out to an effective rate per minute of about R1,20 if you use FaceTime (audio). A voice call on the most popular messaging application in South Africa, WhatsApp, will cost you an effective R1,48/minute out of bundle. And even using the most efficient of these, Facebook Messenger, will cost you an effective 60c/minute out of bundle.

Compare this to prepaid voice tariffs which run from 66c to the R1,20 mark across all four networks (and which probably generally tend closer to the 79c or 99c/minute mark).

Why would an operator rationally choose to cut an out-of-bundle data price which would allow its prepaid customers, the most price-sensitive segment by far, to make voice calls on services like WhatsApp at a lower price than a native (GSM) voice call?

If that out-of-bundle price was 50c/MB, an out-of-bundle VoIP call would cost an effective 37c/minute. Imagine what the tens of millions of prepaid customers would do if they knew they could make voice calls on WhatsApp for half the price of the cheapest (non-bundle) voice call?

The cheapest out-of-bundle price — aside from challenger network Telkom, which is at an unbelievably low 29c — is R1/MB on certain of MTN’s and Cell C’s tariff plans. At the R1 rate, an equivalent voice call (over VoIP) is 74c/minute, which i a little too close to those GSM voice rates for comfort.

Mobile operators hate these VoIP apps, characterising them as “over-the-top” services. It’s no surprise that they’ve been lobbying lawmakers locally to regulate them. The “arguments” go something like this: these apps don’t invest in infrastructure and are given a “free ride”, they’re not “subject” to regulations in the way that the operators are, and nor do they pay tax in the country. Boo hoo!

Image courtesy of downloadsource.fr CC BY 2.0

Image courtesy of downloadsource.fr CC BY 2.0

Vodacom’s full-year results show the split of in- and out-of-bundle revenue across the post-paid (contract) and prepaid bases. Total revenue across each of these customer bases is roughly similar, at R22,6bn for the former and R20,6bn for the latter. But R16bn is in-bundle on contract (rather obviously), with only R6,5bn not in-bundle. On prepaid, this is almost the exact reverse at R4bn in-bundle and R16,5bn out. Again, this is logical and expected, but look how much of that prepaid revenue is out-of-bundle (>80%).

With an overall (post-paid and prepaid) revenue split of 55% voice, 39% data and 6% SMS on Vodacom in South Africa, it’s relatively easy to imagine just how much out-of-bundle spend is data. Sure, data bundle usage will be over-indexed on the upper end of the (prepaid) market, but I’d argue that voice bundle usage will be similarly above average on the lower end.

This would help normalise the use of out-of-bundle data across the base. Vodacom says it sold 343m data bundles during the last financial year out of 1,1bn voice and data bundles (meaning >750 million voice bundles). There is a lot of out-of-bundle data usage (on prepaid, in particular). No wonder operators will never disclose these numbers.

Bringing these rates so much closer together — or worse, dropping out-of-bundle data prices to mean effective VoIP rates will be below GSM voice tariffs — will remove whatever incentives remain to use voice. Data bundles themselves are not inexpensive, but at least here an operator is locking in higher spend from a customer (and it can count on a portion of the bundle simply expiring, making them more expensive in real terms).

Mobile operators will quite literally do anything to protect (very profitable) voice revenue. And, with the voice market in structural decline, they’re not about to make any price changes that threaten to accelerate that fall.

  • Hilton Tarrant works at immedia
  • This column was first published on Moneyweb and is used here with permission

5 Comments

  1. That’s eff all. I paid R500 for 140 units of prepaid electricity last night. I nearly fell on my back.

    500 goddamned Rand.

  2. Greg Mahlknecht on

    Hilton, you could have saved yourself a lot of typing. “Because they can” is the reason. Why drop prices when you don’t have to? The sound of their wallets expanding drowns out the moaning of their clients.

  3. With the VoIP calls, assuming it’s mobile to mobile, both the caller and the receiver have to pay for data, which would double the amount of data used for each call.
    Interestingly, however, WhatsApp recently announced that they are now carrying 100 million voice calls per day worldwide. The carriers should be very worried!

  4. That is absurdly expensive. About R 3.50 per kWh.
    Domestic prepaid rates go up the more you use. According to NERSA, the energy regulator, regulations or recommendations, I believe most metros and municipalities use the so called block tariffs.

    In my rural municipality the rates from 1/7/2015 were :
    Domestic Block 1 (0-50 kWh) R 0.9465 incl VAT
    Block 2 (50-350 kWh) 1.1895
    Block 3 (350-600 kWh) 1.6102
    Block 4 (> 600 kWh) 1.8929
    Businesses, churches, business from home 1.9584
    Of course, rates differ from municipality to municipality. Prepaid from 3rd party vendors can be also be considerably more expensive.
    These block rates are per month in which you BUY the prepaid voucher or token. NOT in which you recharge your prepaid meter.
    I live on my own at the moment, hardly use electric for cooking, mostly gas, use gas and anthracite for heating and have only a 100 L geyser, that is not even on 24/7. So my average use is between 200-300 units per month. I mostly buy 350 units at R 404.18 per month, so I accumulate units for the time my kids are here, and other months I would use more power. I recently bought only 50 units in one month as I started to accumulate too many kWh.

    Hope this helps to clarify rates and reduce your spend on this precious commodity. Get the full info from your own metro or municipality.

  5. Nah in the meantime I found out they have started charging me wrongly for some dodgy meter tampering the previous tenant seems to have done and slipping payments into my prepaid elec purchases. They say they are investigating.