Busting myths about SA's high mobile prices - TechCentral

Busting myths about SA’s high mobile prices

Alison Gillwald

The reaction of various interest groups to a year-long study by Research ICT Africa into prepaid mobile prices across the continent and SA’s relatively poor showing in it are perhaps not surprising. They nevertheless prompt clarification and hopefully further debate before the issue of the high price of communications in SA is again swept under the carpet.

Myth one: the misconception that termination rates and retail end-user prices are not connected
In Vodacom’s response in a recent Mail & Guardian Online report, the company’s spokesman, Richard Boorman, seeks to dispel a “common misconception repeated in the report” that links termination rates — the fees the operators charge each other to carry calls onto their networks — to end users and questions why termination rates price reductions are not passed onto consumers.

As the dominant operators have consistently claimed in public hearings and the media, he argues that “mobile termination rates (MTRs) are not an industry-wide cost that the consumer bears — the net cost of MTRs to consumers is and always has been zero”.

This separation of termination rates as a cost element (and revenue stream) from final end-user prices (retail tariffs) is contradictory and essentially tries to deflect arguments in favour of more cost-based regulation of termination rates and indeed end-user prices.

Boorman goes on to say that this does increase competitiveness in the market, which has led to a 24% decrease in Vodacom’s “effective average price” for end users. The question this begs, then, is: how does the reduction in termination rates induce competition?

This is empirically demonstrated in five in-depth case studies of Kenya, Namibia, Tanzania, Uganda and SA conducted by Research ICT Africa that show that when termination rates are reduced sufficiently toward their real costs, they enable competitive pressure from new entrants. They are unable to do so when this wholesale element of their costs is high, or even higher than the cost of on-net calls of incumbents in some countries prior to the regulated reductions.

The pricing pressure has positive competitive outcomes as operators are forced to use their networks more efficiently to sustain their profits.

Myth two: SA’s prices are high because what we get is better or preferable
Unfortunately, the Independent Communications Authority of SA (Icasa) played directly into the hands of operators by responding defensively to the reports that at least some of the reason for high prices was ineffectively regulated prices. While acknowledging that SA’s prices are comparatively high, Pieter Grootes, Icasa’s GM for markets and competition, justified these (see TechCentral article) by endorsing the operators’ contention that “coverage comes at a price and greater geographic coverage comes at a greater price”.

Pointing to maps of network coverage in Tanzania and Kenya, Grootes says SA has far wider coverage than some other nations and this is not factored into Research ICT Africa’s report.

In fact, this is not a factor considered in this pricing index as it would be impossible to do a comparison across so many criteria across the entire continent, hence the use of the internationally accepted OECD pricing baskets.

However, for the purpose of debate, let’s pursue this line of argument. Examining the GSMA coverage maps used by Icasa in the TechCentral report, we see that Namibia, against which SA is extensively benchmarked — because it started off with the same mobile termination rate three years ago — has 98%  population coverage, despite the population being concentrated in three main centres. Kenya has 89,1% population coverage.

Further, arguments that SA’s prices are so high is because of its state-of-the-art networks as a result of constant, obviously desirable reinvestment in networks  is challengeable. Namibia and Kenya, with among the lowest charges in Africa, are poised to introduce fourth-generation mobile networks, probably before SA with its delays in awarding access to new spectrum.

These countries have been able to do this because, despite the dramatic reductions in retail prices — made possible by significant reductions in mobile termination rates — they have gained more customers and created whole new lines of business such as mobile money while keeping their companies as profitable or, in some cases, more profitable than ever before.

The net outcome in these countries is the attainment of all our countries’ common public policy objectives of affordable access to communication — and the creation of environments conducive to investment and sustainable enterprises — which continues not to be the case in SA, despite Icasa’s defence of the status quo.

Myth three: reductions in mobile data prices can be equated to reductions in voice calls and particularly prepaid mobile voice calls
Given that Research ICT Africa’s report is very clear in addressing prepaid mobile voice services only, it’s strange that Icasa’s Grootes fails to address mobile voice prices but instead speaks about the 30% price reduction on 1 April in IP Connect charges — the fees Telkom levies on Internet service providers to access its fixed-line digital subscriber line network.

While this is a significant and much welcomed development, it diverts the debate from the cost of mobile prepaid services, which as primary source of communications for the most South Africans should be at the core of public policy and consumer welfare, one of the primary rationales for regulation.

Instead, we are left with justifications for SA having such high prepaid mobile prices, despite having economies of scale and population densities far in excess of either Namibia or Botswana, neighbouring countries that have considerably cheaper retails rates and have regulated termination rates that are a fraction of the size of SA’s.

Myth four: it’s all Icasa’s fault
That being said, the reduction of this problem to Icasa is erroneous. Pricing indicators are one of the most effective measures of the competitiveness of a market. This is a policy outcome. The regulator should not be the scapegoat for these negative outcomes.

The reasons for them are complex and relate to the poor market structure — lack of competition in the sector; compromised authority of the regulator as a result of the institutional arrangements for the sector; the appointment processes of decision makers; the legacies of weak cadre deployment; and the absence of technocratic competence.

Let me emphasise that the latter two are not mutually exclusive. However, in this sector, weak appointments over the past decade or more, without strong technical competencies to back them up, has undermined the capacity of the regulator and other institutions in the sector.

Let’s hope that with the department of communications’ national policy colloquium underway this week that, as a country, we can acknowledge the policy failures of the past decade and a half and move swiftly to address these in both our market structure and institutional arrangements so that at last our policies can support the pro-poor agenda they have fictitiously claimed to serve in the past.

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