Consumer ire misplaced as Vodacom hikes rates - TechCentral

Consumer ire misplaced as Vodacom hikes rates

Duncan-McLeod-180-profileWhen Vodacom announced 10 days ago that it will hike the subscription fees of a range of contract tariff plans from 1 May, it caught consumers by surprise. Many took to social media networks and the comments sections of news websites to voice their displeasure.

While South Africans have become accustomed to regular increases in the price of most goods and services — with Eskom leading the pack with its massive annual tariff hikes — they’ve come to expect the opposite of the telecommunications industry, where the cost of voice and data products has fallen, often in the double-digit percentages, for years.

Deflation, consumers now think, is the new normal in telecoms. So, when Vodacom announced its price hikes — even though they’re modest — the bile flowed freely.

But it’s what’s underpinning the hikes that are the real cause for concern. After many years of strong growth and healthy (some would say rude) profits, South Africa’s telecoms operators are feeling real pain for the first time. Hit by spiralling costs and a squeeze on retail prices, their hiring sprees and lavish spending on sponsorships have been replaced with cost-cutting and retrenchment programmes.

Vodacom appears to have weathered the storm best, recognising early on the change in the business environment. Remember when Vodacom used to sponsor just about every rugby event in South Africa? It pulled the plug on that largesse when the going was still fairly good. Others, like MTN and Telkom, have been forced to cut jobs.

Some of the pain is the direct result of a more competitive market. When former Vodacom CEO Alan Knott-Craig returned to the industry in April 2012, as CEO of Cell C, he sought to steal market share from his bigger rivals by launching a price war. Voice tariffs plummeted and have stayed low, while mobile data has also become cheaper.

But factors external to the industry are adding to the pressure.

One of the biggest problems is South Africa’s ailing currency, which at the time of writing was at R12,15/US$. Just four years ago, the rand was stronger than R7/$. Because most of the equipment that telecoms operators need to maintain and expand their networks is imported, the weakening currency has had a direct impact on their capital costs.

But the operators cut their capex budgets at their peril — they need to maintain network quality to stay competitive. So the cuts have to come from elsewhere.

Eskom is another big challenge. Operators have done well to keep their networks running through rolling blackouts. But doing that is expensive: they have to deploy diesel generators at each of their sites and fire these up whenever load shedding is implemented. And fuel prices are rising again. Belatedly, the operators are talking up the idea of sharing this sort of infrastructure to reduce costs. They should have done this years ago.

Towers have become more expensive to operate thanks to load shedding

Towers have become more expensive to build and operate thanks to load shedding and the falling rand

A third issue is one that government should have helped address by now, and that’s making additional frequency spectrum available. Because operators have not been granted access to additional spectrum for broadband, they’ve been forced to “densify” their networks, building more base stations to cater for the growing demand for data.

The glacial pace at which South Africa is moving from analogue to digital terrestrial television is holding up the allocation of spectrum for broadband currently being hogged by television broadcasters. Also, government has taken unacceptably long to draw up a policy on how the Independent Communications of Authority of South Africa should allocate access in other important spectrum bands. By sitting on its hands, government is actively retarding the industry’s development and it deserves severe criticism for this.

Many South African consumers will delight in the pressure the industry is now under. After all, aren’t these companies the embodiment of a greedy capitalist system interested in nothing more than maximising profits at the expense of end users?

It’s certainly true that Vodacom and MTN enjoyed a sheltered environment for the first 15 years of their existence, protected from the vagaries of full competition. But it’s competition in recent years that has brought down prices and forced the operators to be more efficient. It’ll be unfortunate if external factors derail the benefits this has brought to consumers.

  • Duncan McLeod is TechCentral editor. Find him on Twitter
  • This column was first published in the Sunday Times

17 Comments

  1. Ofentse Letsholo on

    Yes they are getting the pressure, who would have thought MTN and Vodacom would ever feel the pressure after the abuse they have given to end users for years?!. I guess reality has hit them hard.

  2. frikkenator on

    I honestly feel no sympathy for them as they haven’t shown any interest in adapting to a changing telecommunications market. Still charging R2 for a MB in 2015 is a disgrace.

  3. The snag with the Eskom analogy is that you don’t enter a two year contract with them.

  4. Shame poor operators. Instead of the 500% profits now they will only make 100%. How will they live…… I feel nothing for them.

  5. I don’t know if it’s only me but I would have thought the solution is fairly in-your-face obvious…..
    (a) Stuff ’em! The cell phone pirates have had a long and most profitable ride on the Cabal Express. No sympathy from this captive either Frikkie.
    (b) BRING IN THE CHINESE!!! Huawei will clean their clocks within 6 months of getting off the plane. (The buggers know it as well)

  6. Bottom line SA corporations don’t want competition nor entrepreneurship. Its about keeping the wealth for the top 5%

  7. “Densifying” their networks is a smart long term investment as reducing cell size is the single biggest impact that an operator can have in terms of making more efficient use of spectrum.

  8. I can appreciate the network operator’s difficult position. Unfortunately that will have to be set aside. Connectivity is absolutely crucial, yet SA is staggering backwards in this regard. We talk of entrepreneurs, yet to afford the connectivity to use something like Office365 effectively can cost three times or more than the Office365 subscription itself. That is ridiculous. All this talk of a digital and service-led economy, yet most locals cannot afford any of those perks. Explain that to a new business in a blue collar neighbourhood or township. To make that and other connectivity-growth areas realities we need much cheaper data.

    The operators can show whatever report they want to justify their costs – the truth is that the majority of the country simply cannot afford broadband at meaningful levels. That is the bottom line and everything else just avoids the issue. The operators’ busines smdoel is oudated. Time to make brave decisions. The status quo simply cannot be sustained. MTN, Vodacom and co are all eager to sell white lable offerings to business. Where will all those business clients come from? Corporate SA only has so much to give – if we want new businesses in a digital economy, we have to create the environment to help those new ventures. Charging an arm and a leg for data is the opposite of that.

    If it comes down to it, I’d even argue for nationalising the networks, but that is too radical. Still, we can’t keep playing this game. Vodacom and MTN are not examples of a free market economy – they are monopolies that have abused their positions. We need to put the concerns of the country first, yet the comments from the operators only seem to concern their own rights. With a mobile penetration rate of over 100 percent, this need sot be addressed. But the regulator is toothless and even the NDP shows that government is not willing to tackle the operators.

    Of course Vodacom and MTN don’t care, other than their share price. If you are a manager with one of those firms reading this, you are hurting our country.

  9. Howcome all you people making a fuss for +- 600 increase over 2 years VS a possible 600 per month increase on electricity? ??? Why don’t dance about that??? Or even the minimum of 160 per month increase on petrol for a thicker layer of government tax ???? Let’s not forget the 200+++million for nkandla??? Or the tax we pay SARS yet theft and crime in govt departments are crazy ????

    Guys get a grip. It’s a can of coke for some contracts or a 29 new cheap KFC burger per month. Let it be….you all are putting prices up in your stores or for your services because of eskom and petrol and insurance. Be fair…let them also be able to increase after +- 8 yeas of per minute and per meg price decrease this is fully justified.

    Best part it’s in the fine print you signed for. Why didn’t you take the time to read the fine print if ur budgets are so tight ? Or gonna cry for everything? ???

  10. @davebee:disqus I am a former Vodacom employee. As a South African, the last thing I want is the domination of the chinese. Yes, for the moment, they are using low cost to take over the market. I’m questioning the long term strategy behind this. I also don’t believe in their product quality, nor that a world dominated by the chinese in an economic sense will be a good one. My two cents!

  11. @frikkenator:disqus If you are still paying R2 per MB, you’re not doing something right. Why not take the time to analyse your usage and buy a suitable bundle that can bring down the cost to as low as 20cents per MB – even lower.

  12. @z-anon In general, inflation linked increased create a sense of false growth in an economy and contribute to the decline in the purchasing power of money. Nett effect = people become poorer over time. I am against price increases and inflation. Period. As far as I’ve seen, the percentage increases in utilities are usually a few percentage points higher than the percentage increase in income.

  13. @melcolmx:disqus Capatilism has it’s faults, yes. But I disagree with your statement about wealth for the top 5% – unless you provide substantiation to clarify…?

  14. Vodacom’s new contracts (Smart and Red plans) and device prices have me scratching my head over whether it is worth it to go contract anymore. They do offer great total value with the integrated voice, data and sms (I still prefer SMS over Whatsapp, so shoot me. Plus, I am an iPhone user, so SMS integrates beautiful with iMessage), but have reduced the carry-over to 2 months. Lately, the monthly cost of hardware for a device on contract is so expensive that I am considering keeping my existing phone for longer and going Prepaid on the 79c per min plan.

  15. @ofentseletsholo:disqus There was talk of the market changing and flat-lining for the last 5 years. In my view, I didn’t see enough action to become efficient and innovative / bold in a customer-focused manner. The business model needed to change and has not done so sufficiently, resulting in the pressure we see on operators today.

  16. Where do begin? Product quality? I have a small Chinese cell phone I have used everyday for the past 5 years and it’s quality is superb, the sound quality beats the pants off Nokia. All in all an excellent product and credit to the Chinese designers.
    More quality from China? Huawei employs ONLY tertiary educated personnel, no staff in the firm without at least one degree!
    Even the UK finds Huawei as damned good and now Huawei is entering the mainstream telecomms over there as well.
    If you want to pay more for a shoddy service without the Chinese that’s your right…Me? I can’t wait for the Middle Kingdom to get here and upset the local apple cart asap.

  17. After spending most of my life in the US its a known fact that 90% of the wealth is in the top 10%. In SA the disparity is notable, more extreme! Competition is only between the corporates. There is very small chance of success for home brew industry to survive. Ten years on everything is digressing.