[By Duncan McLeod] New legislation meant to fight crime is having a deleterious effect on mobile operators. Vodacom, MTN and Cell C saw new connections to their networks fall off a cliff at the beginning of August. It’s hard to see how the gain is worth the pain.
“I told you so!” That’s what Alan Knott-Craig, the former CEO of Vodacom Group, is probably muttering under his breath.
The horribly named Regulation of Interception of Communications & Provision of Communication-Related Information Act, which gets shortened to Rica, is having a devastating impact in the mobile sector.
It’s an outcome that Knott-Craig predicted several years ago, when Rica was first mooted. Until his retirement from Vodacom, he was a vocal critic of the legislation.
Since the beginning of August, anyone buying a new Sim card has been required to furnish cellular service providers with a copy of their ID and proof of residence. The idea is that if the police need this information to fight crime, then it’s available to them.
The same legislation has required the mobile operators and other telecommunications providers to set up monitoring and interception systems. This aspect of the legislation has proved effective in fighting crime, says Vodacom Group CEO Pieter Uys.
However, the jury is still out on the effectiveness of storing the identities and address details of ordinary consumers. What is clear is that Rica is hurting the mobile providers, and making it much more difficult to get access to mobile telephony.
The numbers paint a picture. In July, Vodacom connected more than 1,3m Sim cards (gross connections). A month later, after the imposition of the new rules, this figure slumped to fewer than 300 000. On a net basis — once churn and disconnections are factored in — Vodacom SA’s subscriber base is now shrinking.
It’s a similar story at MTN SA, which lost more than 800 000 subscribers in the third quarter of 2009. Because of Rica, the com- pany says it will struggle to achieve its revised target of zero net additions for the year. And it’s the poor who suffer the most, because it’s people who live in informal settlements, for example, who aren’t easily able to provide proof of residence. This is precisely the segment of the market — the last 20% of the country’s population who don’t yet own a cellphone — where the mobile operators are still enjoying growth.
Given the economic benefits of higher cellphone penetration — demonstrated in a number of research studies — Rica could be costing the country economic growth at a time when we need every bit of growth we can get.
It could even have a chilling effect on competition in the mobile sector. Because it will make it so much more inconvenient for consumers to switch between networks — they’d have to be “Rica’d” every time they did so — it’s likely that churn rates will plummet. As a result, mobile operators will have less reason to compete on price to attract disloyal customers to switch networks.
The news gets worse. By the end of next year, Rica requires cellular service providers to register every Sim card in the country — all 50m of them. That means that even if you’ve had your Sim card since 1994, when mobile networks launched in SA, you’ll still have to traipse off to a cellular shop to prove to your service provider that you are who you say you are. It’s a logistical nightmare and will cause endless frustration for service providers and consumers.
Vodacom’s Uys is broadly supportive of government’s efforts to combat crime. “We need to do whatever we can to bring down crime in the country,” he says. “But we don’t want to harm the whole country just to find a couple of crooks.”
Well said.
- McLeod is editor of TechCentral
- This column is also published in the Financial Mail