TELECOMS

ICASA CHALLENGES HIGH LEVELS OF SOUTH AFRICAN MOBILE PRICING

Are you paying too much for your cellphone calls -- everywhere you go? That's the question the Independent Communications Authority of SA (Icasa) will be asking this week in what has become a long-running battle over cellular call prices in SA. The regulator is holding a public hearing to establish whether South African consumers are paying too much for their calls and whether Icasa should be doing more to regulate these prices down. For many consumers, there is probably no need for such an inquiry as their answer to both questions would be a resounding "Yes".

Yet regulators are bound to follow fair processes and so the hearing presents an opportunity for all sides to give their views.

Ideally this debate on prices could be settled by a close examination of the costs of the operators and comparing them to the prices charged. However, without the regulatory accounts that would give this information, we are restricted to drawing conclusions on whether prices are high or not from the profit levels of the operators, as well as international comparisons of prices.

It is precisely because of international comparisons that the debate has heated up in the past few months.Icasa released its international cellular-pricing comparison in a discussion document last year. This comparison suggested that South African cellular prices were, in fact, fairly high. However, as expected, the results of this study were hotly disputed by the cellular operators.

One argument was that the comparison countries were inappropriate. Icasa chose the Czech Republic, Hungary, Switzerland and Spain as comparison countries, none of which are particularly similar to SA in terms of income per capita, physical geography, or other relevant factors. It was also argued that the data used by Icasa was riddled with errors.

In rebuttal, Vodacom produced its own international benchmark which, unsurprisingly, showed that South African prices were positively cheap by comparison. However, similar criticisms could also be levelled at this benchmarking exercise. While Vodacom included some more appropriate comparison countries such as the Philippines, Malaysia, Morocco and Brazil, it still kept Icasa's four inappropriate comparison countries in the sample. However, if the four inappropriate countries are excluded from the Vodacom survey, their own results put South African prices to-wards the expensive end of the international price range in many cases.

In other words, with a little adjustment, Vodacom's own research may also prove that their prices are on the high side. This demonstrates how sensitive the results of such benchmarking exercises are to the selection of countries.

It also alerts us that Vodacom's sample of comparison countries may change for each different call-rate comparison they do.

There is little likelihood of reaching agreement over the appropriate countries that should be included in a price benchmarking exercise. So where does this leave us? Well, one alternative would be to look at what our South African cellular companies charge consumers in other African countries where they are licensed to operate. This should at least tell us what prices our own cellular companies are capable of offering us.

A quick comparison of MTN and Vodacom prices was undertaken across their various African operations (Cell C does not have other licences). The same Organisation for Economic Co-operation and Development cellular basket used in Vodacom's benchmarking exercise was used, but any upfront starter pack costs were excluded. After all, it is the monthly costs that ultimately matter.

The comparison focused on the low-usage basket given the low-income users that dominate the African landscape. Finally, given many different tariff plans, focus was placed on the cheapest national prepaid products only.

The results of this exercise were somewhat surprising. With one or two exceptions, both MTN and Vodacom seem to be offering our African neighbours a far better deal than they offer back home.

MTN subscribers in Uganda, Cameroon and Rwanda pay less for their cellular usage than MTN subscribers in SA. The difference is also not trivial. MTN subscribers in Uganda are paying 40% less for a bundle of call services and MTN subscribers in Cameroon 35% less. For example, for MTN prepaid subscribers to call another MTN subscriber in the peak period would cost R3,20 a minute in SA (Pay as you go) but only R1,45 per minute in Uganda (Paygo standard). Sending an SMS on your MTN network would cost you 75c in SA but only 37c in Uganda.

Similarly, across the border in Mozambique, Vodacom is offering consumers a bundle of prices that are around 30% cheaper than in SA. A prepaid Vodacom subscriber in Mozambique (per minute package) will pay R1,31 per minute for a call in the peak period while South African prepaid Vodacom subscribers (4U Prepaid) must fork out R2,99 per minute. The SMS will cost the Vodacom subscriber in Mozambique 39c while South Africans pay 80c.

The net effect is that South African subscribers face cellular prices that are higher, on average, than what subscribers pay in other countries served by our own companies.

Only our small immediate neighbours in Swaziland and Lesotho are worse off than us. There seems no easy explanation for this.

SA offers huge economies of scale compared with tiny markets such as Uganda or Rwanda.

In SA one doesn't need to equip base stations with their own diesel generator because of the lack of electricity outside urban areas.

In SA there are not the political and economic risks on the scale evident in other countries.

Could it be South Africans are charged more simply because our cellular companies think we can afford to pay more? And is that a fair basis for pricing?

At the end of the day, knowing that some poor subscriber in the Slovak Republic is paying more than us is cold comfort for the South African consumer. What we expect are fair prices. Our own cellular companies have shown us that they are capable of charging as much as 35% to 40% less than we are paying. Consumers shouldn't be content with just a few "happy hours" a day or being charged different prices "everywhere we go" in the region. Isn't it time the cellular companies started doing a little more for us and a little less "for themselves"?

Business Day

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