Data pricing and rigid contracts in South Africa: Vodacom CEO responds


Vodacom answers questions as to why they haven't reduced their data pricing and suggests that rigid contract terms may become a thing of the past

A couple of weeks ago I wrote a letter to Vodacom. To be fair I could have addressed that letter to MTN as well, but as a long term Vodacom customer I have a vested interest in getting the chaps from Midrand to deliver better value to their customers. Writing about what you know is also a lot easier than writing about abstract concepts.

As a result of the letter, I was summoned to Midrand to answer for my impertinence. Okay, the truth is that Richard Boorman (the media liason at Vodacom) called me and asked if it would be helpful if I sat down with Pieter Uys (the Vodacom CEO) and had a chat about some of the issues I had raised. Of course I agreed. The discussion with Uys ranged fairly wide and as such there are a few issues that he touched on that I would like to talk about.

One of the issues I raised in the letter was how Cell C appears to be kicking Vodacom all over the place in the broadband market. When we are paying significantly higher prices per MB on Vodacom than we are on Cell C, it would appear that Vodacom are falling behind the curve. Uys said that the price of data was going to fall, but that to engage in a wholesale price slashing would have a real impact on the quality of service that Vodacom customers experienced on its network.

The problem Vodacom is facing is that while Cell C has built its HSPA network out in limited areas, Vodacom has a nationwide broadband network; a total of 4,000 base stations. That is out of the 8,000 base stations that Vodacom has in total across its network.

Right now the bottleneck on the network is backhaul, getting data from the base stations to the core network. In most of the metropolitan areas Vodacom has built out a fibre network to enable it to self-provision the connections to its base stations. Although the core network is mostly built, Uys said that the company is having real problems getting local municipality approval to lay the cables that connect the base stations to the core network. That would require some digging and approvals for doing that have not been forthcoming.

With a bottleneck on the network that already provides internet services to 9 million of its customers and which has 2 million regular users, you can understand why the company is not exactly keen to encourage even more people to use the network. The fact is that the more people that use the network the lower the quality of service will be. Encouraging power users to hammer the network by dropping costs will reduce the experience of the network for all users and I think we can all understand why Vodacom would not want that to happen.

My impression is that Uys knows that broadband prices are higher than they should be but that the company is holding them steady until the network is ready to cope with additional load. His argument that it is better to provide a steady 1Mbps to all consumers than 42Mpbs to one consumer is something that resonates with me. Leave the heavy downloads to the wired connection and give us a decent connection for our smartphones, tablets and laptops and you will keep most of your customers happy most of the time.

The other issue that I raised was that of contracts and why, in my view, contract customers seem to get the short end of the stick. Uys said that there have been, over the past year, increases in the amount of free minutes that contract customers have been entitled to as a way of increasing the value that they get from their contracts.

The more pertinent issue is that looming on the horizon is the consumer protection act. This act will fundamentally change the way that the mobile networks structure their contracts. According to Uys, we can expect to see various contracts that offer: just a basic connectivity contract; a contract with a financed phone; and a contract with a subsidy and a financed phone. Essentially the consumer protection act allows you to cancel a contract at short notice with only limited recourse on the part of the service provider to penalise you. He said that if these new contracts aren’t already available they will be very shortly and that is good news for all of us.

I would have preferred that Vodacom (and the other networks as well) were more proactive in getting their contracts in line with what they will be forced to do when the consumer protection act comes into effect, but at least when it does happen we should all be a bit better off.