Operators clash over “secret” SA mobile report

MyBroadband recently published the results of a mobile pricing report titled “Analysing the Cost of Mobile Communications”, which challenged the long-held view that low-end mobile subscribers in South Africa are getting a bad deal.

More information has now emerged about the report, including why the results could not be released publically.

The research was commissioned after a discussion between the Department of Communications and Vodacom, MTN and Cell C.

The aim was simple – to benchmark South Africa’s mobile prices against peer countries which were similar to South Africa.

The research was done by two independent research firms – Strategy Analytics and Pygma Consulting.

The final report was not released publically. The reason: there is a confidentiality agreement that the report would not be distributed without the consent of all the parties involved.

It is understood that MTN and Vodacom wanted to make the results public, but Cell C objected to this.

The report, one source said, showed that Cell C’s pricing did not stack up well against MTN and Vodacom’s.

Despite this confidentiality agreement, MTN South Africa’s former CEO, Karel Pienaar, made reference to the report in November 2012 as part of the PPCC public hearings.

Karin Fourie
Karin Fourie

Cell C explains

Cell C spokesperson Karin Fourie said that the operators could not agree on the contents of the report, and it therefore remained confidential.

“MTN and Vodacom made changes to the last version of the report, as they did not like the manner in which the results were presented in previous versions,” said Fourie.

“Cell C did not participate in making these changes. As there were several different versions of it, it was agreed that it would not be released.”

Fourie said that “clearly the report cannot be regarded as independent and so there was no value in it nor was there any value in publicly releasing it”.

“In our view the release of a version of the report could only have been done through a breach of the confidentiality undertakings between the operators,” said Fourie.

Price benchmarking report versus other research

The pricing benchmarking report commissioned by the mobile operators challenged similar research which showed that South Africa had high mobile prices when compared with other countries. Mobile pricing reports produced by Research ICT Africa (RIA) were highlighted in discussions.

According to one source, RIA did not have access to accurate effective mobile rates from the operators, and their estimates are not accurate. (RIA stated in its pricing report that MTN Zone products, which are dynamically priced, were estimated at 70% of retail prices)

Questions have also been raised about RIA’s basket selection, and the countries against which South Africa was compared.

Graham de Vries, acting Chief Corporate Service Officer at MTN SA, told MyBroadband that the benchmarking report is now outdated as it only considers pricing up to May 2012.

However, he added that the report commissioned by the mobile operators did have some benefits over other studies.

MTN price benchmarking report presentation
MTN price benchmarking report presentation

The first differentiator was that it sought to compare SA’s performance against peer countries.

De Vries said that peer review countries should display similar characteristics in terms of economy, geography, technological development, the size and topography of a country and the extent to which people live in rural areas.

“A price comparison of countries cannot be properly compared simply because they are situated closely geographically – in the same continent, for example – as despite being close in terms of geographic proximity, they may still display very different underlying characteristics,” said de Vries.

The second differentiator of the report, he said, was the methodology applied.

“The consultants defined a set of baskets that reflected usage of “typical” consumers in the South African market, based on the internationally accepted OECD price benchmarking methodology, but based on South African market data provided by the South African mobile industry,” said de Vries.

The model was then populated with the pricing information – up to May 2012 – of mobile voice and data tariff information available from each operator.

Vodacom spokesperson Richard Boorman said that the company cannot comment on the mobile pricing report referred to in the previous MyBroadband article.

Boorman did say that the basis of publicly cited pricing information is questionable given that it does not accurately take into account SA-specific usage baskets or the particular approach to pricing in South Africa.

“Recent price movements, particularly in data, would likely result in a more favourable comparison for upper-end users,” said Boorman.

Cell C did not share this view, and backed Research ICT Africa’s research. “Cell C has no reason to doubt the results of the internationally acclaimed work of Dr Gillwald and her colleagues,” said Fourie.

Results between different studies vary depending on the methodologies used, therefore Cell C does not believe that the Strategy Analytics and Pygma Consulting study provides the best view of SA’s mobile prices when compared with other countries.

Fourie added that Cell C agrees with the Department of Communications and ICASA that South Africa’s low-end pre-paid prices are high when compared to global standards.

Research ICT Africa was asked for comment on the report, and the fact that it challenges some of RIA’s findings, but the company did not respond by the time of publication.

Richard Boorman
Richard Boorman

Results from the study

South African mobile prices benchmarked
Basket Pre-paid voice, SMS and data Pre-paid voice and SMS Post-paid voice, SMS and data Post-paid voice and SMS
Low-income mobile subscribers
Low-low 65% cheaper 44% cheaper
Low 29% cheaper 11% cheaper 51% cheaper 38% cheaper
Medium 15% cheaper 5% more expensive 29% cheaper 10% more expensive
High 10% cheaper 23% more expensive 9% more expensive 80% more expensive
High-income mobile subscribers

De Vries said that as of May 2012, the price benchmarking study demonstrated that prices for low usage in South Africa are favourably positioned among peer countries.

“Across the board South Africa was not the most expensive, nor the cheapest and that SA fared very well in the low user baskets, both pre- and post-paid, suggesting that the poorest get a great deal,” said de Vries.

“In addition, the study found that in excess of 85% of the South African market base utilise pre-paid tariffs and of this over two-thirds of market is categorised as low spend (the SA consumer spends less than 35 Rand per month).”

He said that the main observation from the overall results is that South Africa, while not the most favourably priced of the study countries across all usage profiles, is generally low to mid ranking in terms of price.

“In particular, lower usage consumers can benefit from the more competitive pricing in South Africa. This is especially encouraging, as a significant proportion of South African users fall into this low-usage category,” said de Vries.

Cell C’s Fourie disputes MTN’s view, saying that low-end mobile prices are high when compared to global standards.

“ICASA has confirmed that there is market failure in the wholesale call termination market,” said Fourie. “A market as concentrated as this is bound to have ineffective competition.”

“This usually indicates that operators with market power such as MTN and Vodacom, are not sufficiently controlled in their pricing practices,” she added.

Fourie said that ICASA’s draft amended call termination regulations confirm that pro-competitive remedies are still required, and that these should be more aggressive to have an effect on high prices and the cost to communicate.

This article first appeared on MyBroadband.

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Operators clash over “secret” SA mobile report