Why your phone bill is so high in South Africa, and how it can be fixed

Spectrum access and industry consolidation are urgent imperatives if ICT is to be used as an effective tool in assisting South Africa to achieve its NDP (National Development Programme) growth objectives.

Smartphone adoption has resulted in demand for data growing rapidly and with penetration rates still low in many markets, this is anticipated to intensify. Outside some of the more traditional uses of data like social media engagement, gaming, and banking, data brings seemingly limitless potential for driving education and employment – a concept especially important in South Africa.

Small businesses are struggling, unemployment rates are too high, and our education system is not generating enough highly skilled graduates committed to work and live in the country.

There are many suggestions on how to address these issues but from a telecommunications perspective, national access to affordable and fast internet is imperative in tackling education, unemployment, and business limitations.

Presently, a lack of appropriate spectrum is stopping the country from being able to build out its broadband capability. Spectrum is like a virtual highway carrying voice, SMS and data traffic, with too many networks vying for space in this pipe, ‘traffic jams’ are bound to occur.

A further impediment to freeing up spectrum has been South Africa’s delay in moving from analogue to digital TV signals – analogue is now acting as a slow truck in the right hand lane of the spectrum highway. The transition that was scheduled for 2010 is now only expected to occur in 2019.

Without access to the right spectrum, telecommunications companies are forced to invest more in existing networks for consumers to have a reasonable experience. This cost is then passed on to these consumers and the initial capital layout is financed by equity investors who are receiving diminishing returns on investment.

It also delays investment in 4G and 5G which will not only prove valuable to customers but will likely provide better returns on capital as well.

The complexities of spectrum congestion are not entirely lost on government or the regulator.

The telecommunications ministry recently put out a white paper highlighting wireless Open Access Network (OAN) as an important consideration going forward. OAN effectively splits the network operator from the end-service provider. This already exists to a certain extent e.g. FNB mobile using Cell C’s network.

The upshot is that there would be more companies ‘selling’ data, increasing competition, and pushing down prices paid by consumers. Unfortunately, it does not adequately address who pays for upgrades to the network and the inferred compensation for putting up the capital to build that network in the first place.

The regulator (ICASA) tried to implement a temporary fix before the white paper came out, suggesting it could auction off further spectrum to network operators at a certain value.

This would have enhanced capacity for current telecom companies to increase the speed and coverage of their respective networks, and could have boosted the fiscus but did not necessarily address the objectives of all stakeholders (in particular the consumer).

From our perspective a third option seems to make more sense. Network providers can commit to build infrastructure on a national basis in compensation for being awarded spectrum.

The building of networks could have certain requirements attached to it like increased speed (4G or 5G) or providing certain institutions (like schools or lower income areas) with free data.

Further to finding new ways of ‘selling’ spectrum, consolidation within the sector must also be encouraged to free up spectrum. As it stands, the two largest networks already have a significant advantage in terms of network quality, and are continuing to outspend smaller competitors.

Building out four separate networks is expensive and unnecessarily crowds required spectrum. Plus, it appears possible to allow mobile virtual network operators like FNB Connect and Virgin Mobile (MVNOs) to roam on any network at an almost retail fee should government take the step to incentivise this (through tax breaks etc.).

Should consolidation play out, increased retail competition will see prices drop which will be good for consumers; government and the regulator will breathe again as congestion is relieved; and equity investors will remain incentivised to invest their cash into building out a network that will eventually be optimally utilised.

Of South Africa’s four mobile networks, Vodacom has the greatest market share and is the most cost efficient; MTN is making money in South Africa but are experiencing many challenges elsewhere – arguably diluting the groups’ focus on South Africa; Cell C has struggled to reach profitability; and Telkom, while finally making money, are without the scale they would like.

While mergers and acquisitions have been tabled in the telecom space recently, most have been blocked by competition authorities due to industry concentration concerns.

Hopefully authorities will soon realise that providing access high speed internet at affordable rates to as many people as possible must be the most important consideration in awarding spectrum and assessing corporate action.

Ultimately the consumer will benefit in a number of ways (lower cost data, internet access, and employment) and the satisfaction of equity investors will just happen to be a by-product.

  • By Nick Crail, Fund Manager at Ashburton Investments
  • The original article can be found here

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Why your phone bill is so high in South Africa, and how it can be fixed