Virtual panel discussion: Data must fall

July 6th, 2017, Published in Articles: EngineerIT

 

For some time now there has been outrage at the price of mobile data. The Minister of Telecommunication and Postal Services, Siyabonga Cwele,  has asked the Independent Communications Authority of South Africa (ICASA) to take steps to ensure that regulations to promote more competition in the market are introduced. He also suggested that the competition commission should become involved. EngineerIT invited industry leaders to share their views on a number of the issues around the cost of data.  Here are the responses.

In your opinion is mobile data too expensive or is the demand that data must fall just a populist call?

Leon Louw, Free Market Foundation

Leon Louw, executive director, Free Market Foundation feels strongly that the #datamustfall campaign is populist disinformation. He asserts that it is guilty of cherry-picking.

“A small regional provider in India, for a brief period, offered a loss-leader special deal at R11/GB. India’s isolated cheapest compared to SA’s mainstream was the most expensive gig. There are too many variables to compare prices across countries. Prices vary from zero to hundreds of Rand, from regional or national providers, from once-off packages to contracts, from in to out of bundles, from voice to text, and so on. Other factors include country size, population density, coverage, geography, regulations and subsidies, licensing fees, spectrum availability, quality and level of development. Where free competition is allowed, prices are fair and reasonable.

“In SA, unreliable electricity (blackouts, load shedding) means base stations must have expensive backup power. Our high crime rate means network operators experience costly vandalism and theft. Restrictive spectrum allocation raises prices substantially because duplicate towers must be built or ‘farmed’.

“Our government requires free or sub-economic data for schools, hospitals, clinics, universities and FETs. There is no such thing as a free lunch, so those data costs must be passed on to consumers.”

Jacqui O’Sullivan, group executive for communication and brand, Telkom says that ICASA has recognised that data prices in South Africa have fallen by 45% since 2010, and that prices are likely to fall further, but that costs are still high for most consumers. Telkom fully supports ICASA’s view. The initiatives we have taken, and will take in future years are aimed at bringing about cost reductions for all, not only for Telkom customers. “In July last year we launched our game-changing product, FreeMe, which provides disruptive, flexible consumer-focused data-based packages.”

Arthur Goldstuck, MD, World Wide Worx says that the call for data to fall fails every time because of nuances. It allows the operators to claim, correctly, that data has fallen. But that is only half the story, since the campaigners allow the operators to position the debate.

Jacqui O’Sullivan, Telkom

“There are two categories of data cost. If one buys big data bundles, the costs are very competitive, among the best in Africa, and comparable with some of the best in the world. If one is using data on an ad hoc basis, and the cost is coming off airtime, the costs are among the highest in the world. This is a deep irony, as it tends to be the wealthy who buy big bundles, and the poor who use data off their airtime.

“Low-income users tend to use data on an ad hoc basis, which means it is out-of-bundle and comes off airtime, and is perceived not only as unaffordable, but also as stealing airtime. Depending on the network, this data costs from 99c to R2 a Megabyte, aside from Telkom Mobile, which has brought down the ceiling price to a reasonable level.”

Toni Pellegrino, head of sales: mobile networks Sub-Sahara Africa, Nokia: “In my opinion, operators have been scaling their packages to allow the lower income population to access information, education and other basic services online. The challenges are with the increase in the penetration of smart phones, due to the reduction of their prices, and the use of social media, streaming services and online gaming.  As data usage explodes entry packages become extremely expensive.”

Chris Daffy, chief commercial officer, MobileData  says that the price of mobile data is tantamount to extortion. “The prepaid sector has the least disposable income, but is the most manipulated when charged. Considering pre-paid users eliminate a large administrative burden and risk, surely they should benefit to some extent?

“According to research undertaken by Fritz Milosevic and his team at dotAdvisors (www.dotadvisors.co.za) as of June 2017, on a rate plan the prepaid prices vary between R2.00 all the way to R0,04 per MB. The average price is R0,91 per MB over 27 offerings. Prepaid data on packages varies between R0,90 to R0,01 per MB; the average price being R0,20 over 167 offerings. A prepaid 100 MB bundle varies between R0,49 to R0,10, the average being R0,23 over 18 offerings.  Are you confused?  Well, you should be.”

Is there enough competition in the communications market or should ICASA introduce regulations to enable more players to enter the market as suggested by the minister?

Arthur Goldstuck: “Competition? We have enough but perhaps too much concentration of dominance by a few players. Telkom Mobile is, for the first time, showing it can be competitive, but it has taken a few years. Cell C took more than a decade to become competitive. The obstacles were in fact regulations that allowed the dominant players to hold onto their dominance through artificial means like the high interconnect fee.

Arthur Goldstuck, World Wide Worx

“The regulator was asleep at the wheel when those were pushed through, but eventually woke up and pushed them back, finally enabling the smaller players to begin making up lost ground. It is that kind of enablement of existing competition rather than more competitors that allow for a more competitive market. In short, the regulators – ICASA, the Competition Commission and the Consumer Commission – need to be awake to abuses of dominance as much as to the need for competition.”

Leon Louw is adamant that government should liberalise in order to make the market more contestable – repeal over-regulation, stating that the Department of Telecommunications and Postal Services should abandon the current white paper which proposes even more stifling regulation and monopolisation.

“SA’s extraordinary penetration, growth and coverage is arguably our greatest post-1994 success story. Over 95% of the population enjoy network coverage, which surpasses some of the world’s most advanced countries. There are more active cell phones than citizens. Instead of tampering with it, we should celebrate and preserve it with pride.”

He argues that restrictive regulation ensures an artificial shortage of new entrants and small businesses. This is not because the current mobile operators monopolise the infrastructure – it is because of the immense cost of entry imposed by regulation as well as the uncertainty that has plagued the sector for decades.”

Jacqui O’Sullivan said that Telkom recommended to parliament that ICASA conduct an enquiry into competition in the broadband market, and the associated pricing. Increased competition will encourage providers to launch disruptive initiatives that put downward pressure on market prices, and particularly for data.

Toni Pellegrino, Nokia

Toni Pellegrino holds a more conciliatory point of view. “Of course, by increasing the number of players the competition will increase and this should reduce prices. However, the market needs disruption. New operators entering the market in South Africa will focus on data, and, therefore, will focus on LTE and LTE-A. By focusing on the new technology, they can capture the industry focusing on R&D in 4G and the path to 5G.”  He asserts that this will trigger more efficiency and price reductions.  But he says that such disruptive strategy is only possible if operators have enough spectrum.

What is your opinion of the suggestion that the Competitions Commission should become involved?

Arthur Goldstuck says that his company has  been campaigning for the past six years for the cost of pay-as-you-go data to come down. The only success has been in the drop in the cost of bundles, which are highly competitive if one buys a big bundle. However, airtime data remains prohibitively expensive.

“We believe the regulator should step in and mandate a ceiling price of 20c to 40c per MB if the operators won’t do it themselves. It is not a competition issue, as competition has successfully pushed down the bundle prices. Because ad hoc users do not represent a priority market at a competitive level, it needs to become a regulatory issue. If ICASA continues to be reluctant, the Consumer Commission may well be the body in the best position to force through such change.

“It may even be necessary for ICASA to mandate a ceiling price on “airtime data”, and to outlaw escalation in data costs when one goes out of bundle. It is probably the only industry that punishes customers for being more active customers.”

Leon Louw says it does not make sense. “The Competition Commission’s mandate is to root out uncompetitive practices. In the case of the communications market, the greatest (but not necessarily sole) culprit is government regulation. Government policy is to make it worse. It proposes a new infrastructure monopoly which will be governed by a collusive ‘consortium’ between the public and private sectors. The Commission has no power to override anti-competitive policies, and has shown no understanding of the nature and benefits of contestability theory. It will be counter-productive to involve the Commission in this sphere. There is no concrete evidence of anti-consumer collusion. In infrastructure matters, there should be freedom to compete and cooperate by way, for instance, of sharing technology and facilities.”

Chris Daffy, MobileData

Chris Daffy: “ It seems, most disturbingly, the Competition Commission is required to be involved in most South African economic sectors. Most relevant is to stop the monopolistic practices that have resulted in South Africa being the second most expensive mobile data provider in Africa.”

 Toni Pellegrino believes that more joint initiatives and common efforts from the industry are needed to achieve a target instead of having extremely long politicised processes.

If the mobile industry is being subjected to more regulations, will this restrict the ability for continual expansion of network capacity?

Arthur Goldstuck says that the Internet Access in South Africa 2017 report shows that the four mobile operators spent more than R30-billion last year on infrastructure. “They are doing this as a result of exploding demand for data services, and the expectations that the growth in demand will not slow down. It is this demand that drives expansion of network capacity, and more regulations will only slow it down if it also slows down demand. The reality is that regulations designed to open the mobile Internet to more people will increase demand.”

 Leon Louw says the industry has been starved of spectrum. “The DTPS’s White Paper proposes to effectively nationalise high-demand spectrum, which amounts to robbing the industry of what little it has. The amount of spectrum an operator possesses correlates directly with its capacity, and thus the spectrum market must be deregulated, so that spectrum can become part of the competition mechanism, rather than regulated more. By introducing new regulations government will disincentivise investment by existing operators and entry by new ones into an already over-regulated industry in a no-growth environment. The network capacity of a mobile operator (and indeed the capacity and competitiveness of any business) depends upon that business’ freedom to operate unmolested.”

Toni Pellegrino:  “The more insecurities and lack of perspective are given to an industry, the less investment it will attract. Mobile technology will allow many more players to come in a different segment than the classical operator model. Private LTE, safety network, IoT, applications, and c ontent, in my opinion, will provide many opportunities for new players. All this will, of course, need wise spectrum management. At the end, it is more about inclusive growth.”

Will the creation of a national broadband network as proposed by DTPS broadband policy work in favour of lowering the cost of data?

Toni Pellegrino says  that Nokia has delivered a similar type of network in Rwanda and has been awarded a similar project in Mexico. ”In Rwanda, the model took quite long to be adopted and delayed the LTE growth somewhat. In Mexico it is too early to define the outcome. I believe more in a consultative approach with all the partners in the industry collaborating to make such a model work, particularly as the capital requirements are high.”

Chris Daffy asserts that the incumbents would argue that this will damage their investments and shareholder value and not be equitable. “If this can be done with their inclusion, I feel a shared backbone makes complete sense. It is already working in the multi-tenant instances of DFA, Vuma, Liquid Telecom  and others.”

Telkom did not make an input to this question but both Leon Louw and Arthur Goldstuck are vehemently opposed to the proposal in the white paper. Leon Louw said that the wireless open-access network (WOAN) is an effective nationalisation of the telecommunications infrastructure. “In nationalised industries, as in the case of South Africa’s electricity market, prices tend to be high as the state-enforced monopoly can charge whatever it wishes without having to worry about competitors undercutting it. A WOAN might create the illusion of lowering data prices in the short-term, as government might artificially force the price down through price control as the Electronic Communications and Transactions Act empowers it to do. Prices will, however, drastically rise as the government’s infrastructure monopoly is unable to expand quickly enough to meet market demand, or to adopt the latest technology in the fastest developing areas. It will fail along the lines of Eskom’s inability to expand, leading to declining supply, and SAA’s inability to correct management chaos – a public sector characteristic virtually unheard of in the private sector. Competition is mistakenly thought of as ‘duplication’ or ‘redundancy’, but the facts of economics are clear: a WOAN will be detrimental to data prices in South Africa in the long term.”

Arthur Goldstuck agrees, adding: “A national broadband network from which operators have to buy access to spectrum will all but destroy a vibrant sector. It would be an example of a country shooting itself in the foot because it wants more control over a hand.”

Are there new technical solutions that enable operators to reduce the cost of communication yet maintaining a fair profit margin?

Toni Pellegrino:  “The reduction of cost of providing data services come with new technologies such as 4G, 4,5G, 4,9G and 5G and by increasing the spectrum available. For example, in 3G data there is limited effort in developing further standardisation. Other options available to reduce costs of delivering data is tapping the unlicensed spectrum bands.”

Chris Daffy: “Technologies are advancing at breakneck speeds. The cost of this is also declining. 4G is data, it’s here and 5G is coming. Network capability is enhanced through wireless provision and this is relatively inexpensive. The decline in price will be offset by the exponential increase in consumption. We are consuming more and more data by the day.”

Jacqui O’Sullivan: Telkom Group is actively reducing the price of internet connectivity for both retail and wholesale customers. Openserve, the dedicated wholesale business unit, has lowered per unit prices across the wholesale product range by approximately 63% since April 2015.”

Arthur Goldstuck:  “LTE-A, which is the more technical term for what is widely accepted as 4G, increases speed and capacity while reducing cost. As protocols and technologies continue to develop, they will make it possible for efficiencies to be increased and costs to be decreased continually.”

Leon Louw: “Fibre has burst onto the scene in South Africa and is priced relatively competitively with ordinary ADSL, while being far superior in quality. Currently fibre operators (of which there are many new emerging businesses) need not, unlike ADSL operators, rely on the remnants of Telkom’s broadband monopoly. Fibre operators have relative freedom in the industry and their successes show clearly the benefit of a virtually-unregulated segment of the market. The next big change will be satellite access. In an area of such dramatic progress, all government can and should do is get out of the way.”

Additional comments

Leon Louw said that Vodacom and MTN between them have spent around R20-billion over the last year or two on new infrastructure. “That money comes from profits. No profit, no infrastructure. Data traffic and innovation continue to explode, demanding continued and significant capital investment. The important thing to remember is that data prices worldwide have fallen dramatically in the last 20 years and look set to continue doing so, here as in most countries. It is a fantastic good news story – especially for the poor! We should ride the wave rather than try something no one else has done successfully.”

Thank you to our participants in the discussion. It is interesting to note how frequently the subject of spectrum or its unavailability is raised.  It is  difficult to understand why the DTPS and government are not getting the message. Will the case of spectrum availability follow the TV digital migration path? It appears so, as the Minister of Telecommunication and Postal Service and ICASA are soon to be in court – after that one wonders how many industry players will lodge the next court application.

Send your comments to engineerit@ee.co.za

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