23 September 2016

South Africa: #DataMustFall - the Consumer Nightmare That Africa's Mobile Operators Will Have to Get to Grips With

London — Last week saw the #DATAMUSTFALL hashtag go viral in South Africa. This is every African mobile operators' nightmare as data becomes more central to a far greater number of African users. Russell Southwood looks at what data wars across the continent hold for the future.

There was a time not so long ago when Internet users in Africa didn't matter to anyone in power, whether in Government or the private sector. Before the Arab spring, there were a few closures of SMS services but no-one talked about the Internet. Now it seems that not a month passes without an African country closing the Internet: Gabon is simply the latest in a growing list of countries.

Africa's data users are now becoming mainstream consumers and with their access to social media are now able to articulate their views on the pricing of mobile Internet a great deal more effectively.

Popular South African DJ Thabo "Tbo Touch" Molefe started a campaign to get data prices lowered in South Africa and it went viral. He asked listeners on his internet radio show and on Twitter to imagine a South Africa where people could download a book and stream a video, all while listening to online radio. He's also meeting with the Chair of the regulator ICASA.

As the topic trended, the Economic Freedom Fighters political party, which advocated free wifi as part of its election campaign, threw its weight behind the hashtag. Before long, he was also attracting global media coverage from the likes of Fortune magazine.

What irked South Africans in particular was that in the much more competitive data market in Nigeria South Africa's MTN was charging less for data than in South Africa. Nigeria is a country where the cost base and network challenges are significantly greater than in South Africa. And as Fortune observed: "In Nigeria MTN's 1.5GB monthly plan costs 1,000 naira or $3.12, while in South Africa the prepaid 1GB deal costs 79 rand or $5.56, according to the MTN website".

Some pushback came from South telecoms analyst and academic in a Facebook post in response to the campaign:" While the effective prices of data in South Africa may be well below the advertised price of the 1GB measure used internationally, users, especially those in lower income category, are spending significant portions of their income, around 20%, on relatively small amounts of data (1GB). This is because data prices still remain relatively high, but also because people are using a wider range of services more extensively. This now requires operators to build out next generation networks and increase their international and local capacity to meet demand and attempt to retain the quality of their networks".

"As a result they are collectively investing billions of dollars (over ZAR20 million between Vodacom and MTN in the current financial year alone) in network extension and upgrades for which they are required to ensure yield good rates of return for their shareholders. Doing so ensures further investments to compete effectively. Whether they are price gouging is unclear without a comprehensive cost analysis of their business and indeed the long overdue market review, in order determine dominance and abuse of dominance in the market".

Her conclusion? Government needs to keep the incentives in place for the private sector to invest and make effective interventions that help those less well off able to access data:"The role of public wi-fi as per SA Connect, and the successes in the big metro already, enabling dynamic spectrum sharing, and giving rural communities access to under-utilised spectrum are all things that if acted on now could see benefits in the very short term".

There is some sense in what Gillwald says but at the heart of this debate is whether Africa's incumbent mobile operators can find a business model that can deliver to a much wider range of people. Also South Africa is significantly less competitive than the benchmark comparison above with Nigeria. Competition means competitive pressure and "blood on the carpet" not simply preserving the status quo for existing businesses.

And as Nigeria's Technology Times reports:" The race among the Big Four mobile phone companies for more mobile Internet users has already kicked off with shifting marketing away from voice minutes to competitive data package offerings". Regulator NCC has removed the floor price for data and ushered in a period of fierce data price competition.

The issue of whether this competition will produce a new business model will be fought out around what economists call price elasticity. If you lower the price for mobile Internet, you get more users. Nowhere has this been clear than with the rise in mobile Internet users as mobile operators went down the "glide path" on 3G prices to current levels.

The issue with price elasticity is that at some point the increased volume of users at a lower price no longer produces a rise in revenues. What is at issue here is where is that point?

Tomorrow in Africa when voice and turns into WhatsApp, Skype and Viber and the value added services are music, film and TV, the business that is able to deliver mass, low cost data will probably not bear much resemblance to Africa's existing mobile incumbents.

So it's interesting that Vodafone is using its brand to explore how the business might look different if you started with data and worked backwards to voice. It has announced a non-equity Partner Market agreement with Afrimax to launch LTE data services under the Vodafone Cameroon brand in Yaounde and Douala. Effectively Vodafone lends its name and other help whilst getting to look over the owners' shoulders as the business develops.

The rollout for consumers and businesses will include the opening of Vodafone-branded retail stores and kiosks in key locations, supported by a network of distributors and resellers offering LTE handsets and devices. For SMEs, Vodafone Cameroon will also offer a range of connectivity products including LTE and Wi-Fi mobile data services, fixed internet and office solutions. Afrimax is already in Uganda and Zambia under the Vodafone name and in Ghana using the Busy brand.

Thus far its customer base is in the hundreds of thousands rather than millions but it is clearly laying down a new template for Africa's future data operators.

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