High data prices? Don’t blame Vodacom and MTN

The ball is in government’s court to allow data providers to lower their rates.
Image: Shutterstock

Why, with so many burdensome regulations and compliance requirements that drive up costs in the mobile data sector, does the narrative remain that some “duopoly” between Vodacom and MTN is the source of South Africa’s relatively high data prices?

Companies want to maximise their profits. Having inordinate prices that exclude a major market segment cannot achieve that: they want to be able to lower their prices. The ball is in government’s court to allow data providers to do just that.

But is there, in fact, a duopoly? In other words, are there only two main suppliers in the mobile data industry? A cursory glance at the industry will reveal five notable players: Vodacom, MTN, Cell C, Telkom and Rain.

The market share continually shifts, with subscribers going where they find the best deals. The market is highly contestable.

The so-called duopoly’s market share has declined in recent years. MTN’s market share in South Africa fell from 36.45% in 2013 to 29.44% in 2019. Vodacom’s share increased from 41.42% to 42.39% over the same period, but dropped by over one percentage point between 2018 and 2019. This is not because those MTN or Vodacom subscribers disappeared into the ether. Instead, they chose a different data provider – an indication of the competitive nature of the market, even under trying circumstances. Graphs show that this decline in market share by the two big data providers coincides with an increase for Telkom.

Based on these numbers, there is clearly no duopoly as the market is not divided exclusively between two big players. The market share continually shifts, with subscribers going where they find the best deals. The market is highly contestable, even though government tries to make it as rigid as possible. Thus, while South Africa might appear to have an oligopoly in the sector, we must appreciate that it is entrenched as an unintended (or perhaps intended, but detrimental) consequence of government regulation.

Malaise

Government has brought about such an economic malaise in general and harmed the data industry in particular. It is no wonder that aspiring entrepreneurs who might consider breaking into the sector instead veer away.

The data industry is entirely dependent on electricity. Eskom’s failure to do the only job it was expected to do has, among other factors, led to the destruction of infrastructure that needs to be continually repaired, and to unjustifiable electricity price hikes. That cellphone towers become inoperative during load shedding is by now well known, as tower batteries do not have enough time to recharge between our moments of darkness. Not only must data providers bear these costs directly, but also indirectly as all their input costs from their own suppliers rise.

These costs must also be factored into the prices they charge for the data services they provide. Government policy and incompetence thus plays a big part in shifting such costs onto consumers.

Ideological and ordinary corruption have also taken their toll. The ideological corruption of socialism that underlies every economic policy in government squeezes any dynamism out of the market, and the ordinary corruption of trillions in wasted tax rands is not conducive to an economy that aspires to create a prosperous middle class.

I was recently on a panel hosted by the Cornerstone Institute where all my fellow panellists, arguing Internet access to be a human right, either believed it must be made more affordable or made to be free, using the force of law. While we were in agreement that Internet access is incredibly important in an increasingly digitised world, I warned that pushing government to interfere even more in this sector of the economy would yield unintended, detrimental consequences.

Government must clean up its own act before we consider asking it to “fix” the mobile data industry. It is government’s corruption, regulation and incompetence that has brought us to where we are today. The Competition Commission’s “recommendations” (the better word would be “extortion”) are equally misguided, for the same reason.

Government must clean up its own act before we consider asking it to ‘fix’ the mobile data industry

It makes no sense to entrust government with rolling out the unattainable goal of free data for all. Government’s own mismanagement of those industries it has been most directly entrusted with – electricity, water, health care, infrastructure, etc – must give us pause before we cede another whole industry to the state.

Finally, it is worth bearing in mind that data providers not only compete with one another, but also with fixed Internet connection providers. As the number of fixed Internet connections rises, the total dependence on mobile data inevitably declines. This is important to note because it illustrates how competition does not only operate horizontally, but in fact operates in three dimensions.

The scary fact is that government’s interference in any single part of the economy also operates this way, creating devastation and stunted growth throughout the whole economy. We have a “big picture” surgery to perform before we start trying to apply Band-Aid to a gushing wound.

Martin van Staden is head of legal (policy and research) at the Free Market Foundation. He writes here in his personal capacity.

This article was published with the permission of Tech Central. The original publication can be viewed here

COMMENTS   16

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You say: “There are persons who have no money,” and you turn to the law. But the law is not a breast that fills itself with milk. Nor are the lacteal veins of the law supplied with milk from a source outside the society. Nothing can enter the public treasury for the benefit of one citizen or one class unless other citizens and other classes have been forced to send it in. If every person draws from the treasury the amount that he has put in it, it is true that the law then plunders nobody. But this procedure does nothing for the persons who have no money. It does not promote equality of income. The law can be an instrument of equalization only as it takes from some persons and gives to other persons. When the law does this, it is an instrument of plunder.

With this in mind, examine the protective tariffs, subsidies, guaranteed profits, guaranteed jobs, relief and welfare schemes, public education, progressive taxation, free credit, and public works. You will find that they are always based on legal plunder, organized injustice.

Frederic Bastiat

lovely!
Bastiat also describes politics in South Africa in general, and gives us a hint of how it will end.

“When misguided public opinion honours what is despicable and despises what is honourable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns it’s back on progress and can be restored only by the terrible lessons of catastrophe.”
― Frédéric Bastiat, Economic Harmonies

The force that drives a communalist society towards socialism, communism and central planning, also increases the levels of stupidity and ignorance and reverses specialization in the jobs market.

A market economy incentivises individuals to specialize in certain fields, to build their skills, to serve society as a whole. People become engineers, medical specialists, computer specialists, mining experts and financial experts under this system that offers opportunities and of freedom of choice, while it provides the financial means to fund the education. The system of property rights protects and incentivizes this specialisation of labour because the owner is rewarded for his efforts. He can work for the benefit of his children.

When central planners interfere in the market mechanism, people stop planning for themselves. They stop being responsible and accountable. They become parasites that are increasingly reliant on special government programs. The specialists emigrate. The irrational and ad-hoc decisions from central planners make it impossible for individuals to plan for the future. They do not specialise, they remain unskilled labour, competing for the same unskilled jobs. Society regresses from a specialised economy to subsistence farming where people compete for scarce resources. This is how the mighty Roman Empire crumbled under socialism. The process took them more than 3 centuries. It took the ANC less than 3 decades to reverse specialisation and to increase the levels of ignorance, dependence and stupidity in the South African society and to create an oversupply of unspecialised labour that is dependent on government grants. This negative feedback loop of central planning and increasing stupidity and de-specialization and dependence is feeding on itself now.

The high cost of data is merely a symptom of the socialist disease. For some, the high cost of data means the unavailability of data. Here we are, in the modern electronic age where the central planners see the future as the Fourth Industrial Revolution, while data is unavailable and people have no access to the internet. These delusions of grandeur by central planning authorities are built on pillars of mud. This phenomenon that led to the collapse of the USSR, will eventually destroy Luthuli House.

But only they have destroyed everything else.

Well Said Sensei

The only problem is, that Highly skilled specialists can’t afford to leave the country on a salary of R5000 a month and a Bachelors and Masters degree in Engineering with 2 years industry experience. *laughs at the situation*

Nashua Mobile in 2007 stated that they thought data prices were at least 50% overpriced. They still are.

Both Nashua Mobile and Altech Autopage both profited on this premium.
The moment MTRs were adjusted by ICASA…. Both companies fell on to their knees and exited the market.

Good lord how did internet access become a human right???

The myth of free stuff is precisely that — a myth.
Aa with all socialist plans, free means someone you dont know is getting robbed. But its not free. The tab does get picked up.

I have complete confidence in the ANC’s ability to radically transform the telecoms sector into just another 3rd world failed enterprise.

I kind of feel like the phrase basic human right gets tossed around too lightly and applies to too many things.

The list of what isnt a basic human right is probably shorter right now. Lets just assume everything not on the 3xcluded list is a human right and therefore an excuse to toyi-toyi and burn other peoples stuff

My Telkom Mobile connection costs me R7/GB. And I can transfer data between Sims. Cell C is only slightly more expensive.

Our data is not expensive. The average consumer is just terrible at buying in bulk and shopping around for the best deal.

The average consumer is poor in this country… after Alcohol and cigarettes…. there is no money for data.

Martin – Referring to data as “relatively high”? Are you serious? Up to ten times higher than other African countries – all with similar electricity outages. Did MTN and Vodacom pay you to write this rather ridiculous article. Thing is – when industries become highly profitable due to unfounded pricing it attracts other players. Next thing you know there is a price war. Unfortunately, the price war introduced by Cell C did not work. However, very happy to not be a Vodacom or MTN subscriber. DSTV is also a grudge purchase taking consumers for a fat ride. However, like in life, the wheel turns and unsustainable pricing luckily catches up with companies. However, government in SA is not sustainable and there will be a true test for our democracy soon, since the ANC will be voted out unless elections are rigged. Or if the Gutchi wearing EFF is invited by by the Magashule ‘s and Zuma’s. Won’t be the first African country To rigg.

Like gold, spectrum is a scarce resource which the government has to regulate. This is where the problem starts. One can only imagine the shenanigans going on behind the scenes.

Get fibre and then the data is free. Data on the mobile network is not cheap because you pay a premium for mobility.

The article says “ Companies want to maximise their profits. Having inordinate prices that exclude a major market segment cannot achieve that: they want to be able to lower their prices. The ball is in government’s court to allow data providers to do just that.”

OK

So companies actually make more money in a competitive environment than in a de facto duopoly? What did these authors smoke?????

I am confused.
Data is not a duopoly. Point made
Government wont allow reduction in prices – how?
My take on your article is that the reason data is expensive is Eskom load shedding?
No mention of spectrum.

So why is data actually expensive- especially for short emergency uses.

Also isn’t the fault also with all the programmers – the apps etc just get bigger and more data intensive. Surely we can solve that?

Yes absolutely, software has become a monster out of control. In the days of Windows 3, complex applications ran much better with less memory and slower processors.

End of comments.

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