SA Telecoms misses price point

Voice and data telephony are fast becoming commodity-priced services across the African continent, as price wars create a cutthroat market.

But the SA telecoms environment remains overpriced and Internet penetration remains extraordinarily low, prompting executive director of Research ICT Africa Alison Gillwald to call for a serious ICT policy overhaul in the region.

Gillwald points out that, although SA has been an early adopter of many new technologies, its Internet penetration rate remains low and the country is no longer even a leader in broadband access on the most unconnected continent in the world.

She attributes this situation to the high cost of all communication services in the country from mobile through to leased lines and broadband services.

SA over-priced

“Historically, the cellular telephony market has enjoyed profits from exceptionally high, unregulated pricing. Dominant cellphone operators increased their termination rates by 500% in 2002, for example, and they remained there for nearly a decade, while in competitive markets in Africa they plummeted with rapid and effective regulatory intervention,” notes Gillwald.

SA's regulator adjusted the mobile termination price last year. The Independent Communications Authority of SA (ICASA) regulations will require the cellular industry players to reduce their peak cellphone call-termination rates to 73c a minute by this March, to 56c a minute by March 2012, and to 40c by 2013.

Off-peak cellphone termination rates will drop to 65c a minute by March this year and 52c a minute by March next year, with the off-peak charges dropping to 40c a minute by March 2013.

But Gillwald argues that the cuts to South African interconnection charges and, therefore, retail prices, will still be magnitudes of scale higher than the best performers in Africa.


Mobile operators across Africa are reeling from cutthroat competition that has seen call rates slashed by as much as 90% in countries such as Nigeria, Uganda, Ghana, Kenya and Tanzania. This tumble has been accelerated in recent months by the arrival of international operators.

She points out that operators in these countries have all seen positive effects from increased usage, with more affordable mobile prices and, in many cases, greater profitability.

Bharti Airtel, in particular, is shaking up markets, following acquisitions in 16 African countries and its moves to replicate the low-rate strategy that has made it the dominant mobile operator in Asia.
However, delegates at the recently hosted Next-Generation Telecoms Africa 2011 Summit have pointed out that in SA, where mobile penetration is the highest in Africa at 98%, prepaid users pay up to R2.85 per minute, or more than 33 times the Airtel Kenya rate.

Even on special packages, they added, where South African prepaid users can pay rates of as little as R1.50 per minute, the Airtel tariffs are still less than 15% of that amount.

Overall, tariffs in Kenya are now running at around 20% of the equivalent rates charged by Vodacom, MTN and Cell C in SA, and often at a lot less than that, it was also established.


ICASA promises competition

ICASA last week commended itself for the publishing of interconnect regulations late last year, noting that it had two main expectations of the finalised regulations.

“Firstly, we expect the fixed to mobile retail call rates to reduce as the mobile termination rates are reduced. “Secondly, we expect some measure of pass-through to a reduction in retail prices of calls between mobile networks. However, given the nature of product bundling in the provision of retail mobile services, we expect that price reductions will be subject to dynamic competition,” explained the authority.

“ICASA's view is that a lack of effective pass-through to retail prices will indicate that there may be a lack of effective competition in the retail market for mobile services.”

Therefore, the authority will monitor price movements in the retail market for mobile services vigilantly over the coming months to evaluate whether further action is required.

“For further monitoring purposes, ICASA has been and will continue to receive tariff and related compliance reports from the operators,” stated ICASA.

But Gillwald argues that prices need to be understood as policy outcomes. “Any strategy to reduce prices needs to be part of a broader policy overhaul that will require the identification of policy levers to improve the country's sub-optimal performance.

“This will include identifying the necessary conditions for attracting critical investments in infrastructure extension, the optimal market structure and institutional arrangements, together with short-term incentive strategies to promote the uptake of PCs and Internet-enhanced devices, to longer term educational and IT literacy programmes, and identifying demand stimulation strategies that are essential to ensuring digital inclusion,” she advises.

- Leigh-Ann Francis, ITWeb