/ 19 May 2016

How to stretch your prepaid airtime buck

Talk is cheaper
Talk is cheaper

Prepaid airtime is sold in denominations ranging from R2 000 to just R2 in South Africa, where a consumer may be buying just enough airtime to send two SMSes at a cost of R1.60 or make a two-minute phone call.

The high price of communication and the role of dominant telecommunications companies that charge as much as 80c an SMS – even though text messages cost virtually nothing to transmit – remains a cause for concern for lobby groups such as Right2Know (R2K).

The two largest cellular service providers are now calling for the regulation of applications like WhatsApp, which have lowered the cost of communicating and are eating the telco giants’ lunch. 

Countries around the world are increasingly offering SMS as a free, or very low-cost, service, as the popularity of cheaper data services grows.

The Please Call Me case – in which the inventor of the concept could be entitled to as much as R10.5-billion in compensation from Vodacom – has highlighted the fact that billions of rands are available to be tapped at the bottom end of the market, where South Africans recharge their airtime with as little as R2.

“It almost seems kind of tragic to be selling airtime in such small denominations,” said Dominic Cull, telecommunications expert at Ellipsis. “But it is MTN’s most successful prepaid product by a mile.” 

So, with just R2 loaded on a phone, what could you really do with it? Probably more than you think, if you are smart about it. 

MTN is the only operator to offer a R2 recharge, said Chenai Chair, a researcher at Research ICT Africa. With just two bucks on your phone you could tap into the network’s Rush Hour product (only one per user per day), which offers you 10 minutes of voice calling. For R1.50 you can load a 10MB data bundle that’s valid for an hour. MTN’s Rush Hour promotion, however, comes to an end on July 31.

Vodacom and Cell C don’t offer R2 recharge bundles, but this amount on either network is equivalent to a megabyte out of bundle, Chair said. Vodacom offers a product where, for R6, you can call five other Vodacom users for 60 minutes. For R8, you can get 60 minutes of internet browsing. Vodacom’s Power Hour, a product that expires on July 3, costs R7 for 60 minutes of talk time between 6am and midnight.

The minimum recharge amount for Vodacom, Telkom Mobile and Cell C is R5. Cell C has introduced cheaper data bundles starting from R11. 

Promotional offerings are commonplace in the global telecommunications industry and are designed to keep people on their networks, said Alison Gillwald, executive director of Research ICT Africa, noting that in countries with lower average revenue per user (arpu), there are lot more of these types of “sachet” products.

MTN’s arpu is R91. Its 5.2 million contract subscribers have an arpu of R163, compared with an arpu of R76 for its 25.3 million prepaid customers. 

Vodacom’s arpu of R112 is also split into an arpu of R397 for its 4.9 million contract subscribers and an arpu of R63 for its 29 million prepaid customers. 

Revenues from SMSes continue to drop as profits from data rise. For MTN, as stated in its annual report for the year ended December 31 2015, this segment of revenue is down 9% from the previous year and contributes 2.8% (R4 billion) to total revenue. Data brings in 23%, while outgoing voice calls contribute 58%. 

Vodacom’s mobile messaging brought in R2.5 billion for the year ended March 31 – down just 0.5% from the previous year. 

Although data revenues are growing, MTN and Vodacom are concerned about over-the-top services (such as WhatsApp) getting a free ride on the infrastructure the telcos have invested in, and are calling for such services to be regulated.

SMS, however, works outside this infrastructure and costs virtually nothing to transmit.  “Mobile networks use spectrum to connect us. The spectrum carries the voice and data, but next to the spectrum various signals [exist],” said Cull. Transmitting on these, as SMSes, costs only a fraction of a cent. Yet SMS is the most expensive bandwidth in the world.

Gillwald said that in the past SMSes in South Africa were charged “notoriously above cost”, costing the consumer more than a rand in some instances. This has, however, come down in response to the rapid inroads that over-the-top internet-based applications have made into the market.

“In many packages in countries around the world, [SMSes] are free,” said Gillwald.

It’s been long argued that telecommunications companies should reduce SMS charges to give South Africa’s poor access to more affordable communications. 

R2K is behind one such campaign seeking reduced cost of communication in South Africa. 

A 2014 R2K report conducted by the Wits Link Centre, titled The Lived Cost of Communication, looked into the costs of ownership, access and usage among the country’s cellphone users. The research included participants from low-income households (earning between R3 201 and 6 400 a month) and very low-income households (that earn R3 200 or less a month). Most households surveyed (54%) consisted of between five and eight members.

It was established that 96% of respondents had prepaid contracts and that most used their cellphones for making calls, receiving calls, and sending or receiving SMSes and instant messages. 

A number of survey participants said they had, or would, divert money earmarked for food to buy airtime. 

One respondent said: “Every time I buy specials, I see the savings as going to airtime … Sometimes you think the other way round, but it’s mainly food versus airtime. Airtime is the most important because of what I have to do with airtime.”

Revealing that 65% of respondents had more than one SIM card, the report stated: “Consumers are creatively using a range of packages to maximise the benefits, noting that consumers have to buy multiple SIM cards to get the benefits of different packages.” 

Still, respondents said high cellular charges during office hours make communication difficult because this is the time of day when they need to communicate most. “When I call my family in the Eastern Cape or call my friend, they say: ‘Why do you call me at 12 o’clock? I’m asleep,’” said another participant.

The cost of communication has come down in recent years, according to Research ICT Africa, which assesses the cheapest product at which a consumer could make 40 prepaid calls a month – as defined by an Organisation for Economic Co-operation and Development basket.

In the fourth quarter of 2014, this basket cost $4.68, a sharp decline from the cost of $17.37 in the second quarter of 2011. 

But the cheapest offering that conforms with this basket from a dominant player in the telecoms sector was $7.40 (R115) in the second quarter of 2015.

This is lower than offerings by dominant operators in a number of other African nations, but is significantly higher than the cheapest offering in Africa of $1.60 from Safaricom in Kenya.