​#DataMustFall – how cellphone giants are milking you

South African cellphone giants are not only charging higher prices for data than those in other developing countries but, in general, they are also banking substantially more profit.

A comparison of 10 telecoms companies in India, Nigeria, Mexico, Brazil, Egypt, Kenya, Morocco and the United Arab Emirates shows that service providers in many of them glean significantly less profit than South African giants MTN and Vodacom.

The South African operators were more profitable than those in all but three countries — Kenya, Morocco and the UAE — in the 2015 and 2014 financial years.

And the difference was notable. Where South African service providers outstripped their competitors, it was generally by several multiples, in some cases up to 20 times more.

The price of data has come under sharp scrutiny in recent weeks, with radio personality Thabo Molefe leading the #DataMustFall campaign on social media, calling for consumers to boycott service providers who don’t drop their prices within 30 days.

The case for lower data rates was heard in Parliament on Wednesday. Molefe described the data prices as “daylight robbery”. He said they needed to be halved to be affordable.

A recently released ICT Africa report says lower-income South Africans are spending 20% of their income on one gigabyte of data — four times that recommended by the International Telecommunication Union.

“Regionally, data prices remain expensive,” said the ICT Africa report. “South Africa’s cheapest 1 gig data places it at 16th of out 47 African countries assessed. Tanzania has the cheapest one gig for $0.89 in comparison to South Africa priced at $5.26. In comparison to other large markets, Egypt, Kenya and Nigeria have lower data prices than South Africa.”

The Mail & Guardian went through the published financial results of each company for the past two years and compared their revenue with their net profit or income after tax to derive a profitability percentage in each case.

Generally speaking, in countries where customers are charged lower rates for data, the profitability of the service operators was correspondingly lower. In countries where data costs were higher, operators reported bigger profits.

Out of the companies researched by the M&G, Vodacom and MTN were ranked, depending on the year, in one of the top three positions in terms of profit.

The majority of their competitors, selected from a group of large telecoms providers in emerging markets, reported profit margins ranging from 0.09% to 5.6%.

Indian-based telecoms giant Airtel, the largest service provider in that country, had a profit margin of 3.2% in 2014. This increased to 5.6% last year. Idea Cellular, the third largest in India, reported a profit margin of 0.33% last year, which was up from the slight profit it made the year before.

America Movil, a large player in Mexico and Brazil, recorded a 3.9% profit last year and a 5.2% profit the year before.

By comparison, MTN had a group profit of 13.7% last year, which was a notably bad year as a result of a large Nigerian fine. In 2014, a more typical year for the company, it reported a profit margin of 25.7%. This was the biggest profit calculated out of all 10 companies over both years.

Vodacom, which complained of flagging performance in 2015, still managed to garner 16.18% group after-tax profit as a percentage of revenue, and enjoyed 18.05% margin the year before.

Operators in three other countries reported similar profits to the South African giants: Etisalat, a multinational that derives its income mainly from the UAE, but also has operations in several African countries such as Egypt, Morocco and Nigeria, had profits of 18.8% and 19.9%; Maroc Telecom, which, with more than 11 000 employees in Morocco appears to enjoy a stronghold in the market and recorded profits of more than 22% in both years; and two in Kenya, which both had profits of about 18%.

There is a strong relationship between the prices charged in the relevant countries for data and the profitability of the companies.

For example, in India, where service providers’ profits are low, the average price for one gigabyte of data is R11. South Africans pay R149 for the same amount and service providers are making commensurate profits.

In Egypt, consumers pay half the amount they do in South Africa. This correlates with the low profits recorded by Egyptian service provider Orange Egypt, which made a profit of 0.09% last year and a loss the year before.

In contrast, Morocco was similarly priced to South Africa, and Kenya was relatively close, so their service providers’ profits of 18% to 22% should not elicit great surprise.

But Vodacom has refuted the validity of the findings.

“The picture presented is not representative of the actual position,” Byron Kennedy, Vodacom’s spokesperson, said.

“Looking at data, our prices have been coming down at a rate of about 20% over the past three years. Furthermore, since data was first offered by Vodacom in 2001, prices have fallen by around 95% and in instances Vodacom offers zero-rated content [free of charge] to select content services.

“It is also important to note that in 2015 alone the average price our customers paid for data fell by 13.6%. In the past two years, we have migrated many of our contract customers on to better value price plans where, for example, our out-of-bundle rates have dropped by up to 50%,” Kennedy said.

But the results of this exercise suggest a fairly simple narrative: when the customer pays more, the company’s coffers benefit accordingly.

Kerwin Lebone, the head of the centre for risk analysis at the South African Institute of Race Relations, said: “Out of the five major cellular networks [including Cell C, Telkom Mobile and Virgin Mobile], Vodacom and MTN own 71% of the market share of subscribers with a total subscriber base of 62.8-million between them. With such a dominant presence and lack of competition, they have the allowance of setting their own prices for data.”

He said the regulatory environment is largely to blame for it. New players wanting to make use of wireless broadband in South Africa are required to put up a huge sum of money before they will even be considered by the regulator.

“The reserve price for the ITA [invitation to apply for high-demand spectrum for the expansion of wireless broadband services], which is expected to commence in January 2017, is R3-billion,” Lebone said.

“The amount automatically excludes small network providers who might, through innovation, provide much cheaper and quality services to consumers.

“In this anti-competitive business environment, it is no surprise that the established networks are able to earn huge profits.”

MTN had not responded to a request for comment by the time of publication. 

Thalia Holmes
Thalia Holmes

Thalia is a freelance business reporter for the Mail & Guardian. She grew up in Swaziland and lived in the US before returning to South Africa.

She got a cum laude degree in marketing and followed it with another in English literature and psychology before further confusing things by becoming a black economic empowerment (B-BBEE) consultant.

After spending five years hearing the surprised exclamation, "But you're white!", she decided to pursue her latent passion for journalism, and joined the M&G in 2012. 

The next year, she won the Brandhouse Journalist of the Year Award, the Brandhouse Best Online Award and was chosen as one of five finalists from Africa for the German Media Development Award. In 2014, she and a colleague won the Standard Bank Sivukile Multimedia Award. 

She now writes and edits for various publications, but her heart still belongs to the M&G.     

Advertisting

Study unpacks the ‘hidden racism’ at Stellenbosch

Students say they feel unseen and unheard at the university because of their skin colour

Workers’ R60m ‘lost’ in banks scam

An asset manager, VBS Mutual Bank and a Namibian bank have put the retirement funds of 26 000 municipal workers in South Africa at risk

‘Judge President Hlophe tried to influence allocation of judges to...

Deputy Judge President Patricia Goliath accuses Hlophe of attempting to influence her to allocate the case to judges he perceived as ‘favourably disposed’ to former president Jacob Zuma

SAA grounds flights due to low demand

SAA is working to accommodate customers on its sister airlines after it cancelled flights due to low demand
Advertising

Press Releases

MTN unveils TikTok bundles

Customised MTN TikTok data bundles are available to all prepaid customers on *136*2#.

Marketers need to reinvent themselves

Marketing is an exciting discipline, offering the perfect fit for individuals who are equally interested in business, human dynamics and strategic thinking. But the...

Upskill yourself to land your dream job in 2020

If you received admission to an IIE Higher Certificate qualification, once you have graduated, you can articulate to an IIE Diploma and then IIE Bachelor's degree at IIE Rosebank College.

South Africans unsure of what to expect in 2020

Almost half (49%) of South Africans, 15 years and older, agree or strongly agree that they view 2020 with optimism.

KZN teacher educators jet off to Columbia University

A group of academics were selected as participants of the programme focused on PhD completion, mobility, supervision capacity development and the generation of high-impact research.

New-style star accretion bursts dazzle astronomers

Associate Professor James O Chibueze and Dr SP van den Heever are part of an international team of astronomers studying the G358-MM1 high-mass protostar.

2020 risk outlook: Use GRC to build resilience

GRC activities can be used profitably to develop an integrated risk picture and response, says ContinuitySA.

MTN voted best mobile network

An independent report found MTN to be the best mobile network in SA in the fourth quarter of 2019.