EDITORIAL: Time for MTN and Vodacom to get the message
We are paying more than we should for data and that keeps most South Africans from participating in the economy and democracy
In January 2011, hundreds of thousands of citizens rose up against Zine El Abidine Ben Ali’s oppressive rule in Tunisia. Ben Ali, who had been in power for more than two decades, was toppled a month later.
Inspired by the Tunisians, a critical mass of Egyptians gathered at Tahrir Square in central Cairo to express their anger over the authoritarian rule of their ruler, Hosni Mubarak.
Both revolutions inspired other uprisings across the Middle East, including in Libya and Bahrain, and the subsequent mass demonstrations have one thing in common: social media.
The Arab Spring uprisings, which led to democratic transition in at least Tunisia, would have been hard to organise, co-ordinate and tell the world about without access to the internet.
Closer to home, Zimbabweans, using social media hashtags such as #ThisFlag, have WhatsApp, Twitter and Facebook to thank for playing a small but important role in the ultimate military ouster of their long-serving president, Robert Mugabe in 2017.
So it is difficult to sympathise with SA’s dominant mobile phone operators, MTN and Vodacom, when the Competition Commission’s two-year long investigation found that they are ripping off the poor with their internet connectivity pricing.
In a country where the minimum wage is just R20 per hour, the vast majority of South Africans will not prioritise internet data purchases to participate in the promotion of our democracy. For good measure, internet access in SA is a must-have tool for those looking for a job, but if prices are unjustifiably high, as the commission’s inquiry points out, it is no wonder that in addition to the roughly 30% of the working population without jobs, there are millions more not included in the headline figure because they have simply given up ever finding work.
It is true that the government cannot totally escape the blame for excessive internet connectivity pricing, but the panel found that prices are still higher than they should be even if the government had done its job properly. The government should have pre-empted the dangers of duopolistic competition and auctioned off spectrum, a radio frequency that allows mobile companies to transmit data and voice over the airwaves, which mobile operators have long argued was crucial to bring prices down.
This is probably the line of argument MTN is expected take as the company prepares to challenge the investigation panel’s recommendations that it and Vodacom should independently reach an agreement with the commission on substantially reducing their prices within two months of the release of the report.
But even with the cost of repurposing the existing allocated 3G and 2G spectrum over the past 10 years, the industry failed to justify their pricing before the investigation panel, whose research and painstaking consultations came to the conclusion that we are paying more than we should.
The biggest winners here have been investors in MTN and Vodacom, both of which count internet data sales as their biggest money-spinners and consistently ground out margins on earnings before interest, tax, depreciation and amortisation (ebitda) well above the international average.
Data sales account for about a third of sales at the SA business of MTN, which was founded with the help of the government in 1994, and for more than 40% of Vodacom’s SA division.
MTN’s SA business boasts an annual ebitda margin — the percentage of revenue converted into income — of 38.8%, and Vodacom of 38.9%, according to their latest financial results.
Comparing that with 31.1% at Vodafone, Vodacom’s parent company, or their SA peer Telkom, whose mobile business is barely profitable with a margin of just 11%, makes them a compelling investment proposition. Their shares are a must-have in most managers’ portfolios.
But before they hold themselves up as good corporate citizens they should take a long, hard look at how their internet pricing is excluding most South Africans in the broader national goal of widespread participation in the economy and democracy.