Why Vodacom and MTN must do more

Added by Editor on 18 February 2011.
Saved under Candice Jones, Opinion, Top
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[By Candice Jones]

A 2009 World Bank research report found that for every 10% increase in broadband penetration in emerging markets, the average per capita increase in gross domestic product is 1,2%. It’s a stunning figure, and yet meaningful broadband penetration in SA remains woeful.

That’s why announcements from Vodacom and MTN in the past week about new Internet products aimed at getting more South Africans online are so important. It’s a pity that both companies have fallen short of delivering to the products’ full potential to bridge the so-called “digital divide”.

Vodacom introduced the R749 WebBox; MTN responded days later with its R999 InternetOnTV offering. Both are innovative products that use a television set, instead of a PC (which many poor people can’t afford), to provide Internet access via the mobile networks.

SA is renowned for its innovation in mobile. The country brought prepaid mobile telephony to the world, and its operators transformed the cellphone from a business device used by contract subscribers and put it in the hands of millions of ordinary people.

Households in SA now have more cellphones than they have mattresses or radios. So, to see the country’s two largest mobile operators making an attempt to emulate what they achieved in voice in the data market is incredibly encouraging.

There are many things the operators have got right with their new Internet TV products. But they could have done so much more.

The first problem is the price the operators have attached to the new products. At R749 and R999, they cost more than the set-top boxes consumers will need to receive digital terrestrial television when the country migrates off analogue broadcasts in December 2013.

Government believes it will be necessary to subsidise the cost of those boxes into poorer homes, so is it reasonable to expect strong take-up of the operators’ Internet TV devices? When the time comes to distribute those boxes, I have a feeling government may be surprised at just how many people will request a subsidy.

At first glance, MTN’s product seems even more unaffordable to the poor, but at least it’s allowing customers to buy the product from retailer Jet over six months without incurring any interest. Just ask furniture retailer Joshua Doore what six months interest-free repayments mean to someone who earns less than what fees at some government schools amount to each month.

But the retail prices of the devices is not their most disappointing aspect. Rather, it’s that neither operator has stepped up to the plate to make bandwidth more affordable to the target market.

To the poorest South Africans, the data prices charged by MTN and Vodacom are largely out of reach. Both networks had a chance to introduce “worry-free” browsing and e-mail for a set monthly fee, much like BlackBerry does with its smartphones.

Uncapped offerings aren’t even necessary, just affordable fixed prices specific to these devices that will ensure the majority of users can surf the Web without having to top up their data bundles regularly. They’d lose nothing in the bargain and gain a market that they would never have had before. And, let’s face it, once you’ve had a taste of the Internet, you want more and more.

Don’t get me wrong: it’s fantastic that Vodacom and MTN are thinking about how to bring Internet access to all South Africans. But there’s still a lot more they can and should do. It’s time to think outside the box.

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  • Brian

    @Candice – totally agree with you. Both of these boxes have amazing potential to provide Internet access to the masses in SA (and the rest of Africa). Given the very low data footprint of the devices it would be trivial for both operators to create fixed monthly fee price plans that wouldn’t expose them to any risk. Why haven’t they done this? Is it greed, arrogance, or naivety? I wish I knew the answer…

  • http://www.cablemap.info Greg

    @Brian Greed. That’s easy to answer.

  • Maqhekeza

    Government must quickly issue a tender for a set up box that will enable the poor to access internet and force these prices down. We are tired of this greed and callousness. We need to start thinking about including some of these services in the bill of rights.

  • Mudshark

    In some forward looking countries access to a minimum speed broadband is a designated human right. (Finland is one such country)
    The poor are again being ripped off with these broadband prices.

  • http://manypossibilities.net Steve Song

    Well said Candice!

  • Brett

    no need for tenders, the tax payer would just get ripped off again – maybe it is more about investing profits and educating potential customers on the benefits of the internet. Keep the Mob in power out of it.
    This could be the perfect opportunity to gain massive market share and customer loyalty and actually play a part in job creation.
    It would be even better if these boxes were made here

  • idavid

    If Telkom were privatised, competition would ensure that land based broadband prices fell, as in UK, and mobile prices (all data uses landlines at some poiint) would be forced down as a result.

  • Walter

    My wish for Christmas, 25th December 2012 (4 days after!) is that this great leap forward takes another giant step – an expandable TV-PC concept along the lines of the Playpower (http://playpower.org) the $10 (R70?) model out of MIT and Indian innovation that now focuses on games, albeit learning ones. Can this idea be modularized for expansion, competitions supported by our industry and government (DST, DOC, DOE?) with motivational prizes for innovation on the low cost platform, while we wait for the Digital Dividend to deliver affordable fast downloads to TVs everywhere through STBs, or even directly through these machines and increasingly powerful plug-in cards? The possibilities are endless, and a sub-$20 PC becomes imaginable. We could reinvent the world after 21 December 2012!

  • http://www.cablemap.info Greg

    @idavid I wish it were that simple – right now I have as much faith in the free market as in the government, when it comes to telecomms. Here we are, many years after our telecomms sector was opened to competition, and your best option for broadband is from Telkom. At work, what do I have? Telkom lines. And a fiber connection over municipal fiber. Because Neotel was too expensive, and no other operators could offer me connectivity even though I’m slap bang in the middle of a high concentration of office parks which would be a prime target for high-profit connectivity.

    What the country needs is for ICASA (and Infraco) to do their job. Competition isn’t going to happen when the free market is left to operate in an environement they can do what they want, and when the government tries to step in to get prices down, the operators fight back and win. It’s a recipe for disaster when business is stronger than government.

    Right now, the trend in USA/Canada in broadband is to see how much they can rip their clients off by imposing caps and restrictions – citizens are begging the government to step in, and that’s where our market is right now, we missed the whole cheap-broadband phase because we didn’t have tons of cheap/free infrastructure left over from the dotcom bubble, we need ICASA to leap in with a big stick, and Infraco to set low prices to force the competition’s prices down.

  • Geoff

    @Greg, “we need ICASA to leap in with a big stick”, agreed, but they are so useless they couldn’t hit themselves out of a wet paper packet even if they tried.

  • TechStudent

    I don’t understand this. Some of you expect private companies with investors who have chuck billions of rands at Vodacom/MTN/etc. Now you want them to act like a charity?

    No Telecomms company will simply lower pricing if they do not have incentive (maybe tax incentive to do so). If you want to think out the box how about government give a target for broadband penetration which will allow tax reprieve.

    Vodacom/MTN/Telkom make most of their money from big coporates not the little man. Standard Bank/ABSA/etc pay billions to Telkom. Not really an incentive for Telkom to worry about the little guy when they only no have reached 500 000 customers.

  • TechStudent

    @Mudshark

    Huh?

    Finland: Approx. 5.4 Million people
    Southa Africa: Approx 43 Million people

  • http://www.bblounge.co.za Andrew

    More absurd offers to get people to rip off. What we need is cheap connections not more cheap ways to get connected with expensive connections. The irony is that it’s aimed at the people who can’t afford to be ripped off.

    @TechStudent: That may be so but in a proper free market with competition there is no room for colluding to keep prices high like our operators have done and are still doing. Competition should be the incentive to drop prices but they don’t have to face the competition so they can afford not to drop them. Proper regulatory intervention is needed to stop these practices from occuring.

  • http://techcentral Curt

    Hi, If you complain of their pricing then move to Neotel, they are cheaper.

  • Dave

    There are many posts above bemoaning the lack of cheap broadband due to greed etc. If it really is possible to do it cheaper, why does someone here not come up with a business plan, get some seed capital and open a business?

    Neotel is desperate to make some cash, but will obviously only invest where it can get a return. The big guys are just being smart and pricing their product at a level where it makes sense to them.

    But give it time, fibre is continually getting cheaper and huge progress has already been made in broadband pricing.

  • John H. Mitchell

    @Candice: A good read!
    @Dave: I agree, we are making good progress. November’s unbundeling should be interesting.

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