Monday, January 24

Telkom is wrong: there are no market failures in mobile devices

There is a real irony in the way Telkom is taking every opportunity it gets to complain about a “duopoly” in the South African mobile industry. After all, this is the company that for years abused its absolute monopoly control of telecommunications to charge exorbitant prices while getting away with the most appalling service.

So hearing its executives last week demand that communications regulator Icasa use an upcoming spectrum auction to put Vodacom and MTN at a disadvantage was, frankly, a bit nauseating, although these are not the same Telkom bosses who abused consumers for so many years.


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It’s good messaging for Telkom, of course. The company is hard at work on a narrative that its two biggest rivals on mobile are abusive monopolists, whose outrageous excesses can only be tamed by aggressive regulatory intervention. It’s working: the idea that MTN and Vodacom are a duopoly is gaining popularity. But it’s true?

At hearings on the mobile broadband services market last Thursday, Telkom deployed the important weapons, including incoming CEO Serame Taukobong, to explain why Vodacom and MTN are a threat to competition and why Telkom needs all the regulatory help you can get. to end this danger. In short, he positioned himself as the consumer champion, ready to take on evil monopolists who want to do nothing more than exploit the downtrodden South African consumer.


While it is true that the South African mobile market has historically been heavily skewed towards Vodacom and MTN, which is not surprising given that they were the first to obtain a government license in 1994, competition in the sector has dramatically intensified in the last years. This is partly due to Telkom’s decision 13 years ago (which I am sure continues to this day) to sell its 50% stake in Vodacom and launch its own mobile infrastructure business. Since then, Telkom has grown its market share by leaps and bounds, largely at the expense of its larger mobile rivals.

This growth accelerated after he adopted a data-driven strategy and brought real value to the market. In short, she responded appropriately in a competitive market and was rewarded for her foresight. Today, Telkom Mobile has more customers than Cell C, which was launched more than a decade earlier. Telkom took on the mantle of Cell C’s consumer champion, and for good reason: It met the pent-up market demand for affordable internet access that had been largely ignored up to that point by Vodacom and MTN.

In recent years, Telkom’s two biggest rivals in the mobile sector have responded, and data prices have plummeted and continue their downward spiral. The cost of a megabyte of mobile data has never been as cheap as it is today, especially if you buy a bundle (as most people do). Consider that 20GB of data from both Vodacom and MTN now cost R199 / month on a contract (and there are probably even more affordable examples); Prepaid prices have also fallen dramatically. However, Telkom continues to grow faster than its rivals, although its growth has slowed recently as prices fall across the board. The company is finding it increasingly difficult to maintain top-line growth, which perhaps explains why it is now so eager for Icasa to tilt the playing field in its favor. But the regulator must be extremely cautious: the market is working and, if prices, investment in infrastructure and improvement in network quality are used as an indicator, it seems to be doing well.

However, Telkom argues that the upcoming spectrum auction should be used to address what it perceives as a heavily skewed market in favor of the prevailing “duopoly.” Competition, he says, is “ineffective in the retail market” and Vodacom and MTN have “significant market power” in the wholesale and retail markets. Historically, that is true. But Telkom is not a new start-up: It is a giant corporation that still has access to enormous resources, including the largest fiber network in the country and a wide range of elevated sites and other infrastructure. He wants Icasa to “urgently address significant market failures” and “entrenched competition concerns.” Everything is a bit yummy!

Mobile data prices are dropping perhaps 30% per year and consumers are paying far less than they used to for phone calls thanks to sharp cuts in interconnection rates and competition from internet calling apps like WhatsApp. At first glance, the market is not only working, it is working exceptionally well! Why risk the heavy hand of regulation, and the myriad unintended consequences, in an industry that is working?

One area where Telkom has a strong case is in the spectrum below 1GHz, frequencies that Vodacom, MTN and Cell C have had access to since their establishment. Telkom should be given priority (but not exclusivity) when it comes to licensing those bands once the digital migration is complete (hopefully within the next year, ha ha!). However, at the same time, the market should be left to take care of the optimal use of the radio spectrum. Spectrum trading is prohibited in South Africa, damaging the market and preventing the efficient allocation of this precious resource. Why can’t Telkom buy the Cell C assignment at 900MHz, for example (Cell C could always lease it)? That it can’t is an artificial restriction on the market that hurts consumers.

Not hungry

Telkom, it should be noted, sometimes renders it lacking in spectrum. This is not true: it has access to much more spectrum than Vodacom, MTN and Cell C. It has spectrum assets that its rivals would pay billions of rand for. And it doesn’t seem to want its rivals to have access to more, especially for 5G, where it worries it will be left behind, thus cementing the so-called “duopoly” for the next generation of cellular technology. Icasa must allocate spectrum in a way that maximizes infrastructure competition, but it is spectrum trading, not undue regulatory interference, that will ultimately guarantee its maximum utilization.

In some respects, the spectrum trading ban is already being circumvented: Vodacom’s “super-roaming” agreements with Rain and Liquid Intelligent Technologies and MTN’s agreement, also with Liquid, are a response to the lack of new allocations. spectrum by Icasa and the inability to exchange frequencies in an open but regulated market. That’s a lack of political imagination (and inaction) on the part of the government – these operators cannot be blamed for reaching deals to meet consumer demand and pressure on their networks. Frankly, Telkom should probably have reached out to Cell C by now to access 900MHz and push the legal and regulatory envelope.

And yes, this is a very complex topic worthy of a postdoctoral thesis, and I know that some in the industry will not agree with what I have written here (I am happy to post your answers), but the point I hope is what I have managed to get across. is that instead of more regulation in the South African telecommunications industry, Icasa should not impose heavy-handed rules. What it should be doing is greasing the wheels of competition by facilitating licensing, allowing free spectrum trade (with clear rules and guidelines to prevent hoarding and other abuses), and generally going out of the way and letting the market go ahead. with that.

Telkom is wrong when it argues that there has been a failure in the market. Regardless, the market is working, and with the right policy decisions (a big question, I know) and light regulation, the industry will continue to grow and consumers will continue to benefit as prices drop and networks and quality of the service improve. . Heavy-handed intervention now against a “duopoly” that does not exist is not justified.

Duncan McLeod is an editor at TechCentral, where this article was first published. here.

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