Vodacom – Oh Really?

Vodacom Group CEO Pieter Uys seems like a nice guy.  I’ve never met him but you look at his picture and you think, here is a decent fellow.  Which makes it all the harder to credit his defence of Vodacom’s pricing.

He spoke recently at the launch of a World Wide Web Foundation and Vodafone sponsored report entitled ‘Making Broadband Accessible for All‘.  When questioned by ICASA General Manager of markets and competition, Pieter Grootes, about the significant disparity in pricing between Kenya and South Africa, a question hopefully inspired by this post, he had this to say:

“It’s not possible to have a call that lasts long in Kenya. And it’s not possible to have fast mobile broadband speeds at the same rate as SA. There’s a direct relationship between pricing and quality.”

He appears to be arguing that Vodacom has 9 times the call quality that Safaricom does and can thus justify charging 9 times what they charge.  Now call quality in Kenya may not be perfect but I think it would be very hard to come up with real evidence to support an order of magnitude quality difference between South Africa and Kenya.

More to the point, why does Vodacom get to choose what kind of call quality we have?  Why isn’t this something that the market establishes?  Why can’t people choose a cheaper, lower quality network or a more expensive, higher quality network? The answer is simple.  In South Africa, there is no market.  There is just an uneasy alliance of rent-seekers.  Just like in the world of professional wrestling there is a lot of bluster and talk of competition but when it comes to actually stepping up and squaring off with other mobile operators, the outcome is predetermined, the game fixed.

There are signs of hope though.  8ta’s recent dramatic drop in broadband charges is a possible sign of good things to come but the fact that it is only broadband that has been affected and that it is a temporary offer does not really represent the kind of tectonic shift in pricing needed, but you never know.  It might be the gust of wind that presages a storm.

Interestingly, at the same session, Uys found an ally in researcher Winfred Mfuh, who said that

“constructing and renting a base station can be three-times the cost in SA than that of Kenya, where there are a lot of price considerations.”

I accept that putting up infrastructure may be cheaper in Kenya than South Africa, however, I doubt it needs to be three times more expensive in South Africa.  Mobile operators in India have mastered the art of outsourcing infrastructure.  Vodacom’s infrastructure is expensive because they’ve never had real market pressure on them to optimise their costs.

This is not idle speculation.  South Africa’s expensive, uncompetitive telecommunications environment is well documented by researchers.  Something worth considering closely when considering how new spectrum should be auctioned.  A set-aside for new market entrants is a minimum consideration.  In Canada, incumbent operators fought tooth and nail to prevent Egyptian-owned Wind Mobile from getting access to spectrum in the AWS auction two years ago.  I see Wind Mobile now have the best mobile broadband prices in Canada.  What a surprise.

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