Auctioning additional spectrum won't bring down high data costs, says watchdog

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  • The Competition Commission has blamed the high cost of South Africa's mobile communications on ineffective competition, not a lack of spectrum. 
  • After years of delay, spectrum is set to be auctioned in March next year. 
  • The commission said the release of temporary spectrum by Icasa to mobile companies at the beginning of the Covid-19 lockdown did not result in further price reductions.

Ineffective competition is to blame for the high cost of mobile communications, and the release of spectrum will not on its own reduce prices, the Competition Commission has told industry regulator the Independent Communications Authority of South Africa.

The much-awaited release of additional spectrum to mobile communication companies after years of delays has been widely touted as an answer to drive down the cost of broadband and improve competition. Last month the communications authority issued an invitation to telecommunication companies to apply for spectrum. The auction process is expected to take place by the end of March 2021.

In its presentation before Icasa on Tuesday, the Competition Commission stated that simply releasing the spectrum would not reduce prices to competitive levels unless fair competition among industry players is also addressed.

The watchdog supported its case by pointing out that the release of temporary spectrum by Icasa to mobile companies at the beginning of the Covid-19 lockdown did not result in further price reductions. Companies were also able to implement the price cuts ordered in 2019 without the availability of additional spectrum.

"Retail prices are high due to ineffective competition and not just spectrum constraints," said James Hodge, chief economist at the Competition Commission.

He said every shift to a new generation of technologies, such as the current move to 5G, would reinforce the dominance of MTN and Vodacom because they have both the basic coverage and financial muscle to make that technological jump early, leading to a distinctive advantage in the market.

The Icasa inquiry follows the completion of the Priority Markets Inquiry in 2018, which identified the need for a market review for mobile services and the wholesale supply of mobile network services, among other pressing issues in the industry.

In its presentation, Cell C, the third-largest network provider, voiced concern about the uncompetitiveness of the roaming market. 

Cell C is currently in a roaming agreement with MTN, what enables it to boost its capacity.  The agreement provides Cell C with access to MTN 3G and 4G services in areas where it has chosen to purchase coverage rather than build its own infrastructure, particularly outside the main urban areas.

Cell C Executive Head for Regulation, Themba Phiri, said having a roaming service ensured that the company continues to be available to the market in providing data services.  But he said there was still a need for "pro competitive remedies to address the structure of the market".

The anti-trust watchdog last year issued an extensive report on the state of the country's mobile service providers which found that the local market was "highly concentrated" between Vodacom and MTN. It also forced mobile companies to reduced their cost of data.

Vodacom and MTN dropped data cost by at least 30% following Competition Commission directive.

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