SPECIAL REPORT What would really happen to data costs without bundles?

Why is data in South Africa so expensive? Why does it 'expire'? And is there anything that anyone can do about it? Fin24 unpacks the issues in the final instalment of this four-part series on the cost of data in SA.

Thandiwe* gets by on 30 megabytes (MB) of data a month by switching off data access on her phone most of the time.

"So I only open my data when I want to check messages, or if maybe I want to send someone a message, or maybe I’m checking someone’s whereabouts [via WhatsApp]," the 34-year-old told the compilers of the Izolo diaries, a 2017 Making All Voices Count research report on the mobile practices of the "less connected".

The less connected use the internet largely or exclusively on their mobile phones, "if they use it at all", the authors explain.

Being "usually off" instead of "always on" was a strategy participants were often forced to employ, in part because of "very high" out-of-bundle (OOB) rates.

The regulator, the Independent Communications Authority (Icasa), has been monitoring OOB rates through its six-monthly tariff analysis reports.

The report for the second half of 2017 describes the price difference between prepaid in-bundle and OOB rates – as high as R21 729 in the case of a 20 gigabyte (GB) bundle – as "excessive".

While some in-bundle prices changed between the release of this report and the latest tariff report, which covers the first six months of last year, standard prepaid OOB rates remained consistent.

Planning or profits?

Why do telcos differentiate between in-bundle and OOB rates in the first place?

Erna Korff, Telkom’s managing executive for product development, explains the price difference as a function of the fact that in the case of bundles, consumers don’t always use the full bundle. "If you have a bundle of 1GB, the way that you price it is with the assumption that the person won’t use the full gig always. So there’s a different effective rate for that 1GB. When you start to go out of bundle, you pay per use."

Candice Jones, senior manager for external communications at Cell C, says OOB rates encourage customers to purchase bundles "which ensures that we as a business can provide proper commercial planning for our products and services".

The kind of planning that bundles make possible includes managing data traffic on the network, according to a Vodacom spokesperson.

MTN’s chief legal services officer, Graham de Vries, says network operators typically plan for "the busy hour" when the network is used the most.

"… [W]e know they [consumers] have planned to utilise that particular bundle because they have bought a bundle and therefore you can create the necessary capacity in the network. Remember, it’s not an immediate creation. It’s not a switch, and you create the capacity. It’s a long-term process that you need to follow. Every base station that you plan; every base station that you switch on, creates more capacity."

He says out-of-bundle usage "creates a bit of a problem" in that you might have someone who has never used a bundle who "all of a sudden" uses data in a particular area, for whom you may not have capacity.

However, Willem Roos, the CEO of new-kid-on-the-block mobile data provider Rain, says bundles are not "necessary at all" to plan network capacity. "The number of subscribers and data usage per tower over time, together with a view on the growth of data usage, provides the information to plan network capacity."

Roos says data bundles "are simply there for telcos to be more profitable. As data expires, telcos effectively charge a higher rate per meg than advertised. Breakage essentially improves the profitability of telcos."

Rain customers pay for the data they use, at a rate of 5c per MB.

Roos says Rain doesn’t offer data bundles that expire because it is a poor customer offering. "We also do not have any high out-of-bundle rates, which really unfairly punish consumers, particularly poorer pre-paid users."

OOB rates: the ups and downs

MTN acknowledges that, in the past, OOB rates were "very high". As a result, it has "consistently" reduced these rates.

Says MTN executive for corporate affairs Jacqui O'Sullivan: "It has some historical context in that in the beginning of data consumption, the design of data products featured low in-bundle and higher out-of-bundle rates … As the market has matured and competitive activity has increased, it has become clearer as time went on that higher OOB rates may not be the best design."  

The company claims it dropped OOB prices by up to 80% at the end of 2017, "with a specific focus on economically marginalised customers".

It did so by introducing the Steppa plan, at 29c per MB for OOB data, aimed at customers who use 5MB of OOB data or less a month. Customers who used more than 5MB could opt into the Freedom plan, with a flat rate of 60c per MB for OOB data. "These changes affected around 6.5 million customers and yielded OOB rates that were up to 80% less than they had previously been paying," she says.

However, according to Icasa’s latest tariff analysis report, MTN’s OOB rates have remained constant – at 99c per MB – between 2013 and 2018.

Asked about the discrepancy, O'Sullivan said Icasa likely used the headline rates (standard prices before discounts, which are filed with the regulator) "and as such is unlikely to account for OOB initiatives such as the Steppa and Freedom plans".

According to the same Icasa report, Cell C’s OOB rates increased from 15c per MB to R1.10 per MB between 2013 and 2017.

Jones says Cell C attempted to introduce a flat rate across products in 2012, which included an OOB rate of 15c. "However, due to the lack of regulatory support for smaller operators like Cell C and the difficulty experienced by customers trying to migrate from one mobile operator to another, this was unsustainable. With the proper regulatory support, small operators become more competitive, which ultimately benefits the customer."

Vodacom says it dropped OOB rates by "as much as 50%" in October 2017. The latest Icasa tariff report reflects a decrease in the prepaid OOB rate from R2 to 99c per MB between 2013 and 2017 and notes that the drop happened shortly after the publication of the draft amendments to the End-user and Subscriber Service Charter Regulations in August 2017.

These regulations, the new version of which determines that consumers have to be given an option to roll over unused data before it expires as well as the ability to opt into OOB data charges, were the subject of court action. Cell C and MTN argued that Icasa did not provide operators with sufficient time to implement them.

The matter has since been settled and the regulations will be implemented from February 28 2019.

Regulatory pressure

Asked whether Icasa notes the timing of the decrease in OOB rates in its report because it believes regulatory pressure played a role in Vodacom’s decision, Icasa spokesperson Paseka Maleka said the decision could have been commercially motivated.

"However, the most prominent change in the market at that time was regulatory based."

Vodacom’s explanation is that the drop was part of its "pricing transformation strategy", which involved "developing and advising customers to select the appropriate bundle for their respective needs".

The company received customer complaints when customers moved from in-bundle to out-of-bundle rates and introduced measures to mitigate this, followed by the decision in 2017 to reduce the rates themselves.

Vodacom would not disclose what proportion of its data revenue (R23.4 billion in 2017/18) resulted from OOB usage (other telcos wouldn’t disclose theirs either) but says it makes up a smaller percentage of data revenue than it did in the past.

"Our focus is to encourage people to remain in bundle. The success of this is evident in our first-quarter data, where the number of people buying bundles was at 12 million, an increase of 21%, in addition to the fact that the number of bundles purchased increased by 55% to over 250 million bundles."

Telkom says it prides itself in having "the absolute lowest" OOB rates – 29c per MB according to Icasa’s tariff report.

"Some operators will have much higher out-of-bundle rates to encourage people to migrate to higher packages to avoid going out of bundle," says Korff.

Both Vodacom and MTN say they plan to further decrease their OOB rates and MTN expects the percentage of data revenue it generates from OOB data to "continue declining".  

*Participants were identified by first name only.

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