The high costs of communicating in South Africa slow down economic activities and their subsequent gains. The Department of Telecommunications and Postal Services (DTPS) thus held a parliamentary hearing in September for stakeholders to illuminate the value chains, bottlenecks and resultant pricing that consumers are forced to pay for communicating in South Africa.

Amongst those present were the consumer representatives from student organisations and activist communities concerned with protecting the poor from marginalisation, the industry players who supply the lifeblood of modern communication methods, as well as research houses and think tanks such as Research ICT Africa on behalf of whom we attended the hearing.

There were claims that it is expensive to communicate in South Africa; and those to the contrary. Whether it is or it isn’t, the fact is that most South Africans do not communicate as much as they would like to: we can see this in the vast amount of unsatisfied demand pulling the sector up by its bootstraps. In this Part 1, we decided to look at the roles of the service providers as well as that of the sector regulator: ICASA, in dealing with this issue of ICT affordability.

Affordability of services

The relatively high levels of investment and competition in South Africa’s mobile market are not reflected in affordability. There are useful reasons for this as operators need to recoup their capital expenditure by spreading the costs among their service offerings, but what’s missing is a commitment to communications affordability that matches the levels of investment. What is more, the methods of calculating affordability were denounced as overly complex and unrepresentative. This might be true in some cases, but does not justify the vague declaration of communications services as widely “affordable”. Greater light is need on this issue, light that can be provided by RIA.

The word “Affordability” has been widely used in economics and is normally related to sustainability. Plainly, it is pointless to provide an affordable service if revenues are insufficient to break even and keep the service provider in business. A practical approach to measuring affordability will mostly focus on whether or not telecommunication services are affordable to all. Thus, pricing of telecommunication products should consider both consumer equity and business efficiency.

It is nevertheless very difficult to measure affordability of telecommunication products as it is difficult to account for communication expenditure at all income levels. Even if one could capture that in an equation, the subjective perception of what is “affordable communication” cannot be. With that said, there are arbitrary measures for saying a service is “unaffordable”, for example, by stating that 500MB of data should not cost more than 5% of the average person’s income. As alluded to above, this masks the inequalities in an economy, such as South Africa’s, which suffers from an extremely high Gini coefficient – indicating vast income differentials.

Nevertheless, this affordability exercise – as arbitrary and difficult it can be – is also be very useful in a broad sense if the calculation yields an astronomical figure. As in the case of the Western Cape, where the cost of communicating soaks up over 20% of the average person’s income, it is safe to claim that this broadly unsustainable. These types of alarming statistics are what should be creating the policy imperatives for South Africa’s regulator, ICASA, and all other stakeholders to question why and how it can be amended.

Protecting investment

Billions are more than millions; billions of rands is a lot of money. Investment figures in the billions were being quoted in the operators’ presentations as one of the justifications for the high costs of using (high-quality) communications services in South Africa. A network does not provide 2G and 3G connectivity to over 90% of the population without spending vast sums on expensive infrastructure.

Additionally, the mobile operators blamed the relative depreciation of the rand against major currencies for the high cost of providing mobile voice and data services, making it more expensive to run mobile communications operations.

The lack of available spectrum was another reason used to scape-goat mobile pricing, which would benefit greatly from more available high-demand and LTE spectrum. Allocating the 700MHz, 800MHz, as well as the 2.6GHz wavelengths would increase the supply of data in the mobile market thereby thereby reducing the cost of data and improving service quality.

These factors need to be accounted in a complex environment with long and varied value-chains but should never end the discussion on what to do about high communication costs. Innovative product design and combinatorial services can enhance ICT services, especially as has been done with data bundles. Nevertheless, a strong-handed cluthing of out-dated services such as SMS and MMS do not need to survive the data challenge and bold price reductions in the data market should not be written off. A commitment to affordability by operators had been powerfully overshadowed by their commitment to profit and share value – little evidence in the PPC hearing changed this.

The regulator

What is more, enhancing the ability of the regulator, as RIA has done in the past, to acquire and process the necessary statistical data for tackling competition and affordability in the ICT markets is paramount. The current method of relying on out-dated pricing data from the International Telecommunications Union (ITU) is unreliable and misleading. RIA’s African Mobile Pricing (RAMP) database provides a much more up-to-date collection of the necessary pricing data from the South African market.

To investigate how competition is affecting affordability, ICASA ought to undertake and complete the long-awaited market review that has been promised for years. This would certainly shed light on factors such as the extent of the Vodacom-MTN duopoly, Cell C’s market position and Telkom’s mobile strategy. If the former, for instance, is being abused to push other operators out, then the appropriate interventions should come into force immediately.

The hearing also made it clear how high the demand is for spectrum. The national integrated ICT policy white paper has planned for all available spectrum to be issued to a single wholesale wireless open access network, disincentivising planned network investment in improving data services and affordability. Threatening to starve operators of more high-demand spectrum and strip them of their existing allocations would not be giving the market its best opportunity to dynamically compete. Increasing investment opportunities for smaller players should take a different route.

There is more to addressing the cost of communications than simply reducing the price to make things more affordable — if this were to occur without the right regulation and proper evidence-based policy, it may mutate sectoral development. ICASA and South Africa operators need to work more closely with a reliable body of evidence to fulfil the commitment of affordable ICT products and services provision.