Benefits of reduced termination rates finally kick in with lower mobile prices

Alison Gillwald · Christoph Stork
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Policy Brief 1: South Africa, 2013

Mobile termination rate (MTR) reductions by the regulator have finally begun to impact positively on prepaid mobile prices in South Africa. The third termination rate reduction, which came into force in March 2013, has for the first time enabled smaller mobile operators to drive down the prices of dominant operators MTN and Vodacom. Despite these gains the MTR is still far from cost, and the cheapest mobile prices in South Africa lag behind countries where the regulator has enabled competitive pricing pressure by enforcing a cost-based MTR.

Highlights:

1. Price pressure on dominant operators. Following the third mobile termination rate (MTR) reduction in March 2013 and the subsequent pressure from smaller operators, MTN and Vodacom were forced to reduce their tariffs to 2 cents (ZAR) per second and to maintain these reductions.

2. SA ranks poorly on the RIA African Mobile Prepaid Price Index. Although South Africa’s ranking has improved with mobile price reductions, it still has the 23rd highest prices in Africa according to the RIA Africa Prepaid Mobile Price Index with, for example, MTN Ghana’s prices remaining a fraction of those of MTN South Africa’s.

3. MTR not yet cost-based. While the new MTR set at 40 cents, which came into force in March 2013, has had positive effects, it is still above what is considered the cost of an efficient operator and is still considerably higher than in many other African countries which, as a result of cost-based MTRs, have considerably lower retail prices.

4. Dominant operators continue to thrive with reduced MTR. Both MTN and Vodacom, the two dominant operators, are showing improved financial performance with subscriber numbers, EBITDAs and operating profits all up. Cell C and Telkom Mobile seem unable to significantly dent the market share of MTN and Vodacom.

5. Telkom Mobile still struggling to gain a foothold in most profitable contract segment of the mobile market. With only 1,5 million active subscribers, and declining postpaid subscriber numbers and ARPUs, can Telkom Mobile’s recently announced prices (29 cents on-net and 75 cents off-net) attract new subscribers?

Suggested citation

Gillwald, A., & Stork, C. (2013). Benefits of reduced termination rates finally kick in with lower mobile prices (Policy Brief No. 1; South Africa). Research ICT Africa. https://researchictafrica.net/polbrf/Research_ICT_Africa_Policy_Briefs/2013_Policy_Brief_1_Benefits_of_reduced_termination_rates_finally_kick_in_with_lower_mobile_prices.pdf