Cheaper Calls at Last

Cheaper Calls at Last

SA consumers, used to high prices for telecommunications, must be rubbing their hands in glee. The cost of broadband and voice telephony has begun falling, in some cases dramatically, as competition finally begins to take effect.

At the weekend, cellphone giant Vodacom announced it was effectively cutting its peak-time prepaid rates by as much as 40%. Vodacom customers who subscribe to a new prepaid offering, with a uniform all-day rate, will enjoy off-net call charges between 6 am and 8 pm on weekdays of R1,80/minute. That compares with R2,99/minute on the company’s 4U prepaid plan.

Vodacom’s move came just one week after MTN introduced a similar all-day package for prepaid customers. And both operators were probably reacting to lower all-day prepaid tariffs introduced by their smaller rival, Cell C, late last year. The recent reduction in interconnection rates – the fees the operators charge each other to carry calls on their networks – probably also helped.

It’s hard to know if prices will come down further in the next few months. The operators have tended to shy away from competing on price, though as the market matures and growth slows, they may be more tempted to undercut each other.

Without an aggressive third player in Cell C, voice tariffs probably wouldn’t have come down. Cell C has less to lose than its two bigger rivals in cutting prices.

Also, the company, which lacks a 3G network (for now), has fewer value-added options to keep customers sweet. So it has to compete more on price.

An apparent move by Cell C to sell its national network of base stations could make the market more competitive still. The company is said to be in talks with wireless tower operators Eaton Telecom and American Tower Corp to dispose of them in an effort to defray its crippling long-term debt. If the deal goes ahead, and assuming Cell C doesn’t negotiate an exclusive leaseback, then new players will be able to enter the market, leasing infrastructure on the base stations.

Since the market is wide open to competition, anyone could enter as a fourth mobile operator. ECN Telecommunications has already expressed an interest in doing so.

It seems inevitable that competition will drive down prepaid and contract rates further in the next few years.

It’s not only voice calls where prices are falling. In fixed-line broadband, bandwidth costs have plummeted in the past 12 months. Triggered by smaller Internet service providers, the cost of fixed-line broadband – especially for high-end users – has fallen off a cliff in recent months. And the prices are continuing to drop.

Whereas the average selling price of bandwidth on Telkom’s digital subscriber lines was about R70/GB a year ago, it’s now available for less than R10/GB on certain packages from smaller providers.

The bigger service providers haven’t yet followed suit, but I’ll bet Telkom and Dimension Data’s Internet Solutions, the country’s two largest suppliers of bandwidth, will slash their prices within months. It’s inevitable, given the rapid decline in the cost of international bandwidth.

Seacom, the new undersea cable on the east coast, has already brought about a sharp reduction in prices. New cable systems, coupled with investments in national fibre infrastructure, will surely result in bandwidth prices continuing to nosedive.

With the regulator, Icasa, set to begin tackling the last vestiges of Telkom’s monopoly, especially its control over the local loop, telecoms prices in SA could fall to levels enjoyed by consumers in competitive markets in Europe and Asia in the next few years. Now that’d be a turn-up for the books.

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