Mobile operators cut prices

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But, are they hoping to deflect attention from retail prices?

JOHANNESBURG - Vodacom this weekend joined MTN in trumpeting its latest price cuts for consumers. It said that its new prepaid tariffs are the lowest in the country. At 2.8c per second, the all-day call rate equates to R1.70 per minute (It also unhelpfully "neglects" to mention in its release that calls to other networks now cost R1.80 per minute).

This of course follows MTN's announcement just last week that call charges on its One Rate PayAsYouGo would drop to "less than 3c per second". At no point in its announcement did it ever detail what "less than" equated to, but helpfully its website states this is 2.91c per second (or R1.75 per minute).

We're used to seeing this kind of sabre rattling between the two dominant mobile players in the country. Just six weeks ago, we saw the two racing to "announce" upgrades to their HSDPA/HSUPA networks. Each tried to outdo the other with more of their networks ready to offer broadband data at higher speeds (7.2Mbps vs 14.4Mbps).

So Vodacom's latest announcement takes its prepaid call rate to R1.70 per minute, MTN's is R1.75. That's a far cry from the "standard" R2.90 per minute subscribers have been used to over the past few years.

Both operators are quick to point out that in real terms (stripping out inflation), the cost of communication has come down over the past few years as they haven't increased tariffs in line with inflation.

As part of its price cuts last week, MTN reminded us that users get one one free daily SMS. Its SMS rate on this plan is 50c (MMSs are 90c), while international SMSs are flat-rated at R1.60. Vodacom's SMSes on this package are 35c off-peak and 80c during peak times.

If you average out the difference between the savings on SMSes on MTN versus Vodacom's slightly cheaper price per minute, you'll probably find that there's nothing in it between the two.

Funny that both Vodacom and MTN chose to announce their price cuts days after the lower interconnect tariffs kicked in on March 1. These two operators are playing their cards very shrewdly and are surely hoping to demonstrate their "willingness" to cut retail tariffs - just in case the Department of Communications or Icasa or even Parliament's Portfolio Committee on Communications starts poking around asking questions.

But, how big are these cuts? Vodacom's All Day package, when it was announced in September last year, priced calls at R1.85 per minute (Vodacom-to-Vodacom) and R1.99 per minute (Vodacom-to-other).

With the decrease in interconnect tariffs (mobile termination rates), that differential between on-net and off-net traffic starts decreasing substantially.

Prepaid subscribers on Vodacom's All Day plan will see savings of 8% (on-net) and 10% for calls to other networks. Not something to sneeze at, I guess.

MTN's One Rate was originally priced at "as little as" 3.1c per second when it was launched in December last year. So there's a fairly decent saving there too. Its SMS rate of 50c was announced in December, and has managed to somehow get further traction out of a "reduction" to 50c now in 2010!

You can bet the actuaries and accountants have sharpened their pencils repeatedly and fed any number of alternatives into their complicated financial models to make sure that their "cuts" are not near the 8%-15% they seem to be. You will likely find that the blended traffic (on-net vs off-net and peak vs off-peak) will ensure that the operators still make their margins.

And, of course, both Vodacom and MTN are no doubt betting that their prepaid subscribers don't change to these plans (which they actively have to do by dialling a code and selecting the option). Most of their standard plans still charge between R2.50 and R2.85 per minute.

Now, if only the operators would do something about the prices of calls on contracts (post paid), which have been largely static for years.

But, then again, there's no political pressure to cut those, is there?

* Hilton Tarrant contributes to "Broadband", a column on Moneyweb covering the ICT sector in South Africa. He is one of a few million contract subscribers in the country still subject to fairly steep per-minute (and per-second) call rates.

Write to Hilton Tarrant: hilton@moneyweb.co.za

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