Vodacom – Oh Really?

Vodacom Group CEO Pieter Uys seems like a nice guy.  I’ve never met him but you look at his picture and you think, here is a decent fellow.  Which makes it all the harder to credit his defence of Vodacom’s pricing.

He spoke recently at the launch of a World Wide Web Foundation and Vodafone sponsored report entitled ‘Making Broadband Accessible for All‘.  When questioned by ICASA General Manager of markets and competition, Pieter Grootes, about the significant disparity in pricing between Kenya and South Africa, a question hopefully inspired by this post, he had this to say:

“It’s not possible to have a call that lasts long in Kenya. And it’s not possible to have fast mobile broadband speeds at the same rate as SA. There’s a direct relationship between pricing and quality.”

He appears to be arguing that Vodacom has 9 times the call quality that Safaricom does and can thus justify charging 9 times what they charge.  Now call quality in Kenya may not be perfect but I think it would be very hard to come up with real evidence to support an order of magnitude quality difference between South Africa and Kenya.

More to the point, why does Vodacom get to choose what kind of call quality we have?  Why isn’t this something that the market establishes?  Why can’t people choose a cheaper, lower quality network or a more expensive, higher quality network? The answer is simple.  In South Africa, there is no market.  There is just an uneasy alliance of rent-seekers.  Just like in the world of professional wrestling there is a lot of bluster and talk of competition but when it comes to actually stepping up and squaring off with other mobile operators, the outcome is predetermined, the game fixed.

There are signs of hope though.  8ta’s recent dramatic drop in broadband charges is a possible sign of good things to come but the fact that it is only broadband that has been affected and that it is a temporary offer does not really represent the kind of tectonic shift in pricing needed, but you never know.  It might be the gust of wind that presages a storm.

Interestingly, at the same session, Uys found an ally in researcher Winfred Mfuh, who said that

“constructing and renting a base station can be three-times the cost in SA than that of Kenya, where there are a lot of price considerations.”

I accept that putting up infrastructure may be cheaper in Kenya than South Africa, however, I doubt it needs to be three times more expensive in South Africa.  Mobile operators in India have mastered the art of outsourcing infrastructure.  Vodacom’s infrastructure is expensive because they’ve never had real market pressure on them to optimise their costs.

This is not idle speculation.  South Africa’s expensive, uncompetitive telecommunications environment is well documented by researchers.  Something worth considering closely when considering how new spectrum should be auctioned.  A set-aside for new market entrants is a minimum consideration.  In Canada, incumbent operators fought tooth and nail to prevent Egyptian-owned Wind Mobile from getting access to spectrum in the AWS auction two years ago.  I see Wind Mobile now have the best mobile broadband prices in Canada.  What a surprise.

Sympathy for the Tinkerer

(c) FreeFoto.comTinkering gets a bad rap and I am making it my personal mission to rehabilitate the term. I keep an eye out for articles about tinkering and it is dismaying to see tinkerers getting the same raw deal as “hackers”.  The original terms have been corrupted by the the ill-informed.

Superficial, childish and possibly dangerous?

Negative uses of the word tinkering tend to fall into two camps. The first camp sees tinkering as a childish pastime that is possibly dangerous.  Take this article by Larry Downes on the U.S. Protect IP Act of 2011 in which he says:

The real danger is that by tinkering desperately with the fundamental machinery of both the Internet and the legal system, the unintended consequences that result could prove catastrophic.

The implication is that tinkerers are like little children playing with things they don’t understand are are likely to break.

The second camp sees tinkering not so much as bad but as insufficient, as a kind of playing around at the edges of something, trying ineffectually to fix it, rather than boldly thinking about building a brand new something. Internet economy guru, Don Tapscott takes this perspective. In his book of last year,  Macrowikieconomics, he argues that tinkering is insufficient. He says,

“But among other things, we need to rethink transportation, adopt new manufacturing and shipping practices, pull off a dramatic shift toward greener products and lifestyles, and retool our energy system, all while devoting enormous intellectual and financial resources to protecting the world’s most vulnerable peoples and locations from the effects of rising sea levels and other consequences. Surely a little bit of political tinkering will be insufficient to achieve all of this.”

He goes on to say

“Most world leaders – indeed, most leaders of business and government anywhere – harbour the same old tired set of assumptions about how to solve the world’s problems. And more often than not, they seem focused on tinkering with old models rather than moving to something new and viable. Consider the dysfunctional financial services industry. Conventional policy wisdom demands more regulation over financial markets. But no one stops to ask whether the current models of regulatory oversight and enforcement are truly equipped for the job.”

Tapscott is not alone.  Take this comment from Daniel Veniez on the Canadian health system:

We have underinvested in people, technology, research, innovation and public health. We must modernize our health-care system, including the Canada Health Act, and this will require more than tinkering.

Or this from David Cunliffe on the New Zealand budget:

If, however, the Budget is simply more of the same tinkering from John Key, and if it pins all our economic hopes on rose-tinted forecasts of economic growth, while refusing to specify where within each department or service cuts will be made, it will not be a success.

All of them are arguing in their cases that structural issues at stake that mere tinkering with existing models will not address.  So there you have it. Superficial, childish and possibly dangerous.

What is a tinker?

Before unpacking the above, it is worth taking a step back in history to understand where the word tinker came from.  A tinker was someone who moved from town to town earning an income by fixing broken metal things, pots, pans, etc. Not perhaps a pillar of society, in fact tinkers didn’t get much respect back then either, but they played an essential if unglamorous role, someone who knew how to fix things. And how did they fix things? The modern connotation of the word tinker would have you believe that a tinker would fix a broken utensil by casually rapping away at it with a overweight hammer. That sort of tinker would probably not have lasted very long.

A successful tinker, given the modest tools he might have in his possession, would require a deep knowledge of metals and their properties and how they interacted with each other. He might not know the atomic structure of copper but he would have a profound sense of its malleability, durability, melting point, and how it might be combined with other metals. He would understand how pots are made and how to take them apart without breaking them. Consequently, he would be in a position to improve a badly made pot. Or he might be able to take his deep knowledge of metals and utensils and craft new utensils.

Beware of enterprises requiring new clothes

The notion that we need to “re-think” things and create new models and that gently experimenting with things is bad is a dangerous meme.  If we are asking leaders to take bolder steps to implement change, what confidence do we have that they know the answer to the problems they are trying to solve?  Actually we already KNOW that they don’t know. Economies are complex adaptive systems that consistently defy prediction.

Even the notion of models is a largely a case of retrospective coherence. We use models to explain things but the generally model comes AFTER things have changed not before. Of course there are exceptions to that, visions of how the world ought to be like the Communist Manifesto but history has had something to say about the viability of that approach. Retrospective coherence and the models we build from it is how we make sense of the world and how we spread good ideas but it is not how innovation and change comes about.

So really it is the kind of sweeping change that Mr. Tapscott proposes that is dangerous, that could have catastrophic repercussions that might take a generation of more to repaid.  A great example of this is California’s wholesale importation of  direct democracy from Switzerland, the disastrous consequences of which may actually be undoable.  That is exactly the kind of bold idea that Mr. Tapscott is proposing.

That makes me sound quite conservative but I am actually proposing something radical.  A million small changes.  We need to unleash the power to do many small experiments in our social, economic, political and regulatory systems and we need the means to learn from successes and failures and nurture those small successes.

The modern Tinkerer

What we need is to give people with deep local knowledge the freedom to experiment with systems.  And why am I on about this now?  It’s not just the bold punditry of Don Tapscott that has me up in arms.  More locally, Vodacom CEO Pieter Uys has proposed an open access network for rural access, an idea which in principle sounds great.  Infrastructure sharing is overdue in South Africa, however, the devil is in the details.  He argues that ICASA shouldn’t experiment with untested models.

“It should develop a plan with input from regulators in the rest of the world, from suppliers and other experts, to say what is the best for SA in the long term based on the country’s goals.”

So what confidence do we have that we will get it right this time?  We need adaptive policies that open up freedom for innovation and more importantly allow us to recover gracefully from mistakes.  Our previous record with importing “tested” regulatory models from the rest of the world is hardly a success story.  We are saddled with a rich-world regulatory environment that demands a strong, well-trained and well-resourced regulator to implement.

I fear that Mr. Uys’  idea of an ‘open access’ is one where Vodacom, MTN, Cell C, and Telkom share the cost of rural infrastructure and extend their cosy and largely uncompetitive club into rural areas.  And if this turns out to be true, how will we recover from it?  If we have learned one thing from South African telcos it is that once their interests are entrenched they extremely difficult to change.  We need a system that encourages flexible market-based innovation in service delivery.

An idea whose time has come

This notion that we more of an evolutionary approach to change is not my own.  It has been championed by many distinguished writers from Nassim Nicholas Taleb to Eric Beinhocker.  More recently, author Peter Sims makes the case for this in his book Little Bets. He says:

“Little bets are a way to explore and develop new possibilities. Specifically, a little bet is a low-risk action taken to discover, develop, and test an idea. Chris Rock develops new comedy routines by making little bets with small audiences; Amazon’s CEO Jeff Bezos makes small bets to identify opportunities in new markets like cloud computing. Little bets are at the center of an approach to get to the right idea without getting stymied by perfectionism, risk-aversion, or excessive planning.”

Tim Harford of Undercover Economist fame, makes a similar case in his new book Adapt.  He argues that

“today’s challenges simply cannot be tackled with ready-made solutions and expert opinions; the world has become far too unpredictable and profoundly complex. Instead, we must adapt—improvise rather than plan, work from the bottom up rather than the top down, and take baby steps rather than great leaps forward.”

So, please let’s not have another “best practice” that hasn’t actually yet stood the test of time, rolled out wholesale in South Africa.  Let’s create an environment where Pieter Uys can experiment with his model but allow others to flourish as well.  What about community-owned towers where communities invite service providers to bid to offer services on their infrastructure.  Would that work?  Maybe.  Let’s have a small experiment to find out. And Television White Spaces spectrum?  One might argue that this is simply another untested idea being imported into South Africa.  That’s a fair call but the cost of failure is minuscule.  If TV White Spaces spectrum fails, we won’t even have had to re-allocate any spectrum as it is designed for secondary, serendipitous use.   On the other hand, give all the 700-800 megahertz spectrum to the incumbents and that will take a generation or more to fix.

Fair Mobile – Two Years On

In which I re-assert my self-appointed role of digitally holding African mobile operators’ feet to the fire for their rent-seeking behaviour.  In today’s spotlight is Vodacom South Africa.

Vodacom recently announced their Annual Report for 2010.  Vodacom is doing very well thank you very much and industry pundits gather to laud them for their hard work in the service of their shareholders.  But how well are they serving South Africa?  About two years ago, I started writing about the high cost of voice and SMS services in relation to income in Africa.  Have things changed much?  Here is a breakdown of Vodacom’s 4U pay-as-you-go offering in April 2009 versus May 2011:

Vodacom 4U Service April 2009 (ZAR) May 2011 (ZAR) Price Drop
General Service calls (Peak) 2.85 / min 2.58 / min 9%
General Service calls (Off-Peak) 1.12 / min 1.12 / min No Change
Vodacom to Vodacom (Peak) 2.85 / min 2.58 / min 9%
Vodacom to Vodacom (Off-Peak) 1.12 / min 1.12 / min No Change
Vodacom to MTN / Cell C (Peak) 2.99 / min 2.75 / min 8%
Vodacom to MTN / Cell C (Off-Peak) 1.30 / min 1.30 / min No Change
Vodacom to Telkom (Peak) 2.85 / min 2.75 / min 4%
Vodacom to Telkom (Off-Peak) 1.12 / min 1.30 / min -16%
SMS (Peak) 0.80 0.80 No Change
SMS (Off-Peak) 0.35 0.35 No Change

So the news is not all bad, prices have come down a little although critically SMS prices have not come down and in one case call charges have gone up, probably due to Telkom’s divestiture of Vodacom. Why did I choose the 4U plan? Well it is the one plan that is still the same after two years. Is it the cheapest plan? I have no idea. I’ve been to university but I couldn’t tell you which pay-as-you-go plan is best for me. They are deliberately constructed with a bewildering array of options which make calculating the right deal for you nearly impossible. So my choice is not scientific perhaps but hopefully representative.

Now, let’s turn to another Vodafone property, Kenya’s Safaricom. Same parent company, different pricing scheme. Here is their Ongea Tariff from May 2009 compared to today’s prices.

Safaricom Service May 2009 (KSH) May 2011 (KSH) Price Drop
Safaricom to Safaricom (Peak) 10 / min 3 / min 70%
Safaricom to Safaricom (Off-Peak) 10 / min 3 / min 70%
Safaricom to Other Network (Peak) 25 / min 4 / min 84%
Safaricom to Other Network (Off-Peak) 25 / min 4 / min 84%
SMS (Peak) 5 2 60%
SMS (Off-Peak) 3.5 1 71%

Quite a striking difference. It would be nice to give full credit to Safaricom but it is thanks to Airtel’s aggressive entry into the Kenyan market (their prices are even better) that obliged Safaricom to drop their prices. Also, note that in Kenya, effectively there are no more “plans”. It is 3Ksh/min on net and 4Ksh/min off-net. 1Ksh per SMS on-net and 2Ksh per SMS off net. I can understand that pricing plan.

So what does that mean in today’s terms?  Well, in Kenya, for a peak rate call to another network, you will pay about 4.5 US cents per minute and 2.2 US cents per SMS to another network (Airtel is 1.1 US cents).  In sunny South Africa, the price is 39 US cents minute and 11.4 US cents per SMS.  Yes, all in all about 9 times more expensive.  Does this blow your mind?  I can’t wrap my head around it.

Happily, Fair Mobile is back in action thanks to ResearchICTAFrica.  They have been researching mobile prices and looking for a good Macdonalds-style metric to compare pricing across countries.  Their first go at this was to compare cost of a litre of cooking oil to the number of minutes of airtime that you could purchase for that price.  Have a look at the presentation below.

But they have found something even more ubiquitious than cooking oil to compare to.  I won’t spoil the surprise though.  Stay tuned for more interesting results from them.