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 (KES) | May 2011 (KES) | 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 ubiquitous than cooking oil to compare to. I won’t spoil the surprise though. Stay tuned for more interesting results from them.
Great comparisons, Steve.
I think this is the main reason MXit has succeeded and exploded in quite the way it has in South Africa and in some of the other emerging markets. I think in Kenya the need may not be the same, especially given the current climate and competitiveness.
Nonetheless, good job keeping Vodafone to account, so can it be said then that there is not much difference with other network providers? Cell C, 8ta and so forth?
Really looking forward to ResearchICTAfrica’s comparison videos.
Hi Mark. Completely agree about MXit although I think MXit may continue to succeed even when prices drop thanks to the network effects that they have built.
A bit unfair picking on Vodacom. It could easily have been one of the others but the fact that Vodacom and Safaricom share a parent company in Vodafone was just too tempting as it really emphasises the disparity.
No doubt, Steve. Got to start somewhere, and no doubt MXit have developed a strong network built on so much more than just messaging. Emerging market world domination awaits them it seems.
I was just curious as to whether there’s any prospect of an Airtel-like wave of hypercompetitiveness that one of the other networks could bring. Though S.A’s a much more regulated market with differentiated players what are your thoughts?
Personally, I think it will take the entry of a new player to shake things up. If we can finally get some more spectrum made available here there is a chance.
Great post Steve. Given Airtel is present in a number African countries, it would be interesting to see if there is an “Airtel effect” in countries where Airtel chose to cut prices. Perhaps you may fancy making a “pre-Airtel/post-Airtel” chart or table that could show how some African consumers may have benefited from the Indian takeover of Zain.
How did MTN fare? Uganda, Ghana and Nigeria have MTN and Airtel, and RSA has MTN but no Airtel so there are a couple of options if you want to find out if there was an Airtel effect on MTN’s pricing. Good luck figuring out MTN’s pricing options though!
Great stuff Steve. I read an article (http://www.itnewsafrica.com/2011/05/alton-lauds-etisalat-competition/)about how Etisalat’s entry in the Nigerian market has sparked a new round of competitive pricing. If this will happen is yet to be determined.
What are your thoughts regarding mobile market in West Africa?
@ashifi Interesting that the aggressive approach that Airtel have adopted in Kenya is fairly unique. In other countries where they have taken over Zain operations, they have not cut prices substantially. I suspect Kenya is a flagship country for them where they are trying to get the model right before exporting it to the other former-Zain networks.
@Tomi Nigeria has been a little ahead of the curve because of their pro-active approach to freeing up spectrum which has allowed more competitors into their market than in most African countries. However, I haven’t looked at end user pricing in detail there. Re West Africa, I think we’ll see competition heat up most quickly in Ghana and Nigeria. More cables seems to lead to good things. 🙂
I’m re-reading this article and noticed that if you convert prices in SA to USD, then price would actually go up 9%, not down.
Also I noticed that Kenyan Shillings are usually noted as KES, not KSH. Is it some older id for them?
Hi Alexander. Thanks for the KSH – KES correction. I don’t know what I was thinking. Fixed now.
Re: price in USD. This is one of the hardest things in these comparisons, to make sure you are comparing eggs with eggs. Converting to USD would bring global exchange rates into the picture and you would need introduce Purchasing Power Parity (PPP) to get an accurate comparison. By comparing relatively, we avoid that. Similarly, this is the motivation for Research ICT Africa’s Fair Mobile work to compare mobile prices to domestic products because it avoids the challenge of comparing relative purchasing power across countries.