Vodacom says the cost of data on its network has halved in the first six months of the financial year, while traffic has increased by 70%. This is according to Jorge Mendes, chief officer for Vodacom's Consumer Business Unit, who was speaking at a media briefing in Johannesburg.
Mendes said the effective rate per Mbyte of data consumed on the Vodacom network has "more than halved" in the fiscal year that started in April, while out-of-bundle rates have also been declining.
"This year alone, we've taken out-of-bundle (OOB) rates down by 70%. That's quite significant and it's had a huge impact financially, but we did it in what I think is the best sustainable way. That's really important because we need to exist beyond the next 12 or 24 months, we need to be here for the long run. It's our responsibility to ensure communication and connectivity and access, and being a real tech company for the long term.
"Anyone can deliver huge price cuts today and not be in existence tomorrow. It's a very capital-intensive business. You can be very aggressive [on pricing], but it needs to be sustainable. And that's the approach that we've taken," he told journalists.
In March, Vodacom dropped its OOB rates from R0.99c ($0.07c) per Mbyte for prepaid customers and R0.89c ($0.06c) for hybrid and contract customers to R0.49c ($0.04c) per Mbyte across the board.
The company has also seen a significant impact from the Independent Communications Authority of South Africa's (ICASA's) End-user and Subscriber Service Charter amendment regulations, which came into effect at midnight on February 28, 2019. (See Lower Out-Of-Bundle Revenue Hits Vodacom's South Africa Sales .)
The new regulations outlawed automatic OOB billing and forced operators to allow users to either opt in or opt out of OOB data charges, which have historically been far higher than in-bundle costs. For years, South African customers have been complaining about the huge gap between in- and out-of-bundle prices, which have led to bill shock for users unwittingly going out-of-bundle.
In terms of in-bundle rates, he said a big change was the drop in the price of the 1Gbyte data bundle last month from R149 (US$10.20) to R115 ($7.90).
"But you can get it on promotion at R99 ($6.80) per 1Gbyte on the My Vodacom app. We're trying to give customers a much richer experience and start shifting to the My Vodacom app, because we have a decent smartphone penetration but still not enough app users."
Mendes said there is still a big difference between the price per Mbyte on the different plans and offers. For example, Vodacom is now offering what it calls "Big Data Deals" with an 80Gbyte data package for R299 ($20.45) per month or a 40Gbyte data package for R199 ($13.60) per month.
"In-bundle pricing varies quite significantly, from as little as 1c per Mbyte, but you need to balance these things out and it depends on the package that you've taken. The differences between the big data space versus the mobile Internet kind of space, we're trying to get those gaps to get closer to each other."
He said lower prices for these big data bundles is the way the market is shifting.
"We are seeing a very nice trend, so good customer base growth, good revenue growth, but super traffic growth. That's where the analytical work behind the scenes comes in, to make sure that the elasticity flows through in an acceptable period. We are seeing lots of traffic growth, in excess of 70%."
Jorge Mendes, chief officer for Vodacom's Consumer Business Unit
He said Vodacom is always looking for tactical approaches to bring the cost-to-carry down but that it needs to be done in a "responsible, sustainable way."
"If we get access to more spectrum eventually, that will help. Also, if we managed to switch off the 2G network and refarm that spectrum, that will help, because 2G spectrum is the most inefficient spectrum to carry data on," he said.
"On 3G the network breathes. So effectively, when you have X number of users in a geographic space, the moment you have more users, the coverage area shrinks. So then you have to build another site to build cell density and there is a cost to do that. 4G doesn't do that, so it's a lot more efficient, you just create bandwidth capacity on the backend. So those are the kind of things that help significantly because you're not having to outlay millions and millions in capital infrastructure to get to the same footprint by just adding capacity on the backhaul side."
He said the long-term plan is to try turn off the 2G network for consumers within the next five to six years, but that there will most likely "always be a thin 2G layer."
"This will need to remain for machine-to-machine devices that are just too complex or expensive to go and retract and change, vehicle tracking, water meters, electricity meters, etc. And even perhaps some speed point devices that will still exist for a while. So, we will not disconnect those services. But it will be a very thin layer of 2G that exists for that while all data users and voice communication services move onto the 3G and 4G service."
Mendes said Vodacom had seen a good uptick in people signing up for 36-month contracts, at a lower per-month fee, rather than the usual 24-month commitment on postpaid. He said Vodacom had introduced this option partly because of the rising cost of high-end smartphones, so over a longer contract they became more affordable for consumers.
"The prices of smartphones is typically the inhibiting factor at the low end as well. That is why we created our own brand of smartphones, the Kicka range," he said.
He said that the telco sells over 8.5 million devices a year and device sales remain a significant part of the company's strategy as it aims to get more smartphones into the hands of customers.
Mendes said that Vodacom has also been testing different options for prepaid handset financing and now plans to go live commercially "in a more aggressive way".
One of the methods is through a partnership with Samsung, using its Knox software, which will lock the user's phone if they don't pay their monthly installments.
"Users will need to load payment details, either a debit or credit card, and if there is a failure on the payment in the month, we can lock the service. But we do it in a behaviorally economic way so the phone will still receive incoming calls and receive WhatsApp messages, but they will not be able to answer and respond until the payment is made.
"So we're hoping that FOMO [fear of missing out] will kick in and they will make a payment and then continue using the device. These are some of the initiatives that we are working on for prepaid customers," he added.
— Paula Gilbert, Editor, Connecting Africa