The Competition Commission has highlighted the factors contributing to high data costs and recommended actions to bring prices down.

South African data prices are high compared to the rest of the work, particularly for mobile prepaid data.

This is one of the findings of the Competition Commission Data Services Market Inquiry, which found that mobile operators MTN and Vodacom charge higher prices in South Africa than they do in the other countries in which they operate.

The inquiry also found that the retail pricing structure of mobile data is anti-poor and lacks transparency, with small data bundles general costing more.

Data pricing also lacks transparency, which undermines price competition, the commission found.

A lack of spectrum and cost-based facilities access drives up costs. The failure to release high demand spectrum due to delays in digital migration has raised the costs of mobile operators unnecessarily, as they compensate for the lack of spectrum by increasing the volume of base stations.

However, the Commission notes that although the release of spectrum will reduce operator costs, this will not necessarily result in price decreases unless there is competitive pressure on operators to do so.

It recommends that careful thought be given to the design of the spectrum allocation process to ensure that competition is prioritised.

Another large cost driver identified is passive infrastructure, such as base stations and high sites, as well as ducts and poles for fibre backhaul.

The commission believes that efforts to enhance access to facilities on fair commercial terms and regulatory efforts to promote infrastructure sharing can substantially reduce operating costs and ensure the rapid deployment of competing infrastructure. This will potentially result in lower prices over time.

The inquiry also finds that price-based competition in mobile markets could be improved materially.

The retail mobile market has remained concentrated despite the entry of challenger networks, showing sustained first-mover advantages. This means that the largest operators can, to a large extent, price independently; unconstrained by competitors.

The findings in the retail markets also point to potential problems in the wholesale market, according to the commission.

Wholesale roaming arrangements are necessary for challengers to achieve national coverage. However, due to their poor bargaining position, the terms have been unfavourable and have constrained price competition.

The inquiry finds that wholesale markets have also failed in providing wholesale network access for the purposes of retail competition in the form of MVNOs.

The inquiry finds that addressing the fixed line supply gap will be critical for the provision of alternative data services.

Fixed line supply remains the backbone in the supply of household and business access and for the provision of public data services such as WiFi, which represents an important alternative source of data service.

Given the low level of competition between mobile operators, the inquiry is of the view that just fixing mobile competition won’t solve high data prices.

The Commission recommends the following actions to bring immediate relief on data pricing:

* A commitment by mobile operators to reduce the headline tariff levels to the current effective level of tariffs, inclusive of occasional free data and promotions. This will also enhance price transparency.

* A commitment by mobile operators to reduce the price of sub-1GB bundles within an objectively justifiable and socially defensible range of the 1GB price, provisionally a maximum of 25% higher on a per MB basis.

* A consistent industry-wide approach to the zero-rating of content from public benefit organisations and educational institutions.

* Absent such commitments, regulators should coordinate around legislative or regulatory means to achieve such outcomes. This may include investigations by the Commission into excessive pricing, amendments to the ECA or additions to ICASA’s End-User and Subscriber Service Charter Regulations.

It also urges the urgent assignment of high demand spectrum and cost-orientated access to facilities:

* Improving affordability and enhancing competition must be central to the assignment of spectrum. Any spectrum assignment should be contingent on obligations to pass through cost reductions from greater spectrum access, alongside other obligations to improve affordable
access such as providing free public Wi-Fi.

* Existing regulations on facilities leasing must be extended to include ducts and poles and to impose cost-oriented pricing requirements on such facilities.

* An intermediate programme to ensure price-based competition.

To enhance price-based competition, the commission recommends more regulatory scrutiny and potentially action at the wholesale level of the industry in the event that there are no voluntary commitments to improve wholesale access. This includes:

* National roaming arrangements with the smaller networks need to move towards more cost-orientated pricing levels to support the ability of the smaller networks to be more competitive.

* The failure of operators to compete for MVNO arrangements also needs to be addressed. The WOAN has been proposed as one means to address this market failure, but in the short term, there should be voluntary commitments to improve the terms of access amongst existing operators. Failing this, regulatory action is required as a more immediate solution whilst the WOAN gets established.

* In support of both of these recommendations, some form of functional and/or accounting separation may be required of the larger networks for greater transparency as to the costs of the radio access network (RAN) and core network relative to the retail services.

* From a regulatory perspective, there is a need for greater collaboration between regulators to address the historical failure to engage in necessary wholesale regulation.

It also urges the development of alternative infrastructure, particularly to provide data services in lower income areas and smaller secondary cities and towns.

The commission suggests that local and national government, under the lead of the Department of Communications (DOC), actively support the development of free public Wi-Fi in low income areas, including commuter points and public spaces.

Government should look to use its own demand and facilities to reduce the costs of investment in both backhaul and last mile infrastructure into lower income areas, and improve the investment case with base customer demand.

Government should also ensure that where it does make use of its procurement in these markets that this is done in a manner which supports a more competitive environment, be it through supporting smaller players / new entrants or facilitating open access on the
infrastructure.