South Africa’s broadband price war

One of the contributing factors for South Africa receiving a lower than expected rating in Freedom House’s “Freedom on the net 2011″ report was — as the report noted — that “prices remain a significant barrier to internet access, especially for users of prepaid services,” in the country.

Recently, however, South African consumers have seen a dramatic shift when it comes to the price of broadband offerings.

The opening salvo

8ta, Telkom’s new mobile operator, slashed mobile broadband prices, firing the opening salvo in a local price war which is likely to rock the entire industry.

The offer — a cut of nearly 90 percent per MB over average industry rates — of 10Gb of data per month for a period of 24 months at R199 (US$30) a month was unprecedented. On top of that there was an additional 10Gb of data for late night usage over the same period for R100 (US$15).

Return shots fired

MTN was the first of the carriers to respond, by slashing the price of its “uncapped” offers last week. Its “Uncapped Lite” product has been reduced from R749 (US$110) a month to R299 (US$45) a month and its “Broadband Uncapped Pro” package has been reduced from R1 999 (US$300) to R899 (US$135).

It must be noted though that the products aren’t truly uncapped as they are subject to a “fair-use policy” of 3GB and 10GB respectively, and they’re available only on a 24-month contract.

Missing from this “price war” however are Vodacom, South Africa’s largest mobile operator, and Cell C, which was raked over the coals by authorities for claiming “4Gs” service.

Implications

For starters, the lower cost of data will lead to an increase in internet traffic across the board, and bring entirely new users to the fold. New demographics, previously unable to afford internet access, will start to consume content and take up web services, while light internet users are likely to take up unlimited packages.

Downloads, particularly of multimedia content, are likely to increase dramatically. Out-of-bundle internet access rates will be adjusted more slowly (these are real cash cows for the operators), but they’ll inevitably succumb to this downward pricing pressure too.

This presents an opportunity for network advertisers, as increased supply of inventory is likely to cause an easing, at least temporarily, in the average bid rates required to achieve their targets.

Publishers, meanwhile, will benefit from a larger audience, and wider reach. The ability to reach this ‘new’ consumer demographic also offers brands, ad agencies and anyone seeking to reach the mobile end user an opportunity to reach a completely new market and lower-income consumer.

Advertisers that were once hesitant to use mobile could now very well be on the other side of the fence – insisting that this is the way forward.

The pressure is on for the remaining mobile carriers, namely Vodacom and Cell C, to respond to this challenge.

They will have significant challenges to increase their data capacity, while matching the pricing levels set by 8ta, which will mean a significant drop in revenues.

Failure to adjust their tariffs will lead to churn between networks as consumers start to question their loyalty to existing providers.

No longer is relatively cheap, high-speed, uncapped internet for South Africans a tale of fantasy from abroad. Who knows where, how or when the pricing war will end, but the winner will be the consumer.