MTN and Cell C defend high data prices

An analysis of cellular companies’ data prices shows that prepaid users buying small mobile data bundles pay around R136 per gigabyte (GB), but those who can afford monthly subscription contracts for huge bundles pay as little as R1.65 per GB.

It is reasonable to assume that richer consumers are signing monthly contracts and poorer consumers are purchasing the small prepaid bundles – and paying in excess of 8 000% more than the rich.

We asked Vodacom, MTN and Cell C if it costs more to ‘produce’ a small data bundle than a large bundle, even though we knew what the answer would be.

The difference in prices charged for small bundles versus large contracts is huge.

In the case of MTN, a prepaid customer will have to pay R30 for 220MB worth of data, equal to R136 per GB.

A contract customer who can afford R329 per month will get 100GB worth of data, paying R3.29 per GB.

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Different factors

MTN says it is committed to digital inclusion and continues to take active steps to make data more affordable and accessible for all South Africans.

“Our pricing structure reflects a combination of factors, including usage patterns, volume, duration of access, and commercial sustainability,” it says.

“MTN offers a wide range of products tailored to different customer segments, including both prepaid and contract options. Prepaid pricing is often influenced by the short-term nature and smaller volumes of purchases, whereas contract customers commit to higher volumes over longer periods, allowing for discounted rates through economies of scale.”

A spokesperson for Cell C offered the same explanation: “Larger bundles – whether prepaid or postpaid – benefit from economies of scale and lower per-GB costs due to predictable usage and network planning efficiencies. Prepaid products offer flexibility for users with varying needs, but smaller volumes do come with higher proportional costs and fixed costs (per bundle, per customer) increase price points on lower data bundle allocations.”

But it’s difficult to agree to their argument of economies of scale, because the major, if not only, production cost is the fixed cost of large computers and network equipment.

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Is there really a difference in what economists term the marginal cost to produce another GB, whether for a small prepaid user or a wealthier client who signs a 24-month contract?

MTN says it has made substantial reductions in prepaid data pricing over recent years and continues to introduce affordable bundles to meet the needs of all consumers.

“Prepaid pricing reflects the flexibility and convenience it offers to customers who need to stay in control of their spending. While prepaid users may be more price-sensitive, they also display a ‘need-now’ purchase pattern. This pattern caters for convenience offers such as hourly, daily, three days and weekly data bundle to match their immediate needs. Prepaid [has] a variety of offers that are personalised based on customer spend pattern and location.”

It says the cost to produce 1GB of data is not a fixed figure.

“It depends on several dynamic factors, including network investments, spectrum availability, infrastructure maintenance and customer usage trends/utilisation.

“Importantly, MTN continues to invest heavily in expanding and upgrading its network to deliver high-quality and affordable connectivity to all customers.

“On the cost differences between prepaid and contract data distribution, the fundamental infrastructure used to deliver data remains the same, but serving smaller, short-term prepaid bundles versus larger contract packages presents different cost and operational dynamics.

“Larger-volume, long-term packages benefit from scale and predictable usage, which often enables more favourable pricing.”

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Cell C data is cheaper

It is noticeable that Cell C’s data packages are cheaper than those of MTN and Vodacom, and it admits that there are big differences in prices for small and large users.

“We recognise concerns about pricing differences between prepaid and contract data. While this reflects common industry pricing models globally, we understand the broader social implications in the South African context.

“We continue to explore ways to narrow this gap through targeted promotions, value bundles, and contextual offers to increase affordability without compromising network overhead. Through My Connecta Deals, we provide some of the most competitive, best-value offers on the market, open to all customers, including prepaid customers.

“We have a significant base of prepaid users with exceptionally high average revenue per user [ARPU]. In many cases, this is even higher than our postpaid customers,” says Cell C.

“Prepaid is not only a product for the poor; it’s a preference for a payment method by the informed and empowered, offering flexibility, control and value without long-term commitments.

“Customers across income brackets increasingly choose prepaid for its convenience, transparency, and the ability to match spend with lifestyle and usage needs.”

Cell C says the cost of delivering 1GB varies and is a function of network utilisation by region, network conditions and input costs like spectrum, site maintenance and international bandwidth.

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“While commercially sensitive, we can assure you that we operate in a highly competitive environment and our pricing reflects a balance between affordability and the substantial investment required by our partners to expand and maintain infrastructure.

“This is particularly in under-served and rural areas where the cost to serve is significantly higher,” it adds.

“There are material differences in cost to serve between larger bundle allocation consumers, who are typically contract customers, and smaller bundle allocation purchasers, who may be prepaid consumers. Prepaid data carries additional fixed per-customer-per-bundle overhead related to payment processing, usage cycles, and less predictable network load.

“These contribute to a net higher unit cost in delivering smaller data allocation bundles. Nonetheless, we are actively working with our network partners to reduce disparities through technology and infrastructure innovation and upgrades,” according to Cell C.

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The digital inclusion objective

Moneyweb specifically asked the cellular companies about the social and economic impact of affordable data packages, given the need for access to information, education, job advertisements and participation in the economy.

“We agree that data access is a gateway to opportunity, education, and economic participation,” said Cell C.

“Our zero-rated access to educational platforms, job portals and key government services is one way we help bridge this gap.”

It said it also continues “to introduce low-cost bundles and community-driven partnerships to support digital inclusion”.

“We remain committed to ongoing pricing reviews to better support vulnerable communities while ensuring long-term viability and quality service offers. Cell’s C’s localised deal platform offers regionally tailored packages that aim to bridge the affordability gap and connect more South Africans to digital opportunity, showcasing the best deals by geographic location.”

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MTN also says that it recognises that data access is essential for education, employment, and economic participation.

“Hence [our] Bonus Bonanza that offers customers double airtime every time they recharge with R5 and more. This value is available to [the] prepaid customer only.

“Additionally, MTN has embarked on location-based offers to give differential pricing based on location.

“A good example is MTN GigZone that gives prepaid customers uncapped prepaid data service at R5 valid for 24 hours for townships and informal settlements to ensure everyone enjoys the benefit of a modern connected life.”

It also said that MTN continues to drive digital inclusion through ongoing price reductions, zero-rated platforms for learning and job-seeking and innovative products like MoMo (its Mobile Money fintech offering).

“We remain committed to connecting the unconnected and ensuring that all South Africans have the opportunity to benefit from the digital economy.”

Vodacom did not respond to questions.

This article was republished from Moneyweb. Read the original here.