OPINION MAKER: Oh what a lovely (price) war

By Daniel Courtenay, Publisher Alliance Account Manager (Africa)
South Africans who have travelled abroad over the past decade have often returned with envy-provoking tales of cheap, high-speed uncapped internet access, for as little as R200 a month (around US$30). Customers in Europe and the US have had access to deals like this for the past eight or ten years. Back home, this kind of connectivity has been limited to a privileged few. Until recently.

The opening salvo
A fortnight ago 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 is as follows: 10Gb of data per month, for a period of 24 months, at R199 a month (US$30), and an additional 10Gb of data for late night usage over the same period for R100 (US$15). That’s a cut of nearly 90% per MB over average industry rates.

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 a month (US$110) to R299 (US$45) a month and its ‘Broadband Uncapped Pro’ package has been reduced from R1 999 (US$300) to R899 (US$135). 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.

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 see dramatic increases. 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 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 within coming weeks will lead to churn between networks, as consumers start to question their loyalty to existing providers.

Another dash of chaos, in a white box?
Although ‘white box’ manufacturers have until now achieved very limited distribution in the South African market, it can’t be long before the presence of cheap ($50 to $100) smartphones further stimulates demand for connectivity.  The combination of the falling cost of access, the advanced network infrastructure already in place locally, and this quantum shift in the cost of hardware, may well culminate in a perfect storm for exponential growth of the mobile marketing industry.