A cellular licence to print money

The proverbial licence to print money is not the chain of casinos or bottle stores of a generation ago. It’s the telecommunications company, exploiting the now universal desire for people to be online and electronically in touch.

This is a sector that generates massive revenues. Vodacom, South Africa’s biggest network provider with 26.6-million customers, in the past year turned over R54bn and almost doubled its net profits to R8bn. International player MTN, with 18.8m local subscribers, increased profits by 20% and had SA revenues of around R37bn.

This is also the sector that draws the most consumer complaints, along with the pharmaceutical/healthcare industries, retail and banking. It is then logical that the new National Consumer Commissioner, Mamodupi Mohlala, targeted telecommunication providers as a priority in implementing the recently passed Consumer Protection Act (CPA).

One of Mohlala’s first acts was to force SA’s four cellular network operators and two fixed-line providers to bring their customer contracts in line with the CPA. Despite knowing the intentions of the Act for five years, not a single one was compliant and, in most cases, 75% of their cellphone contracts were in breach.

Basically these companies were quite happy to take advantage of consumers – many illiterate and poor, and for whom a cellphone is a necessity that comes at a disproportionately large monthly cost – for as long as they could get away with. Since then Vodacom has come under further pressure from the commissioner, who ruled that it should compensate those of its subscribers who suffered financial loss when the Vodacom network collapsed a few months back. Vodacom has point-blank refused to comply.

As an aside, Vodacom’s media liaison division failed to respond to repeated calls from this writer. Ironically, this is the company that sponsors an annual series of journalism awards.

Given the greed and arrogance that prevails, it should then come as no surprise that the cellular providers have since lobbied to be exempted from the CPA, on the grounds that they are already regulated by the Independent Communication Authority (Icasa).

Fat lot of good Icasa would be. Writing in Business Report a few months ago, economic empowerment strategist Thabo Masombuko outlined a stinging assessment of ICASA’s consumer policing abilities, which have made the sector “a haven for tariff looting, exorbitant charges and ridiculous costs … While costs have ballooned, cellular and landline services have become an out-of-reach pie in the sky for millions of users.”

There is an established pattern to this. When cellular licences were first issued to Vodacom and MTN, part of their obligation was the rolling out of rural coverage as a development of national infrastructural that it was hoped would improve the countryside’s potential to create jobs. Unfortunately, it was an obligation only scrappily met, given the lure of lucrative urban rollouts — and the lovely tax from the resultantly dazzling profits — with the result two decades later of unreliable, low-speed rural coverage.

Nor has state entity Telkom, met its statutory obligation to provide countrywide communication systems. Faced with endemic cable theft, the Telkom’s outrageous solution has been simply to cut off both telephone and landline broadband services in rural areas, in favour of a wireless voice service that verges on the useless, in the view of its critics. By the Telkom example, this week’s theft of cabling serving the Gautrain would be dealt with by mothballing the service and suggesting that passengers use taxis instead.

The opportunity costs of these failures are enormous. The World Bank estimates that a 10% increase in broadband penetration delivers a 1.3% rise in economic growth.

Is is however an unpalatable fact that in SA, just a dozen or so kilometres outside of the major cities and towns, broadband access is virtually unobtainable. And when available, SA’s mobile broadband remains prohibitively expensive, among the dearest in the world.

This inertia and indifference by both the private sector and the state, impacts directly on government’s objective of providing the infrastructural backbone that will allow local communities to grow local jobs, instead of encouraging a growing flow of job seekers to the cities.

When Roy Padayachie took over the long-neglected Communications portfolio he set as his ministerial goal to partner with the private sector to harness telecommunications technology to economic growth. It’s a laudable but unrealisable dream, unless he can get the cellular providers to take their developmental responsibilities a little more seriously.