Cellular operator MTN will announce this weekend that it has cut the cost of accessing the Internet using its network by up to 99%. Its new rates match and, in some cases, undercut the rates charged by rival Vodacom, which also recently slashed its data access prices.
MTN's move is part of a land grab by cellphone companies as they try to claim the market for Internet subscribers from each other, from smaller wireless operators and from Telkom.
Outside the corporate market, where companies use Telkom's leased lines, SA probably has fewer than 100 000 broadband users. Most of these connect through Telkom. Lessons from other markets suggest that SA could be ripe for a broadband explosion - provided prices are right. In the UK, where prices have been falling relentlessly, BT has just signed up its five-millionth broadband customer.
Now, the cost of surfing the Internet using MTN's network will fall from R50/MB to R2/MB. And new data packages will drive that price as low as 49c/MB. "The new rates are among the lowest charged by cellular operators worldwide," claims Ashraff Paruk, MTN's GM of products & innovation marketing.
In the past, data revenues have contributed only a tiny portion of MTN's revenues. In 2004, they made up less than 5% of MTN's total SA revenue and most of this was from SMS.
MTN plays down the prospect of a price war with Vodacom, though it says prices could fall even further. "This pricing is very aggressive. Our intention was to set a level that made sense, though there could be a further 5%-10% movement in the next couple of months."
It hopes the price cuts will enable it to grow its market share rapidly in the next 18 months.
Paruk says the operator expects to have almost 1m broadband clients on its network by the end of next year (it has almost none now). To put that in context, Telkom has a little more than 50 000 broadband customers - that's just 5% of MTN's projected customer base in December 2006.
Paruk says there is a big opportunity to provide Internet connectivity to communities where access is either unavailable or not affordable. No-one is satisfactorily addressing this market, he says. "We've done research on what people would be prepared to spend and we found that our pricing just wasn't in the ballpark. Africa is looking for broadband and we have the coverage, service and brand presence to deliver it."
The idea, Paruk says, is to sign up as many customers as possible by setting prices low. "In some senses this is a bit of a gamble [for MTN], but we believe there is a huge opportunity here that only wireless operators in Africa have."
MTN's new packages include:
- Basic: this is a "pay as you go" solution and includes no bundled megabytes. There is no monthly subscription and data access costs R2/MB.
- 10 MB bundle: this costs R10/month and includes 10 MB of access, which works out to R1/MB. The out-of-bundle rate is R2/MB.
- 100 MB bundle: again, this works out to R1/MB at a monthly charge of R100. The out-of-bundle rate is R1,50.
- MTN 1 GB: this is the top-end offering and costs R499/month for an effective in-bundle rate of 49c/MB. The out-of-bundle tariff is R1,25/MB.
None of these packages includes a modem, which must be purchased separately. A post-paid option is available, which comes bundled with a card phone for use in notebook PCs. This will cost R649/month for 1 GB of data (63c/MB), a little more expensive than a similar offering from Vodacom. MTN points out, however, that its out-of-bundle price of R1,25/MB on this plan is lower (by 37,5% ) than Vodacom's R2/MB.
MTN's price cuts coincide with the launch of its Edge data network. Edge is a data technology that allows for quicker download speeds of about 160 Kbit/s in commercial use. MTN is also building a somewhat faster third-generation (3G) cellphone network which it plans to launch before end-June.
Vodacom has already launched a 3G network and has chosen strategically to eschew Edge.
"Our Edge network roll-out is progressing very quickly and by the end of February we had 210 000 km˛ of coverage - that's about 20% of our network," Paruk says. MTN's 3G network will initially cover about 10 000 km˛, mainly in the urban centres.
MTN customers will initially have two options available to them to connect to the network. They can use their Edge-enabled handsets (these can be connected to a computer using USB cables or Bluetooth) or they can purchase an Edge PC card modem for use in a notebook computer. Equipment maker Sierra Wireless will supply these cards. MTN also hopes to have dual Edge/3G cards available soon. PCI modems - these slot into the motherboard of a desktop computer - are being tested by MTN and will also be launched soon.
Once MTN has perfected its data model in SA, it plans to export it to its other markets in Africa, including Nigeria, Paruk says. He says he can't yet disclose when this will happen.
