Reasons behind Vodacom’s price hikes

Vodacom announced last week that it will increase the subscription fees of selected contract price plans on 1 May 2015.

The new prices will affect new and existing customers, and applies to Vodacom Smart, uChoose Smart, uChoose Flexi, Top Up, and Mobile Broadband packages.

This is the first time in history that Vodacom has increased its contract data prices, raising the question: why did this happen?

It is no secret that mobile operators are struggling to find ways to continue their excellent revenue growth experienced over the last two decades, but this is not the main reason for the price hikes.

One of the reasons for the price increases is external inflationary pressures – basically the increase in the price Vodacom pays to run the company and build its network.

The weak rand has been particularly brutal on telecommunications operators, which pay in US dollars for equipment and services.

“Our industry is one of the few that has managed to absorb cost increases up until now, which is in marked contrast to the cost of other expenditure items like food, electricity, and satellite TV,” says Vodacom spokesman Richard Boorman.

“It’s simply that we’ve hit the point that we could no longer absorb those increases without the potential for adverse impact on things like network investment.”

The other reason for the price hikes is the lack of spectrum to provide services to a growing subscriber base.

A lack of spectrum means Vodacom must build more base stations to serve its data customers – known as densifying the network.

Vodacom’s data traffic is growing at over 60% per year, and given that each base station has a limited capacity, the only way to deal with it is to add additional antennae on existing base stations or build new sites.

If the government and Icasa were to release spectrum to the mobile operators, it will significantly decrease the needed network investment for Vodacom to serve its customers.

“One of the major cost drivers impacting data pricing is the process of densifying the network,” says Boorman.

“This is a result of having to deal with a massive increase in data traffic in SA while at the same time not having a commensurate increase in spectrum resources.”

However, just adding antennae is not currently possible. “The problem with adding additional antennae is that we’d need additional spectrum to avoid interference issues,” says Boorman.

“So in the absence of spectrum we have to build entirely new sites covering smaller areas. This is where the term ‘densification’ comes from.”

Boorman says Vodacom is spending in the region of R9-billion on its network in South Africa this year, and a significant portion of this is going towards the construction of new sites as well as connecting them to the network.

Source: My Broadband

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