Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018

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Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
Competition Commission
Data Inquiry Hearing
MTN South Africa
18 October 2018
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
Who we are
• Proudly South African, born at the dawn of democracy

• 24 countries, 230 million customers (30 million in SA) – Global Head office in JHB

• Africa’s Largest telecom company by customers and revenue. Africa’s most valuable Brand

• 43.6bn in capex in SA (last 4 years)

• Listed on the JSE, Level 4 B-BBEE (36.34% black owned and 13.42% black woman owned)

• R11.7bn spent with 51% BO Entities, R22.5bn spent with 30% BWO entities (Over 4 Years)

• R3.3bn spent with SMME’s (Over 3 Years)
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
Who we are
• Direct Tax Contributions > ZAR 4.9 billion, indirect Tax Contributions > ZAR 6.2 billion (Over 3 years)

• Approximately 5000 direct employees, and in excess of 20 000 people indirectly employed

• MTN Foundation – R728 million spend (Last 11 years)

• “Yes Campaign” – MTN to employ 1,000 youth over next 12 months

• MTN population coverage 2G (99%); 3G (99%) and 4G (90%) by end of 2018 – Today, more than
  12 million people are covered by 4G, compared to October 2017

• MTN has more than 18,000km of Fibre in South Africa

• MTN has consistently dropped the effective rate of data Year on Year (27% down in H1)
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
The Commission’s questions
The Commission has requested comments on four questions:

1.
01     Are data prices higher than they ought to be?

02
2.     If they are, what are the factors that cause prices to be higher than they ought to be?

03
3.     How should these factors be remedied?

4.
04     What is the impact of data prices and access to data more broadly on lower-income customers, rural customers,
       small businesses and the unemployed? How important are affordable data prices for these customers?
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
1. Are data prices higher than
   they ought to be?
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
1. Are data prices higher than they ought to be?
MTN believes that data prices are competitive, within the current conditions of the South African market

Comparator Framework (1/2)
             Perception                          Reality                            Conclusion             Easily available hard
                                                                                                           data can be used to fact
1. Current data prices prevent    South Africa’s ICT and               South Africa remains an African     check perceptions vs.
                                                                                                           reality.
   South Africa from being an     broadband performance is             leader in ICT and broadband
   African ICT and broadband      measured and globally                outcomes
   leader                         benchmarked annually
                                  South Africa is a performance
                                  leader amongst SADC members
                                  and across the African continent.
                                  (See slide 9)
2.Current data prices make data South African data and device          South Africa is an African leader
  unaffordable to many South      affordability is globally            for data and device affordability
  Africans, especially lower      benchmarked annually, with           based on average income
  income and rural South Africans South Africa scoring as an African   affordability, but is hampered by
                                  leader                               extreme income inequality.
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
1. Are data prices higher than they ought to be?
MTN believes that data prices are competitive, within the current conditions of the South African market

Comparator Framework (2/2)
              Perception                           Reality                       Conclusion             Easily available hard
                                                                                                        data can be used to fact
 3. Current data prices are not       Stats SA CPI data shows         Consumer Price Index data does    check perceptions vs.
 coming down drive cost of living     communication costs             not recognise communication       reality.
 pressures for poor and rural South   represent a minimal (60%)
                                      of rural / poorer household
                                      spend
 4. Current data prices result in a   South African internet access Although an access gap exists
 “digital divide” preventing many     gender gap and mobile phone with 48% of households lacking
 people, and especially women,        access gender gap is globally internet access, South Africa is
 from accessing the internet          benchmarked annually.           an African leader in household
                                                                      access and gender access to
                                                                      the internet
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
What drives Data adoption in a country? – It is more than just affordability
  MTN believes that data prices are competitive, within the current conditions of the South African market

                                               How global ICT Indices measure overall ICT & broadband performance
  Global ICT indices are designed to help                               Facebook / The Economist          GSMA Mobile Connectivity
                                               UN / ITU
  policymakers and stakeholders to                                      Inclusive Internet Index: Score   Index:
                                               ICT Development Index:
  measure a country’s internet                                          / 100 comprised of 54             Score / 100 comprised of 39
  connectivity and inclusivity progress over                            indicators across four            indicators across four
  time                                                                  categories                        categories
  They also provide a simple way of
  benchmarking progress internationally
                                                  ICT Access [40%]         availability [25%]              infrastructure [25%]

                                                                          affordability [25%]               affordability [25%]

                                                    ICT Use [40%]
                                                                           relevance [25%]                   consumer [25%]

                                                   ICT Skills [20%]         readiness [25%]                    content [25%]
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
South Africa remains an African leader in ICT and
broadband outcomes
South Africa remains the African leader in ICT and broadband outcomes – once the non-comparable
                      small islands of Mauritius and the Seychelles are excluded.

           Hard data sets for evidence based test              SADC ranking                    All-Africa ranking                 BRICS ranking
ICT Development Index                                            #3 / 15                          #3 / 44                           #4 / 5
                                                    (Mauritius and the Seychelles #1 (Mauritius and the Seychelles #1   (Russia, Brazil, and China #1,
Updated November 2017                                    and #2 respectively)             and #2 respectively)            #2 and #3 respectively)

SA Score: 4.96
Inclusive Internet Index                                        #1/9                              #1 / 24                           #4 / 5
Updated February 2018                                                                                                   (Russia, Brazil, and China #1,
                                                                                                                          #2 and #3 respectively)
SA Score: 73.9 / 100

Mobile Connectivity Index                                      #2 / 14                           #3 / 45                           #4 / 5
                                                             (Mauritius #1)           (Morocco and Tunisia #1 and       (China, Russia and Brazil #1,
Updated September 2018                                                                      #2 respectively)              #2 and #3 respectively)

SA Score: 59.9 / 100
Competition Commission Data Inquiry Hearing - MTN South Africa 18 October 2018
Are people spending all their money on data? NO!
                                Communication is a minor (
A household gap exists, but SA is an African leader in
closing digital divide
    Hard data sets for evidence based test            SADC ranking                   All-Africa ranking                  BRICS ranking               48% of South African
                                                                                                                                                     households lack access to
Inclusive Internet Index                                                                                                                             the internet, indicating a
                                                                                                                                                     significant ’digital divide’
Updated February 2018                                                                                                                                access gap issue.
                                                                                                                                                     However, South Africa
Closing the Access Gap                                   #1 / 9                           #2 / 24                            #3 / 5                  remains a household
                                                                                                                                                     internet access leader in
Internet Users % Households                                                           (Morocco #1)             (Russia and China ranked #1 and #2    Africa. South Africa is also
                                                                                                                           respectively)             an African leader in
                                                                                                                                                     closing the internet
SA Score: 52%                                                                                                                                        access gender gap.

Closing the Internet Gender Gap                          #2 / 9                           #2 / 24                            #3 / 5

% gap male / female access to the                     (Namibia #1)                     (Namibia #1)            (Brazil and Russia ranked #1 and #2
internet                                                                                                                   respectively)
SA Score: 2.1%

Closing the Mobile Phone Gender Gap                      #3 / 9                           #3 / 24                            #3 / 5

% gap male / female access to mobile         (Botswana and Namibia #1 and #2 (Botswana and Namibia #1 and #2   (Brazil and Russia ranked #1 and #2
phones                                                 respectively)                   respectively)                       respectively)
-     SA Score: 0.0%

    Source: Facebook / The Economist Inclusive Internet Index
At MTN, we have identified 6 focus areas to ensure that all
South Africans enjoy the internet

       C                     H                    A                        S                    E                   R

    COVERAGE             HANDSETS           AFFORDABILITY               SERVICE             EDUCATION           RIGHT SIM
                                                                       BUNDLING                               RIGHT SETTING

 •Aim is to improve   •Aim is to remedy    •Aim is to improve      •Aim is to simplify   •Aim to introduce   •Aim to drive data
  MTN LTE coverage     the limited          the affordability of    and expand            data education      usage through
  from 88% to 90%      affordability and    data services.          service bundle        for customers in    USIM penetration,
  by end 2018.         access to 3G and                             offerings to cater    informal markets    and ensure 4G
                       4G devices.                                  for customer          to increase data    device holders
                                                                    segmentation          literacy and        have the right 4G
                                                                    needs E.g.            usage.              settings
                                                                    YouTube Bundles.
CHASER
Coverage
   MTN has invested R43,6Bil in expanding coverage to virtually the whole population in the last 4 years.

• 4G rollout (0-90% coverage in 6 years) has been even faster than 3G rollout (0-90% in 10 years), which itself was faster than the initial 2G rollout.
• 4G coverage reached 88% in August 2018.
• MTN has refarmed existing spectrum for 3G and LTE deployment.

• This is what infrastructure competition delivers
Source: MTN, https://mybroadband.co.za/news/cellular/265403-mtn-boosts-lte-coverage-and-download-speeds.html
CHASER
 Network Investment – More sites in rural areas than in Metro

                                                   Rural areas account for the
                                                   largest share of total sites.

                                                   MTN continues to aggressively
                                                   add new sites in rural areas,
                                                   having added 2,716 sites, 858 of
                                                   which were LTE enabled, in the
                                                   past 2.5 years alone.

        Major Metro
CHASER

Network quality P3 – Best Network in South Africa. Best Network in Africa
 Extensive investment in LTE has resulted in significant increase in LTE user experience.

 P3 has tested more than 180 networks in 65 countries with same methodology, MTN SA has proven to be the best Network in Africa
CHASER
Handset pricing – Most affordable Smartphone @R399
   Handset pricing for consumers (MTN South Africa, nominal, 2013-2016)

     Over a Billion Rand in Handset subsidies per year
CHASER
Data pricing – Effective Rate has fallen by 87%.
      Data prices have drastically reduced from 2011
2.   What are the factors that affect data
     pricing?
The Commission’s Questions
          The Commission has requested comments on Four questions
                                   The Commission has requested comments on Four questions

              What are the factors that affect data pricing?
              How should these factors be remedied?

                                      MTN believes that the factors that affect data pricing include

                              Spectrum Constraints                            Exchange Rate Volatility

                                    Cost Factors                                       Regulation

   The adoption of the MTN CHASER Model seeks to address these factors and enable further digital and social inclusion

     C                    H                        A                     S                      E                    R
   COVERAGE             HANDSETS               AFFORDABILITY            SERVICE              EDUCATION     RIGHT SIM RIGHT SETTING
                                                                       BUNDLING
Cost factors
               Cost Drivers, which affect the Price to Consumers

                                  Electricity                      The South African
                                                                   economy slipped into
                                                                   recession during the
                                   Labour                          second quarter of 2018,
                                                                   shrinking by 0,7% quarter-
                                                                   on-quarter (seasonally
                     Access to Internet Exchange Points            adjusted and annualised).

                        Capital & Infrastructure Costs             This followed a revised
                                                                   2,6% contraction in the
                                                                   first quarter of 2018, which
                                                                   affects revenues and
                       Costs of Imported Components                potential growth in
                                                                   subscribers

                             Theft and Vandalism

                    Tax Regime on Smartphone Handsets
Prices would be lower if we were not spectrum constrained
 Average spectrum per operator 2016

                                                     South African MNOs
                                                     operate with some of the
                                                     lowest spectrum
                                                     allocations in the world.

                                                     Inefficient infrastructure
                                                     investment has had to
                                                     compensate for this
                                                     massive disadvantage.
Cost factors – Exchange Rate Volatility
USD/ZAR exchange rate 2008 to October 2018
                                                                                         iPhone, Then and Now

                                                                                         2007: R6.50/$
                                                                                         2018: R15.00/$

                                                                         2007     $499         2018       $1,099    X2.2

                                                                         2007     R3,243       2018       R16,485   X5.1

           • The majority of MTN’s network infrastructure, licenses and handsets are priced in USD.
           • Approximately 40% of MTNs Capex Budget was eroded due to currency volatility in 2017.
Source: https://www.resbank.co.za/Pages/default.aspx
Cost Factors - Fuel
Price of 95 ULP, July 2014 to October 2018

                                             Volatile yet generally
                                             rising costs affect
                                             costs to serve.
Cost Factors – Fuel and Electricity (2)
CPI electricity and fuel (Index Dec 2016 = 100), 2008 to 2018
                                                                Electricity prices, and
                                                                Load Shedding resulted in
                                                                an average increase of
                                                                33% in power and fuel.
Cost Factors – CPI
CPI all items (Index Dec 2016 = 100), 2008 to 2018
                                                     Rising CPI restricts access
                                                     to credit, hampers sales,
                                                     and has resulted in
                                                     substantial increases in
                                                     operating expenses
                                                     including Site rentals, Staff
                                                     costs, Cost of Sales and
                                                     Insurance.

Source: StasSA
Cost Factors – Theft and Vandalism
                We lose over R100mil per year due to theft and Vandalism
3. What is the impact of
   data pricing to the poor?
MTN Data strategy has resulted in…

High population penetration – almost 20million data users

Traffic increased by 60% YoY

90% 4G Population coverage

99% 3G Population coverage

More than 5million Smart devices sold per year
Conclusion

Critical to deliver the 4th   • Do not over-regulate
  industrial revolution       • License spectrum now – 4G and 5G
                              • The world of Technology will not wait for us

                              • Effective rates are falling fast (at double digits rates each year)
The state of competition      • Broadband population coverage is scaling up – Universal access
                              • Consumer choice – simple and extensive variety of offerings

                              • Efficient spectrum allocation – 4G and 5G
                              • WOAN – equitable implementation, preserve the incentive to
    What should the             compete
     regulators do            • Implement rapid deployment – site acquisition
                              • Don’t do open access at cost – preserve the incentives to invest
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