Ruling imposed on the MTN  Smart Village

Ruling imposed on the MTN / Smart Village acquisition

The MTN acquisition of Smart Village led to an interesting competition condition imposed by the Competition Commission – namely that MTN needed to introduce an open access model for Smart Village. The ruling does raise an interesting question about access to telecommunications infrastructure in gated communities. This note explores the Competition Commission ruling, looks at the issue of competition in gated communities, and considers possible future operator strategies.

The Challenge of Consumer Choice in Gated Communities

Consumer choice can be completely eliminated in gated communities through the establishment of a monopoly provider in these communities. These localised pockets of monopoly come into existence either through the home owners’ association providing an exclusive mandate to an infrastructure provider or by the behaviour of the telecommunications infrastructure provider. The creation of such monopolies results in the gated community consumers being denied choice. Furthermore, the MTN acquisition of Smart Village highlighted this competition issue.

What is the Competition Commission Ruling?

The following text is extracted from the Competition Commission news letter dated July 2016.

On 29 January 2016, the Competition Commission approved with conditions a merger whereby Mobile Telephone Networks (Pty) Ltd (“MTN”) acquired Smart Village (Pty) Ltd (“Smart Village”). MTN is a global communications partner and cellular network operator. Smart Village is mainly active in providing fixed line fibre broadband access to the residential market.

The merger presented a horizontal overlap in relation to the provision of fixed-line broadband fibre optic access network as both parties deploy fibre in gated residential estates. Both parties also operate as Internet Service Providers and offer internet connectivity services to residential estates where fibre is deployed. The Commission found that each gated residential estate constitutes a distinct separate geographic market as gated residential estates generally do not permit the duplication of fibre infrastructure in the respective gated estates. In that regard, there was no geographic overlap arising in the assessed markets. Smart Village holds 100% of the market in each of the gated residential estates wherein it has laid the fibre, thus the merged entity would have monopoly power over each of the gated residential estates.

The Commission found that the vertical relationships arising from the merger would result in a substantial lessening and prevention of competition. The merged entity would acquire a position that would allow it the ability to exercise market power. This could be exercised through foreclosure strategies over its fibre infrastructure in the gated residential estates. In addition, the Commission found that the merged entity would have the incentives to do so as MTN is also able and intends to expand its downstream services offerings in the gated residential estates. Such foreclosure conduct would ultimately harm consumers in those estates where such conduct would be perpetuated and prices are unlikely to decline when there are no viable competitive choices. MTN would also be in a prime position to leverage market power on its fibre into downstream services such as internet connectivity, TV on demand services and security services through bundling strategies.

The Commission found that the input foreclosure strategy could be remedied through the imposition of conditions relating to open access model to the fibre infrastructure on fair, reasonable and nondiscriminatory terms and having transparent and market related pricing. With an open access model, customers in gated residential estates would be afforded choice in terms of product and price offerings. The Commission was further of the view that as long as MTN’s ability to leverage its market power over fibre is curtailed by the adoption of an open access model on a non-discriminatory basis, other potential exclusionary strategies such as bundling are also unlikely to be achieved.

A Brief Global Review

The issue of access of telecommunications infrastructure within buildings or private estates has been dealt with in other jurisdictions. The key themes that run through the regulations are the protection of consumer choice and the encouragement of broadband growth.

Here are a few country examples:

  • Portugal
    • Decree-Law 123/2009 was published, setting out the legal regime applicable to the construction of infrastructures to lodge and install electronic communication networks and to the construction of telecommunications infrastructures in housing developments, urban settlements, concentrations of buildings and buildings. The essence of this law is that it obligates infrastructure sharing within the abovementioned settlements and buildings.
  • Qatar
    • In 2013 ictQATAR (the national regulatory authority) issued a set of instructions to service providers, developers and building owners that specially stated that exclusive telecoms infrastructure usage was prohibited. ictQATAR stated that end-users must have the possibility to choose between the offers of all and any service provider to the public licensed in Qatar and the arrangements which have a negative impact on competition, i.e. exclusionary or exploitative effects, between service providers and/or developers and/or building owners are forbidden.
  • Singapore
    • The telecom riser ducts (or simply risers) in buildings are administered by Infocomm Development Authority (IDA) under the provision of the Telecommunications Act, 1999. IDA’s policy is to reserve the risers for use by fixed-service facilities based operators (FBOs). Any other person or enterprise intending to use the risers shall seek permission from IDA.

In other jurisdictions, different methods of access to in-building or estate infrastructure exists. Where these regulations exist, they serve to promote fair competition.

Gated Communities in South Africa

A key characteristic of South Africa is the number and growth in gated communities.

These gates communities represent concentrated pockets of high-income households who are the prime target segment for the uptake of FTTH services. The challenge, however, is that the home owners’ associations typically sign exclusive contracts that give a single telecoms service provider or infrastructure provider exclusivity in the provision of services to that estate. Alternatively, the exclusivity relationship may arise when the telecommunications infrastructure provider deploys infrastructure and binds the gated community to an exclusive contract that excludes other competitors.

In either approach, the exclusivity behaviour serves to entrench a localised monopoly in a gated estate. Once such a monopoly exists, there exists the conditions for both horizontal and vertical closing out of other competitors. Consumers are thus deprived of freedom of choice.

In their ruling on the MTN/Smart Village acquisition, the Competition Commission ruling recognised this market behaviour and imposed open access conditions on the MTN acquisition.

Operator Strategies to Gain Access to Gated Community Infrastructure

As FTTH retail competition increases, these pockets of high-income households located in gated communities will become the focus of operators. Operators, however, will not gain access – given the monopoly that exists in these gated communities. We thus expect that there will be a rise in operators seeking mechanisms to break the monopoly in order to gain access.

The challenge is – how to gain access to infrastructure on a fair and equitable basis?

  • Given that there are very few open access networks operating in gated communities suggests that the owners of such infrastructure are employing practices to restrict access. Therefore, the likely route an operator will follow would be to approach a regulatory body to mandate such access.
  • It can be argued that these operators can make a case for being granted some form of access to the telecommunications infrastructure within gated communities. Furthermore, there are likely enough global case studies to illustrate how other national regulatory authorities have dealt with this challenge.
  • Approaching ICASA, to grant access to infrastructure, may not be the most expedient strategy to follow.
  • Rather, we would suggest that an approach to the Competition Commission would be the more economical route to follow. Based on the Competition Commission MTN/Smart Village ruling, we would expect that the operators, who challenge this monopoly situation, would receive a favourable ruling from the Commission.

Pre-emptive Strategies – Developing Wholesale Product Offerings

Operators who hold monopolies in gated communities for the provision of infrastructure should seek to develop open access or wholesale product offerings that offer access to other competing operators. This move can pre-empt the imposition of remedies that can end up being more onerous than what the operator would have developed.

MTN sells Afrihost

MTN Sells Afrihost

What is the Government

What are the SA Government Spectrum Plans?

On Monday, 9 August 2016, the Minister of Telecommunications & Postal Services (MTPS) filed a court bid to stop the spectrum auction process initiated by ICASA. See article below from Bloomberg.

The motivation provided by the Minister is that he wants to halt the process to prevent irreparable harm which unsuspecting interested parties may suffer. Basically, his suit selling point is that the current proposed auction process would prevent new players from entering the market.

Based on the above, the following can be speculated on:

  • #1: Retail / Wholesale Market Structure – Single New Wholesale Operator?
    • The ultimate goal is that the government wants to create a single national wholesale operator who then will offer wholesale services to the retail service providers. This would be akin to the concept of MVNOs hosted on mobile network operators.
    • Previously, the government indicated that this was a concept it supported. The current spectrum allocation does not promote a single wholesale operator concept. The single new wholesale operator concept has been supported by operators such as Cell C.
    • There is very little information as to why the ICT policy has not been issued as the government missed its previously announced publication dates.
    • Possibly, the government has already lined up interested parties or is currently shopping around for such interested parties. Therefore, to continue this process, the government needs to gain control of the spectrum process – hence the court case.
  • #2: Crowded Market – Many new Operators?
    • If the MTPS wants to encourage new players to the SA market, then the SA mobile market can become quite crowded.
    • Based on ICASA’s proposed spectrum lot structure, we could see the number of operators rise from the current four (Cell C, MTN, Telkom, Vodacom) to between six and eight.
    • We would question whether the market would support so many mobile operators.

There is spectrum for a wholesale operator – so why stop the process?

  • ICASA has held back much of the 700MHz spectrum, which would not be up for auction (at least not in the currently proposed process). Our view is that this spectrum would be used for a national wholesale operator, as per government plans. (It would probably also need higher spectrum – either 2 600MHz or 2 300MHz). Therefore, the auction could proceed and the government could have its wholesale network.
  • The Minister (as quoted in the article) specifically mentioned foreign players who may want to enter the market. Our reading of it was that a foreign player would first need to obtain an i-ECS licence before it could participate in the auction and the current process proposed by ICASA does not provide sufficient time for that.
  • Yes, the auction would preclude many local already licensed entities from participating due to the reserve price. However, just about all of those entities would probably not be able to fund national network deployment, even if they won a spectrum licence. Cell C is probably the notable exception.
  • Interestingly, apart from ICASA, the government only names the current MNOs as respondents in its filed papers. Why not Neotel, IS, FNB, Liquid, etc. – all those that could be potential bidders?

In conclusion

Without the context of the planned policy, the government’s ultimate goal cannot be clearly understood. However, based on previous positions taken by the government and the motivation presented in its court bid, we conclude that:

  • The government wants to drive the wholesale operator model and has a possible external operator already lined up.
  • Given the government’s financial challenge, we think that the business model would be a form of build-operate-transfer model where the incoming operator finances the network build-out.
The impact of 4G on new Subscriber Acquisitions

The impact of 4G on new Subscriber Acquisitions

The deployment of 4G is having a significant positive impact on subscriber behaviour. This is according to the 2016 Acquisition and Retention Study, a report published by Nokia.

4G, the fastest growing network technology

The report covers key findings regarding the impact of 4G on subscribers, such as:

  • 4G customers are happier. Happier with their mobile data speed. More satisfied with the consistency of their mobile data and as a result, use more data.
  • Globally, 38% of new sign-ups in the last 12 months have been for 4G and the pace is accelerating.

Yet, the research shows there are still barriers to overcome:

  • Mature markets are 2x more likely to use 4G than transition markets
  • 17% of consumers globally are not aware of the network they use
  • Over 30% of consumers in both mature and transition markets stated device incompatibility as the top reason for not yet using 4G
  • Many consumers still perceive 4G to be more expensive.

In South Africa, 15% of the subscribers believe they use the 4G network, while 78% believe that they only use the 3G network. The remaining 7% don’t know what network they use (3G or 4G).

Overall, 4G has a significant beneficial impact on subscriber behaviour:

Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

Drivers of Customer Retention

Drivers of Mobile Customer Retention

Cost and billing was the greatest driver of customer retention. That was in the past. Since 2014, consumers are attributing more importance to service. These are some of the key findings reported by Nokia in its recently completed 2016 Nokia Acquisition and Retention Study.

Drivers of customer retention

A positive customer experience has a direct impact on consumers’ likelihood to stay with their mobile operator. Sounds simple, right? Not quite:

  • Cost & Billing has the greatest impact on customer retention, but…
  • Since 2014, consumers attribute less importance to price and more to service
  • Customer care has 60% more impact on mobile subscriber loyalty than it did in 2014
  • Consumers expect a certain level of service and device expertise and after care to be offered by their operator.

In South Africa, customer care ranks higher, while cost & billing ranks lower than the survey averages across the various countries (developed and developing).

Drivers of Customer Retention Pic
Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

The Importance of Security

The Importance of Security

Some 47% of global consumers would change operator in the event of a security breach. This is one of the findings reported by Nokia in its recently completed 2016 Nokia Acquisition and Retention Study.

Security

Consumers worry about how secure their personal data is on their phones. In fact, 91% of consumers globally are worried about at least one potential security threat. With increasing amounts of sensitive personal and business information now stored on smartphones, mobile security has become an important aspect of consumers’ relationships with their operator and an increasingly important driver for retention.

  • 47% of global consumers would change operator in the event of a security breach…
  • …and the more concerned a consumer is over security issues, the higher the propensity to churn
  • But less than 50% of consumers have anti-virus software on their smartphones as compared to 87% of laptop/PC users.

In South Africa, 96% of the respondents are worried about a security issue, while 56% would switch network operators if their operator experienced a security breach.

The Importance of Security ASource: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

Data allowance, voice and messaging

Mobile Data allowance, Voice and Messaging Trends

The adoption of smart phones and the associated consumption of data is creating significant changes to the revenue mix of mobile operators. The trend in consumer adoption of messaging and calling apps is reported in Nokia’s recently completed 2016 Nokia Acquisition and Retention Study.

Data allowance

Voice and SMS revenue has been declining steadily for many years, largely due to the emergence of data-consuming messaging and calling apps. Although the usage of these apps differs by market, most consumers globally still prefer to use traditional phone services for making calls.

  • Consumers avoid using apps on the mobile network for three main reasons: data allowance, cost and speed.
  • Within transition markets, purchasing an additional amount of once-off data remains the most popular option for consumers, at 44%. This is particularly pronounced in South Africa, at 61%, but less so among Mexican consumers, at 30 percent.
  • Consumers from South Africa (36%), Mexico (30%) and Brazil (32%) are willing to pay for access to Wi-Fi hotspots from their operators.

Voice and Messaging

  • Globally, the use of messaging apps is far more common than calling apps.
    • The use of messaging apps is particularly popular in transition markets where 86% of consumers claimed to use them. Furthermore, 47% of all consumers in transition markets use messaging apps more often than traditional SMS services.
    • The total number of consumers using voice apps is considerably lower than the use of messaging apps. 74% of consumers globally still rely solely on core operator services for making and receiving calls.
    • IInterestingly, 45% of consumers use these apps even more than their phone service. This is driven by markets such as Brazil (46%), Mexico (56%) and South Africa (50%).
  • Globally, 74% of consumers don’t use voice and calling apps. Only 8% of global consumers use these apps more than their phone service, and another 8% use voice and video apps as much as traditional phone services.
  • In South Africa, 9% of mobile users use calling apps more than traditional phone services.

The following chart shows the app usage in different types of markets:


Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

Choosing a Mobile Operator

Choosing a Mobile Operator

Which mobile operator are you with? Over 40% of consumers rely on advice and recommendations made by family and friends when choosing their mobile operator. These are the findings from reported by Nokia in their recently completed their 2016 Nokia Acquisition and Retention study.

Reasons for Choosing a Mobile Operator

The study found that the key reasons are:

  • Being on the same network as friends and family is an important consideration
  • But price is still the main reason for 45% of global consumers when choosing their mobile operator
  • After price, the main reasons for choosing a mobile operator are network quality and network coverage
  • But many consumers are now considering factors such as customer care when selecting a new mobile provider.

Over the best price is the largest deciding factor in choosing an operator. This is also seen among non-4G and 4G users. Although among 4G users, best price and best network quality are rated higher than the non-4G users:

Reasons for choosing an operator

Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

Bundled services and Connected Devices

Bundled services and Connected Devices

Research published by Nokia shows the positive impact that value-added and bundled services have on customer behaviour and attitudes.

Value-added, bundled services and connected devices

Value-added and bundled services both have a positive impact on retention and value-added services also improve network quality perception and data usage. 44 percent of global consumers claimed to bundle at least one other service with their mobile subscription. Only 27 percent of consumers globally receive value-added services from their mobile operator.

  • Offering value-added services has a positive impact on retention – by as much as 11 percent. It also has a significantly positive impact on consumer perception of network quality (+ 55%) and their likelihood to use more than one gigabyte of mobile data each month (+15%).
  • The concept of value-added services is further evolving to include connected devices. 56 percent of consumers in mature markets and 82 percent in transition markets would be interested in controlling at least one additional device from their smartphone.
  • Consumers choose bundled services for better prices and increased convenience. Home telephone and home broadband services are the most frequently bundled services, followed by multichannel pay TV services.

Overall, the bundles are selected as they provide a better overall price, it’s easier to get all services from one company and to have the company issue a single bill for the various services. The following chart shows the types of subscriptions and the drivers for taking bundled services:

Bundled services and Connected Devices (Pic 1)

Source: 2016 Acquisition and Retention Study

The following chart shows the impact of value-added services on the subscriber:

Bundled services and Connected Devices (Pic 2)

Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.

Mobile Advertising

Mobile Ads …. do consumers like them or loathe them?

Nokia recently completed 2016 Nokia Acquisition and Retention study shows what ads consumers would like to receive from their mobile operators.

Mobile advertising

Mobile ads… do consumers like them or loathe them? As it turns out, not as many consumers mind receiving mobile advertising as you might think, particularly if targeted to their needs. And for even better traction? Offer consumers a reward in return for receiving mobile advertising.

  • 47 percent of global consumers currently receive mobile ads from their operator – of which, only 4 percent prefer not to receive them
  • Consumer frustration occurs when targeted ads are just not relevant
  • 38 percent of consumers globally would be willing to receive more advertising in exchange for rewards or benefits.

Overall, consumers are more interested in receiving advertising content around device upgrades than any other type of mobile ads:

Mobile Ads Pic

Source: 2016 Acquisition and Retention Study

Nokia 2016 Acquisition and Retention Study
The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios.