It’s data, not endless SMS bundles, that we use

Let’s accept the point of departure: mobile contract packages are broken. There are too many bundled voice minutes hardly anyone depletes and an infinitely higher number of completely useless SMSs. Data bundles are almost an after-thought (and inadequate), despite being, effectively, the primary method of consumption when it comes to smartphones. Telkom has a plan to fix that, and it’s started at a very obvious place (to the rest of us, at least): data.

Telkom’s new FreeMe plans, announced in Hyde Park on Thursday night, start with large data bundles at the core. Added to that are free (VoIP) calls on WhatsApp, Viber and BBM (i.e. the data used on these calls won’t be deducted from your bundle), free SMSs and free calls to Telkom numbers, both mobile and fixed-line. At the upper end of the six packages, there are bundled (free) calls to other networks as well. Voice calls are a flat 69c per minute (to other networks) and out-of-bundle data is 29c per MB,

Pricing is very aggressive, with the entry-level plan of 1GB a month costing R99. At the top-end, an ‘unlimited’ plan (with a fair use policy of 25GB) is R999.

The fair use policies (FUP) across the plans are probably the result of lawyers getting involved, but honestly you’d be hard-pressed to hit any of these limits. The SMS limit equates to 1500 a month, the limit on IM calls on WhatsApp, Viber and BBM translates to about 4 000 minutes, and no one dials enough Telkom numbers (mobile or otherwise) to hit a 3000 minute a month cap (there are ‘only’ 40 000-odd minutes in a month). And, if you’re exceeding either 1 500 or 3 000 minutes of calls to other networks per month, your bill is comfortably running into thousands of rands anyway.

Where Telkom has certainly missed a trick is on the ‘Unlimited’ package. Hidden in the fine print is the fair use policy of 25GB per month (after which you’re throttled to 128Kbps). This is high but not much higher than the 20GB plan at all! Should you really be paying two-thirds more per month for an extra 5GB and double the amount of off-net calling minutes? To make this package attractive, given that the entire proposition is centred on data, the fair use limit should’ve been significantly higher… Something like 50GB, perhaps? Wisely, and justifiably, torrent or peer-to-peer traffic is automatically throttled across the board at 128Kbps on the Unlimited plan.

Obviously, the pricing above would still need a device cost to be added (in other words, they’re SIM only). For example, an iPhone 6 (16GB) would be R399 per month or a Samsung Galaxy A3 would be R299 per month.

The operator has also pushed hard to eliminate the distinction between contract and prepaid customers (and price plans): FreeMe packages are available on postpaid (normal contract), top-up and prepaid. Postpaid (and top-up) will run as normal: on calendar months. For prepaid, the bundles will be valid for 31 days.

But why has Telkom made this move?

Managing director of Telkom’s Consumer business Attila Vitai says this fundamental rethink is grounded in “lots of research” and that – importantly – it has “listened” to what customers actually want. Younger customers, particularly, are “surprised that anybody would use an ordinary GSM voice call” and he counts his own children among them.

Truthfully, Telkom – in its position as challenger operator – can afford to make these bold moves. It has 2% to 3% market share, “growing very fast, but from a very low base” says Vitai. It has to give people a “compelling reason to switch” and while it has achieved traction in the market (its financial results for the year to end March prove that), “its ambitions are much greater”.

Vodacom and MTN’s larger subscriber bases mean that a far greater percentage of their calls are on-network than off-network (than smaller operators like Cell C and Telkom). Even with mobile termination rate changes, argues Vitai, there is still that inherent disadvantage, when looked at from a position of single-digit market share.

“This makes it difficult to price aggressively. But people, increasingly, don’t actually use voice calls anymore.”

And so, data.

But, to make sure its network was capable of carrying all this data, for which there is pent up demand, it had to re-farm its 1800Mhz spectrum which was “very much underutilised”. A few hundred thousand customers were using it for 2G voice, explains Vitai, which meant it was a very “expensive” spectrum. It’s been actively re-farming that from voice to (LTE) data, and is now in a position to “offer millions of customers big bundles of data to run over this network”.

The operator has had a few dozen people working on these products for the past six months, and Vitai says matter-of-factly that this is the “best new product launch within Telkom” that he’s seen during his four years at the operator.

Chief marketing officer Enzo Scarcella says there’s a broader plan with the FreeMe proposition being “extended into other product categories” (think fixed-line), with a few more announcements to come later this year and early next.

One might dismiss Vitai’s resolute belief that this is “going to change the face of the industry,” as mere marketing hype. But it’s hard to see how it won’t.

Vodacom, MTN – and Cell C –  are going to have to react, and there are quiet murmurings that we’ll see movement soon. Vodacom’s Smart and Red integrated plans are more than four years old. And while they might’ve had ‘enough’ bundled data when they were launched in 2012, the amounts are woefully and obviously inadequate in 2016. This will explain why it (relatively) quietly launched ‘Smart More Data’ contracts earlier this year (similarly, MTN launched My MTNChoice +). But, all this has done is create even more complexity in a market both have tried to simplify (MTN with market-leading AnyTime in 2008 and Vodacom’s Smart/Red four years later). There’s simply been too much sustained pressure from both Cell C and, now, Telkom.

“FreeMe will change usage habits, usage patterns and pricing,” maintains Vitai.

It will. And that’s a good thing.

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