The tension between data caps and revenue maximization

Data usage is growing fast. But some telco revenues are not keeping pace with data usage. Why? In Africa, data usage is generally linked to increasing revenues. Why don’t we see the same trend in Europe? Figure 1 shows data usage compared to ICT sector revenues in Germany. We can see the same trends in the UK and other European countries. 

One major factor that differentiates Europe – and other mature markets like South Korea – from Africa is that the growth of the ICT sector is bound to slow down with increasing market penetration. Once most households have fixed Internet and most adults have a smartphone, the telco’s can’t add more subscribers. More subscribers means more revenues. 

There is another major reason that has not been discussed: unlimited data packages. In essence, the mobile product design in mature markets like Europe and South Korea limits revenue growth. Table 1 displays the average data use per subscriber split by LTE and 5G for South Korea’s SK Telecom (one of the few operators in the world that makes 5G data usage public). While mobile data traffic is still increasing, the average usage is below 10GB for LTE users and below 30GB for 5G subscribers. While there will be a significant number of very high data users, the majority are not using anywhere close to the data caps of 100GB, 110GB, 150GB and 250GB for postpaid 5G products on offer by SK Telecom. That means that customers may increase their data usage without having to move to a better plan for a considerable period of time and therefore massive data growth is unlinked from telco revenues. 

Average Monthly Data Usage per LTE SubscriberGB5.
Average Monthly Data Usage per 5G SubscriberGB28.026.6
LTE Subscribers 1,00021,07822,86524,79625,02222,848
5G Subscribers 1,0002,0845,476
Mobile Data Traffic LTETB109,606137,190176,052205,180178,214
Mobile Data Traffic 5GTB58,352145,662
Total Mobile Data TrafficTB109,606137,190176,052263,532323,876
Source:AFS YE2020 page 13
Other news from around Africa 
  • Digital taxes in Tanzania: The Tanzanian Revenue Authority met with officials from Meta to discuss a digital services tax in the country.
  • Mobile prices slashed: In Equatorial Guinea, the government has persuaded MNOs to reduce their prices by 50%. As per usual, it doesn’t look like any cost/benefit analysis has been done and the potential for unintended consequences is massive. 
  • MNO consolidation: MTN predicts fewer operators across its operating countries as smaller operators are unable to compete with the massive infrastructure investments required by 5G. 
  • Artificial Intelligence: An increasing number of African governments are looking towards AI to grow their economies. But a Government AI Readiness Index by Oxford Insights shows that Africa lags the rest of the globe by a significant margin on basic infrastructure readiness.