Should data bundles expire?

The former Governor of Kiambu William Kabogo raised an interesting debate last week when he said he intends to take telco providers to court for expiring subscriber data bundles.

While avoiding to adjudicate the prospective case outside the court, we shall attempt to understand the technical dynamics by why telcos prefer to expire your data bundles.

We shall then leave the lawyers to prosecute and the courts to decide the issues of property rights a subscriber has over their bundles they have so far validly acquired.

What consumers or subscribers often forget is that a telco network is actually a business network or an enterprise with a clear focus on turning a profit and increasing shareholder value.

In other words, the telco provider sourced around for investors to put aside money to build and roll out a network with an expectation that that investment will in a couple years yield some good returns.

In other words, the investors had a choice to either sink their money in, say government bonds, stock exchange, pension scheme, real estate or whatever other investment options available - but they deliberately decided to put their money into a telco enterprise for a reason.

That reason is probably that the their business proposal or prospectus indicated a better return on their investment.

The business prospectus is pegged on how the enterprise is dimensioned in terms of network capacities expected for a given market size, anticipated subscriber usage behaviour and competition levels.

In its simplest form, a provider would approach investors and say they need to build and roll out a network with a core capacity of 100 gigabit per seconds, to serve a market size of say 20 million subscribers over the next five years.

Such a network may require an initial investment of say Sh100 billion to cater for the equipment, roll out, maintenance, administrative and sales over the five years.

BETTER RETURNS

To get this type of funding, the they must demonstrate how each of the projected 20 million subscribers would be using the network on a monthly basis at a given price point in order to give the investors a sustained rate of return over the period.

This rate of return must obviously be better than putting your money in the other investment options mentioned earlier.

Basically, if government bonds are promising a seven percent return on your investments per annum, one would expect a private enterprise to promise much higher returns in order to attract the capital that would otherwise go towards the more stable government bond.

So the provider must establish a monthly usage and price point that would deliver to the shareholders a return that would at least exceed the government bonds.

Now if 50 percent of the subscribers buy monthly bundles and do not use them for some unpredictable period, this essentially disrupts the business projections and introduces significant uncertainty to potential investors.

Basically, data bundles expire to provide predictability in the market is as far as investor confidence is concerned.

Of course the courts or the regulator can rule that this should not be the case as is apparently being discussed in South Africa and other jurisdictions.

However, you will find that the telco providers will simply introduce some new charges along the value chain in order to retain financial predictability in the market.

Mr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT.

Email: [email protected], Twitter: @Jwalu