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Potraz Price Flooring Will Do More Harm Than Good

Econet wireless

Potraz Price Flooring Will Do More Harm Than Good

Yesterday, Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) introduced a “Floor Price” (minimum price that a network could charge for data and voice), in a bid to ensure that mobile network revenue does not continue go down, due to the economic hardship and the adaption of Over The Top service (OTT), more people have been making less calls .

Last year in October, there were reports that POTRAZ intended to reduce the data tariff but now the opposite seems to be the case. What happened to all that noble intent?

Speaking on Potraz plan to slash mobile service data charges, Potraz Chairman Mr Ozias Bvute reportedly said: “In the next month (referring to November 2016) we should be at a point where data is affordable. We do not want price to be used as a tool for discrimination.”

A price floor, is the lowest legal price a commodity can be sold at and in our case mobile and data traffics. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage.

This ongoing situation of negative growth in telecom revenues has pushed Potraz to take measures to regulate tariffs in the sector.

In this regard, the telecom watchdog has sought a consultation of the industry stakeholders.

The floor price for traditional voice services has been set at 12c per minute while the floor price for data is set at 2c per megabyte. This will mean current promotions will be like Netone’s One Fusion and Telecel’s Mega Chat will be put on hold. And Econet of 250mb per $1 will only cost as low as $2.

According to Potraz, “The floor prices shall go a long way in addressing the apparent under-pricing of voice and data services that was characteristic of data bundles and promotions that were being offered by operators.”

The floor pricing has been set, a few crazy things will start to happen. First of all, the price floor has elevated the price above what it was at equilibrium, so the mobile phone users will not be willing to buy airtime hence they will use OTT more. On the other hand, since the price is higher than what it would be at equilibrium, voice revenue will continue to decline.  The floor pricing will do more harm than good.

In the end, a price floor hurts society more than it helps. It may help Mobile Network Operators, but it only helps those people by hurting everyone else. Price floors cause a deadweight welfare loss.

Pardon has been a technology enthusiast his entire life and has spent the better part of last decades in information technology and security, and he writes with an aim to remove some of the "mysticism" from the cyber world. He’s the Editor at Techunzipped. Away from the keyboard, you're likely to find him playing with the latest gadgets or the latest Game.

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