Wednesday, May 14, 2008

MTN/Vodacom Illustrate Free Market Principles

It was fascinating to read about the play-off between MTN and Vodacom with regards to their new per region/per time billing plans. Basically, MTN launched MTN Zone for prepaid customers, where your charge would depend on the location and time you were calling from. Essentially, if you called from a remote spot at 1am, your call could receive something close to a 95% discount.

In no time at all, 2 million subscribers switched allegiances to MTN. Vodacom were given a big fright and very quickly launched their own Yebo4Less plan. I'm not yet fully aware of what discounts are on offer and what the pros/cons of the plans are, but it seems that many customers are in for decent savings.

This of course is the classic interplay that makes the free market economy work so successfully. Of course we're well aware that the telecoms market is still overly regulated, but within this little zone of freedom we can see how multiple competitors drive the prices down through price wars. A similar study of the deregulated British telecoms market compared to the regulated French market makes for a fascinating advertisement for the free market. Where prices used to be similar, deregulation on the British side resulted in British customers paying considerably less for their calls.

The free market system is not without its drawbacks. It is used effectively by arms dealers and similarly alligned syndicates. It also doesn't deal very well with a natural monopoly situation like Microsoft or Eskom have found themselves in (a natural monopoly is where the market is not big enough for more than one player and the monopoly player is able to use their position unfairly). Nevertheless, on the whole the free market system works a great deal better than government regulation, and is responsible for huge economic growth right across the world, not only in the traditional strongholds like America, but also in growing markets like the Asian Tigers. Even China only began seeing its current growth when its markets began deregulating.

There is one more important ingredient worth mentioning. Flow of information is critical to the success of the system. As soon as a customer realises they can buy a good more cheaply elsewhere, they switch, and back again when information arrives that a supplier does not supply good customer service or is involved in unethical activity. Both traditional and new media play a huge role here, and thankfully South Africa has a fairly well established media structure.

The ACDP has always believed in the free market system. The party sees its role as a protector of the system, not a controller. As the ANC continually seeks to regulate and control, as a true socialist party would, we see labour structures stutter, investment slow, red tape increase, media constipate and apathy loom. South Africa is rearing to go and it's time for a new order.

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