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Too late to change

If there is anything life has taught us, it's that not learning from history is a clear path to failure.

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 12 Nov 2014

Cellular providers have had an easy ride of it for the past two decades; we all know we have desperately needed their services, and had no choice - short of a fixed-line - but to invest in mobile voice.

And then, we found SMS. What a joy. We could let people know where to meet us, organise coffee, send an emergency 'help' alert, and a bunch of other communications not known in the pre-cellphone days.

Enter smartphones: we are always available; SMS, WhatsApp, e-mail - even the old-fashioned call - there we are. Sigh.

The problem is, we are all always available, always online. Always contactable. Puke.

But, being on the end of a cellphone inevitably means people only ever use that number, which leads to hectic bills, because - despite lower costs - calling a mobile is still quite pricey.

It's no wonder people have started dealing with others via text, or data. Let's quickly send a response via e-mail, text or WhatsApp. Especially when we are at dinner...

Downward slide

This poses an issue for the mobile operators.

Moving to data means less income for mobile operators. Data is at lower margins than voice, and is steadily growing, while the use of voice is declining. A quick peek at Vodacom's numbers will show you that.

In the six months to March, the operator grew overall revenue 1% to R37.5 billion -stripping out the positive effects of foreign exchange, the top-line gained 2.3% - while income earned off its network grew 1.7%, or 0.2% when currency effects are removed.

A year ago, voice overall gained 2.6%, but in the six months to September 2014, lost 2.4%, while data is continuing to grow at the 20% and above range.

I expect similar trends from MTN when it reports full-year results next March, because - over the past few reporting periods - its top line has also been flat in real terms.

It's glaringly obvious the money-printing days mobile operators have enjoyed for the past 20 years are well over. The trick now is that they need to find new money, while still somehow being profitable enough to invest in the network - to support growing data use at faster speeds - and appease shareholders while continuing to drop the price consumers pay.

Simple strategy

A rock and a hard place, yes? At the moment, operators are taking interim measures by cutting back on costs; Vodacom is keeping a wary eye on every line of expense; MTN, Telkom and Cell C are cutting jobs, and everyone is feeling the pressure.

The problem is this can only be a short-term measure. It won't boost revenue or profit, so the mobile companies have to look elsewhere. It's not rocket science.

And look elsewhere they are: acquisitions, international growth, new services such as financial, you name it - they are looking into offering it. Even quad-play is on the cards, with content offerings already being dished up.

The question is, can they move fast enough to bring all this together before falling into the trap of just being dumb pipes that transmit services and data for others. Already, over-the-top (OTT) players are being seen as a large threat, with Vodacom crying that players like Amazon, Facebook and WhatsApp are essentially cannibalising its network to make a profit.

It's glaringly obvious the money-printing days mobile operators have enjoyed for the past 20 years are well over.

Just yesterday, MTN said OTT players could not expect a free ride, but - in a guarded acceptance that these entities are here to stay - noted network operators and OTT players could either fight each other off, or opt to work in partnership to define access and structure, a fair deal for both parties.

MTN - SA's second-largest operator - said a win-win option would be if operators could earn money from the services flowing across their networks, a situation Vodacom has also suggested would stop others from making money off its network without having to fork out. The only operator that has openly welcomed OTT is Cell C, and I think that's a smart move.

Act now

Here's the thing though: this OTT threat has been coming for years, and the operators really should have moved way faster. Ditto adding in new services; surely they cannot have expected to continue printing money at a rate of knots?

It's the same sort of mistake Telkom made when it did not anticipate mobile would be such a game-changer, and would eat into its fixed-line offerings. Telkom is now playing catch-up, but has - so far - not managed to turn itself into the company it urgently needs to become.

And if the mobile operators don't move with speed, and continue to ploddingly implement their current strategies, they will just be dumb pipes as well.

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