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Local jury out on Cell C's 'cutthroat' move

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 14 May 2015
While lauded as good for competition, questions swirl as to whether Cell C's buyout move will be a big success or an epic fail.
While lauded as good for competition, questions swirl as to whether Cell C's buyout move will be a big success or an epic fail.

Cell C's latest salvo - aimed at nicking contract customers off rivals Vodacom and MTN - is an astonishing and cut-throat move, but it remains to be seen whether the underdog operator is cutting its competitors' throats, or its own.

This is according to market watchers and comes after Cell C CEO Jose Dos Santos yesterday vowed to give its rivals "a good smack" with its new contract buyout promotion that offers customers up to R10 000 to buy themselves out of their existing contracts, and take up one of Cell C's Epic contract options.

The move comes at a time when mobile consumers in general are increasingly price sensitive and have just been smacked themselves - with mid-contract price hikes from all three but one of SA's mobile operators, including Cell C itself.

The move has been lauded as good for competition, but analysts are sceptical as to the net effect the move will have on Cell C's customer base, which has historically been dominated by low average revenue per user (ARPU) prepaid customers.

ICT expert Adrian Schofield notes, in a market currently characterised by consolidation, Cell C could become "the next [telecoms] casualty" if it does not increase its market share significantly.

Well-placed intention

Africa Analysis analyst Dobek Pater says Cell C's focus and intention with its latest promotion is correct - the question is ultimately whether the company will be able to lure sufficient numbers of contract subs from other networks to improve its financial position.

Schofield says not. "Marketing in the mobile space is expensive. Is it feasible to spend a year's income to get two years' income? It will not help cash flow."

Pater notes, however, the operator is on the right path after an initial, "not very successful", strategy and years thereafter of targeting primarily the lower end of the market. "Cell C has finally realised it needs to be a lot more focused and pick its fights carefully, given the limited resources it has in comparison to the two larger mobile operators.

"[The company] wants to increase its share in the high-end consumer and small and medium enterprise market as these segments represent higher revenues and greater loyalty. Contract subscribers have a much lower churn rate and - as long as you provide a reasonable service - they are far less likely to switch providers."

BMI-TechKnowledge director Brian Neilson says only time will tell whether the buyout promotion is a game-changer, but the move does signal support from the company's shareholders. It also makes financial sense - if it can create a significant (and lasting) change in the mix of customers on the network, he adds.

However, says Neilson, network expansion is critical to achieve credibility, and the current marketing promotion appears to be putting the cart before the horse. "The business plan seems to be to attract potential customers in parallel to upgrading the network."

Ts & Cs caveat

Antony Seeff, CEO of cellphone bill analysis company Tariffic, warns that, what is "a very clever marketing campaign" on the part of Cell C - and one that comes at an apt time in terms of consumer sentiment - could also prove to be its downfall.

"This 'deal' comes with much fine print and variability, and should consumers not comply with all these details, they may storm out of their Cell C stores with a worse perception of the company than when they walked in."

Read in the Twittersphere:

@CellC: "We are giving you an opportunity of buying out your existing contract with another network & port to Cell C, T&Cs apply."

"Hey @CellC, you that R10 000 thing? I can use it to buy myself out of my Cell C contract, ey? I wanna go to @vodacom."

"Looks like the gloves really are off."

"@CellC's promo doesn't add up. If there's cash to buy contracts out, why not fix your network for natural growth?"

Cell C had not published the terms and conditions for the contract buyout promotion on its Web site at the time of publication. For full terms and conditions relating to Cell C's Epic packages and the buyout promotion, click here.

Some of the terms, as outlined by Dos Santos yesterday, include post-paid and top-up customers being able to qualify for an amount of between R1 000 and R10 000, plus a new handset, if they sign up for one of Cell C's seven new Epic plans.

What kind of handset consumers can qualify for, and how much they will need to pay for this, is unclear. It may be the handset is dependent on the value of the handset that is traded in, notes Seeff.

To take up Cell C's buyout offer, customers need to visit a Cell C store, bring in their latest up-to-date invoice and trade in their current handset to find out how much they qualify for.

Seeff says it sounds like there is some variability here and that not all clients will qualify for the same amount. "I would assume that the factors are (a) the Epic plan they're choosing; (b) the value of the trade-in of their current phone; and (c) the value of the termination fee on their current contract." Schofield points out consumers may be limiting themselves in terms of devices and coverage if they switch from Vodacom or MTN.

Operator reaction

Vodacom declined to comment on the move, while MTN chief marketing officer Larry Annetts said the operator welcomes competition as something that fosters innovation for the benefit of customers.

"MTN [allows customers] to choose contracts ranging from six, eight, 12, 18 and 24 months. Customers have the option to cancel a contract at any time on 20 business days," notes Annetts.

Schofield says, knowing the predilection of the mobile industry for "me too" marketing campaigns, Cell C could find itself the target of similar offers by the "big two", which would negate the value of being the first mover.

Seeff says Cell C's latest salvo is disruptive. "It will be very interesting to see how the market reacts to this move. It would be great to see MTN, Vodacom, and Telkom following suit."

Pater adds Vodacom and MTN - and possibly Telkom - are likely to come up with positions of their own to counter Cell C's move.

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