The mobile price war, instigated by Cell C when former Vodacom CEO Alan Knott-Craig took control of the company last year, is about to heat up.
This comes as the final reduction in wholesale interconnect rates under the Independent Communications Authority of SA's (ICASA's) mobile termination rate (MTR) glide path is about to set in, in just over a week's time. Interconnect MTR is what operators pay each other to terminate traffic on their networks.
As of 1 March, MTRs will drop to 40c (peak and off-peak), down 30% from the previous rate of 56c - and 68% down from a high of R1.25 three years ago, when ICASA instituted the sliding scale that saw MTRs dropping by 16c annually.
Intensified competition
World Wide Worx MD Arthur Goldstuck says the final fall in the termination rate paves the way for an even more dramatic price war than SA has seen so far.
"It means that the cost of calls can be brought in line with fixed-line calls, minus the line rental, and that will be another nail in the coffin for Telkom's fixed-line business."
Goldstuck says competition is more likely to intensify than quieten down in this new pricing landscape.
Cell C, says Goldstuck, is likely to act decisively on the MTR reduction, with mobile call rates under 85c. "The typical differential between the MTR and the lowest call costs has been about 43c, hence Cell C being able to charge 99c with an MTR of 56c.
"We can now expect that base cost to fall to about 83c, and can probably expect Cell C to make an announcement along those lines."
He says the ultimate goal of campaigners for lower interconnect - of which Knott-Craig is at the forefront - would be to bring the MTR down to 25c, which would translate into a base call cost of about 68c - not far from fixed-line costs.
No more excuses
When Knott-Craig re-entered the cellular telecommunications arena last year, the industry immediately braced itself for a shake-up in mobile pricing. About a month after having taken the reins, Knott-Craig fired the first salvo in what industry observers have dubbed SA's "mobile price war" when he introduced the market to the operator's now trademark 99c price plan.
The war quickly escalated, with rival Vodacom - and later 8ta and MTN - reacting with promotions and rate cuts of their own.
IDC telecoms analyst Spiwe Chireka says she does not expect major ructions immediately after MTRs drop next week. "I don't think we can expect drastic price cuts in the short term, because [the operators] already took pre-emptive steps in lowering their tariffs, ahead of the rate reduction."
Chireka flags second operator MTN as likely to be the first to make a post-MTR cut move. "MTN might now come on board in the 99c war - purely because the excuse of not being able to absorb price cuts will no longer hold."
Although Cell C kicked off the price war, Chireka says the company will probably want to review its position before announcing any further price cuts.
"Cell C has enjoyed a good position, with the introduction of the 99c tariff, but now if I were them, I would wait to see what steps the other operators are taking - and take stock of how the 99c tariff has impacted revenues - before taking the price war further."
Big shift
The price war, says Goldstuck, was indeed made possible by falling MTRs, but Cell C's "big shift" was in the simplicity of its flat rate offering.
"Once other operators pick up the extent to which Cell C's flat rate appeals to customers, they will try to introduce more simplified pricing as well. If they don't perceive an impact, they won't act. However, we have already seen a flattening and even decline in subscriber numbers at the two majors, even while the smaller operators continue to grow."
Chireka echoes Goldstuck's stance on the importance of simplicity for consumers, and says this is a global trend among mobile operators seeking consumer favour and increased subscriber support.
"Cell C is definitely playing on the simplicity bit - and they are right to do so." Chireka says, in SA, it is still a major challenge to ascertain what exactly mobile operators are charging their customers.
Economic driver
Internet Solutions executive for communications services, Wayne Speechly, says reduced MTRs are an important economic driver, "especially as SA is still unable to provide suitable services to the population at large, while remaining one of the most expensive telecommunications markets in the world".
While industry opinion differs on whether lower MTRs translate into cost savings for the consumer, Goldstuck says this is absolutely the case.
He says there is no question that lower termination rates result in lower call rates - especially in the prepaid sector. "Many are cynical, but we tend to have short memories, and compare prices with what we were paying three months ago, not three years ago."
ICASA spokesperson Paseka Maleka says, now that the authority's MTR glide path has come to an end, ICASA will review the situation in a year's time. In the meantime, MTRs will remain at 40c until at least March 2014.
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