Mobile operators will increasingly shift their focus away from consumers and towards business in a bid to mitigate the continuing drop-offs in revenue.
This is according to a recent report from Business Monitor International, which says operators will "aggressively" develop new revenue streams that will be less reliant on the consumer market. The report, "South Africa Telecommunications Report Q1 2014", says this will be a response to lower anticipated average revenue per user as interconnect rates come down.
Last year, the Independent Communications Authority of SA mooted dropping interconnect rates all the way down to 10c in 2016, but has yet to announce a firm decision on its proposal.
Business Monitor, a London-based research company, points out both MTN and Vodacom are already following a service diversification strategy and are investing in non-voice solutions such as machine-to-machine and cloud computing.
"We expect other operators in the market to seek similar opportunities in the enterprise market to sustain long-term growth," it says.
Slower growth
Mobile operators, which will celebrate two decades of existence this year, have, until recently, been huge revenue-spinners. However, their top lines are increasingly coming under pressure due to further competition and decreasing voice use as data makes up a larger slice of the pie.
Business Monitor points out the mobile market grew by 1.4% quarter-on-quarter in the second quarter of last year, offsetting a contraction of 0.2% in the previous quarter, but average revenue per user dropped 3% because of lower interconnect fees.
Spokesman Richard Boorman says the group is facing revenue pressure because of slowing growth in mobile voice as penetration levels inch towards saturation point.
Vodacom showed a mere 2% gain in income from its network, with service revenue at R30 billion, in its latest results. This number strips out gains due to movements in the currency. The operator, SA's largest mobile player, has said it will grow its capital spending to add new subscribers in a bid to reverse this trend.
CEO Shameel Joosub explained recently that accelerating its investment in the network allows it to grow capacity, while dropping prices, and return to previous levels of service revenue growth. He says it is assessing spending on a country-by-country basis, but warns that lower termination rates locally could trim what it pumps into the ground.
Vodacom is also looking to push out more fibre in a bid to offer triple-play services, but this strategy will also boost its enterprise offerings.
Likewise, MTN reported revenue growth of 1.9%, to R65.2 billion, in the first half of the year, a figure that strips out year-on-year currency shifts.
Sweet spot
Richard Hurst, Ovum analyst, says consumers have been the lifeblood of mobile operators, but uptake is not growing at the rate they would like. One sweet spot would be to turn to enterprises and other businesses to boost revenue, he says. "That's where the money is."
Operators have already indicated they are looking to other sources of income, such as international expansion and data growth. Hurst says their enterprise segments could become the bulk of operators' revenue in the next few years.
Vodacom Business chief officer, Vuyani Jarana, has already indicated revenue from the segment could account for a quarter of Vodacom SA's income in five years, growing from the current R8 billion - or 16%.
Vodacom Business is focusing on opportunities in small and medium enterprises, machine-to-machine applications, and hosted and cloud services, says Jarana. He notes: "Cracking the enterprise model hasn't been easy. Our original plan was to grow Vodacom Business through acquisition, but the right opportunities didn't come up."
The company has since been following a build rather than buy strategy, but has also bid for Neotel, which would give it a larger fibre network and add to its existing business customer base. Business Monitor notes, if the deal goes ahead, it would open up new growth opportunities for Vodacom, especially in the corporate segment.
Hurst says shifting more to enterprise will also bolster margins, which have been coming under pressure. However, he notes the move will not be easy as it will need a mind-set change, from selling connections to selling services.
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