MTN's reluctance to participate more in the escalating mobile price war has seemingly come back to bite the yellow operator where it hurts most - its revenue.
This is according to industry observers and comes in the wake of MTN's 2013 financial results, which showed its home market SA posting a disappointing 6.1% revenue decline.
While the operator has pinned this on "reviewed accounting treatment adjustment", IDC analyst Spiwe Chireka says there are more factors at play. MTN Group CEO Sifiso Dabengwa did not explain what was meant by this, saying only it related to the reporting of handsets.
Chireka says, even with the impact of reviewed reporting taken into account, MTN's South African operations still saw about a 2% drop in revenue - something she attributes to the price war ignited by third mobile player Cell C in 2012.
Unresponsive
"If you look at when the war kicked off, with the introduction of Cell C's 99c tariff, the other operators responded while MTN didn't. Even though there was a price war going on [MTN] took the stance of not getting caught up in it. I think their latest results may be the first sign that this stance has come back to bite them. By distancing themselves from the price war, they have been locked out."
She says the company's next set of financial results will indicate to what level the price war and MTN's lack of active participation has shaped the operator's financial fate. "If things show improvement with the next set of results, we will perhaps be able to say the revenue dip was a seasonal thing, but if it doesn't change, it's a clear indication that MTN still has a lot of work to do. They will need to get involved."
While it is not necessarily a bad idea to not get involved, says Chireka, the fact that Cell C and Telkom Mobile have introduced lower permanent tariffs - as opposed to limited period promotions - means MTN cannot rest on its laurels and rely on churn.
Ovum analyst Richard Hurst also pins MTN's local loss on its inability to "respond appropriately" to increased competition. "Other operators - both big and small - seem to be more agile in their responses to the dynamics of the South African market."
MTR upshot
The new mobile termination rates (MTR), set to take effect from 1 April, are only going to make the case stronger for MTN to get more involved, says Chireka.
"Right now the MTRs are 40c, and other operators have managed to lower their prices based on this rate. With the new, much lower, rates the competition can lower their prices even more and this is when the price difference between MTN and the other operators will become glaringly obvious."
She says, should Cell C come to market with a tariff of 79c per minute, it will be difficult for MTN to justify R2 rates. "People will start asking themselves 'why am I paying MTN this much again?' MTN will be under a lot more pressure to get involved."
Hurst says MTN can expect more headwinds in the coming year, particularly as new MTRs come into effect and price competition begins to gather further steam. "In new market opportunities the company also faces some strong competition."
World Wide Worx MD Arthur Goldstuck says MTN's latest results specifically highlighted the impact of MTRs coming down, with the operator's revenue in this category down 24.9%.
He says this is a sign of losses to come, considering how big a part MTR previously played in profit. "It is becoming less of a profit factor and they need to get used to the idea that MTR is not a profit centre anymore. They owe it to their shareholders to start reflecting MTR as a separate item that will disappear over time."
The problem, says Goldstuck, is that MTN has become so reliant on MTRs to bolster revenue that it has become a carpet being ripped out from under its feet. "It should never have been like that."
The new MTRs will bring a whole new dimension to the mobile price war, he says.
OTT factor
Goldstuck says lower MTRs will mean a greater need to respond - both to competition in the mobile arena it currently plays in, and to over-the-top (OTT) players that are rapidly changing the game, like Facebook and WhatsApp.
"MTN is not responding to the OTT level of competition. They seem to not understand the market, let alone respond to it. Vodacom has a better grasp of the OTT environment, because they do their homework. I don't see MTN doing their homework too much.
"The new reality is that OTT dominates messaging communications. SMS - which makes up a small proportion of revenue - needs to become a commodity item. Operators cannot compete with WhatsApp and continue to price SMS at traditional levels. MTN is showing a lack of understanding on trends that are shaping the messaging market."
African save
Chireka notes it was MTN's African operations that carried the operator to profit over the past year - a point noted by Frost & Sullivan, which says MTN's South African results were disappointing.
"During the past year, aggressive price competition and regulatory pressure placed a lot of strain on [MTN's] voice revenues, which declined by 8.3%," says Frost & Sullivan.
The firm's ICT research analyst, Joanita Roos, says MTN SA is likely to face continued competition in the local market from the smaller operators. "The asymmetric mobile termination rates are also expected to put increasing pressure on MTN's margins in 2014."
MTN, a JSE-listed entity, has a presence across 22 countries in Africa and the Middle East. The company holds about 36% of the South African mobile market share. Vodacom enjoys a 43% market share in SA, while Cell C and Telkom Mobile hold 17% and 2.2% of the market, respectively.
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