No more free cellphones?

Johannesburg, 09 Jun 2005

Current regulatory proposals to scrap contract incentives may have a major impact on the cellular market, with more than half of the respondents in a recent survey claiming that free or cheap phones were the reason for their taking out a contract.

Research organisation World Wide Worx recently completed a year-long mobility project entitled "The Impact of Mobile Technologies on the South African Consumer", which used a nationally representative sample of 2 400 people who took part in telephonic interviews.

More than half of the respondents said they had obtained a new handset in the past year, and of those who obtained new phones, half again said they would obtain new handsets again in the coming year.

In light of the recent statements by the Independent Communications Authority of SA (ICASA), that giving out free handsets to people who sign long-term contracts may be vetoed to protect consumer interests, these findings show how big an impact such a ruling would have on the industry.

Although monthly call charges would fall, as contract fees are inflated so the networks recoup the cost of a "free" handset over time, ICASA`s main concern is that subsidies tied to contracts prevent consumers from switching networks, even when offered a better or cheaper service by another operator.

The regulator is conducting an inquiry into handset subsidies and has given the industry until 5 July to comment on the issue.

Positive impact

The survey found that nearly half the users who obtained new handsets passed their old ones on to family (44%), with 18% claiming they kept it as a spare, 14% who said they sold it and 10% who stated that they gave it to a friend.

"One of the most significant findings of the consumer research was that South Africans love their cellphones," says Arthur Goldstuck, MD of World Wide Worx.

"People were extremely satisfied with the impact of their cellphones on their lives, even across the half a dozen dimensions we rated."

He says the highest satisfaction rating was with the impact of cellular phones on family security, with 94.8% of respondents giving a positive rating, while the impact on the user`s own sense of security and their satisfaction with the phone`s performance were tied at a 94.3%.

The positive impact on personal life was awarded a 93.6% rating, satisfaction with network service given a 93.2% rating and the phone`s impact on working life came in at 92.1%.

Major differentiators

According to Peter Searll, director of Plus Harris 94, which conducted the field work for this phase on behalf of World Wide Worx, age was one of the major differentiators when it came to the choice of contract versus prepaid.

"While 33% of all users in this market segment are on contract and 64% on prepaid, only 8% of those in the 16-19 age group are on contracts, with 90% on prepaid. This doubles to 17% on contract in the 20-24 age group, with 78% on prepaid," he says.

"Contract use rises steadily through the age groups until it peaks in the 46-49 age group, at 40%, and then begins to decline again."

Searll points out that the average expenditure among contract users was R384 per month, and among prepaid users R134, again indicating the impact that would be made on the market should there be a further shift to prepaid.

"Expenditure is lowest in the 16-19 age group, rising steadily to a peak in the 35-44 age group, and then dropping steadily as age increases - confirming the old stereotype that yuppies are the most enthusiastic cellphone users," says Searll.

"While an age gap exists between revenue and usage, we found that adoption and planned adoption of non-voice applications, like picture messaging, cellphone banking and 3G, are strongest among younger people. The answer is probably to increase education of cellphone usage and technology among older users.

"The digital divide is not just about the 'haves` and the 'have nots`, but is also about the 'knows` and the 'know nots`, which is why it is important to increase older users` education in terms of cellphone usage."

Another factor revealed by the survey is that 57% of men, as opposed to 37% of women, admitted to talking on the phone while driving, although 72% of the men and 66% of the women claimed to use hands-free kits.