8ta turns one

Telkom's mobile arm, 8ta, turns a year old today, after inciting significant changes in the market, says an analyst.

Strategy Worx MD Steven Ambrose says 8ta had a fundamental impact on the mobile telecommunications market.

“As a small and significant competitor it forced the big players to change their behaviour and mostly that change has been good for the consumer.

“Fundamentally, the change hasn't been huge, but cumulatively, the impact on the market has been significant.”

Ambrose highlights the impact on data packages specifically.

8ta in June started offering broadband at approximately 1c per MB, in celebration of its new 21Mbps network.

The 10GB bundle for anytime surfing at R199 per month, resulted in a data charge of 1.9c per MB, and the of R299 per month for a 10GB bundle for normal browsing and another 10GB for midnight surfing, resulted in a charge of about 1c per MB.

That was the lowest mobile broadband rate available in SA, Amith Maharaj, managing executive of 8ta, said at the time.

This caused a major shake-up in the data market since Vodacom's data bundles started from about 17c per MB, MTN offered 300MB for 50c per MB, and Cell C offers 3GB for 13c per MB.

It resulted in MTN, Vodacom and Cell C slashing their broadband prices as well.

In June, 8ta said it aims to increase its penetration from 25% to about 35%-40% of the population by March 2012.

By June, 8ta had signed up 1.2 million subscribers since its launch, but also deactivated 400 000 SIM cards in the same period.

Maharaj says the company disconnected these SIM cards, because they were not generating revenue and were inactive. 8ta disconnects inactive SIM cards after 90 days.

Just over a month after its unveiling, 8ta signed up 186 000 mobile subscribers, taking 0.5% of the mobile market.

Virgin Mobile, which entered the South African market in 2006, offering month-to-month contracts to subscribers and “liberating” consumers from long contract lock-ins, saw limited success, holding about 0.7% of the market - 250 000 subscribers - after four years.

However, while 8ta is off to a strong start, the newcomer still has its work cut out for it if it intends to reach its targets of between 12% and 15% of the market within five years, said analysts.

8ta turned over R81 million, but made an operating loss of R1.1 billion in the year to March. Telkom expects 8ta's operating loss to be higher in the 2012 financial year.

Ambrose says the operating loss from 8ta is not unexpected as telcos are capital-intensive. Telkom may have legitimately expensed as much of the cost as possible through the income statement instead of depreciating assets over time, he explains.

Ambrose says the mobile operator is likely to run at a loss for the next two to three years as it builds a network and gains critical mass.

Telkom pushed out the timeframe for 8ta to break even on an operating profit basis by a year, to 2014, and expects it to only be cash-generative in 2015.

Telkom Mobile incurred a loss of approximately R900 million for the five months ended 31 August. However, the company says it is progressing satisfactorily and is in line with expectations.

In a trading statement in September, Telkom said the overall subscriber base has grown 86.3%, to 882 235 revenue-generating customers from the start of the financial year.

“Postpaid customers grew by 490%, while prepaid customers grew by 56%. The growth in prepaid customers was lower than expected because of sub-optimal distribution channels, which have now been expanded.”

Analysts previously questioned whether 8ta will be successful as it is going head-to-head with operators such as MTN and Vodacom, which have the bulk of the market tied up and have spent 16 years rolling out networks.

8ta beat out bigger competitors Vodacom, MTN and Cell C as the first South African mobile operator to offer an exclusive data bundle with the sale of Apple's popular tablet PC at local iStore outlets.

This was despite Vodacom and MTN's pre-existing distribution deals with Apple for the distribution of the iPhone in the country.

Ambrose explained that MTN and Vodacom would certainly offer data packages, and the iPad itself in the near future, but 8ta stole the bragging rights in being the first to market.