Big red weighs in on price war

Analysts question how long it will be before mobile prices have to increase.

---

SA's largest cellular operator - Vodacom - has weighed in on a price war kicked off some time ago by Cell C's 99c anytime, any network offer, by dropping the cost of its calls for prepaid customers to 2c a second.

The operator's latest permanent price cut is being viewed as a forced reaction to the ongoing mobile price war, but analysts question whether the bottom has finally come and how long operators can tough out the war in a bid to add subscribers.

Vodacom's move in the prepaid arena follows a recent gambit from MTN when it dropped its One Rate prepaid plan tariff to R1.20 per minute - or 2c per second - to all networks and at all times, on per-second billing. Its 2GB data packages took a dive from R389 to R119 per month.

Vodacom's reaction, almost a month later, was to cut its prepaid per minute to a flat call rate of 2c per second on its Anytime Per Second price plan, available from yesterday. "Vodacom's latest offer is a simple flat rate plan, offering anytime calling to any network across SA," it says. It has 24.7 million prepaid subscribers.

Calls on the new price plan are billed per second and qualify for Free Night Shift: 60 minutes free calls between midnight and 5am for seven days with every recharge of R12 or more.

Chief officer of Vodacom's Consumer Business Unit, Phil Patel, says when the company launched Free4Sho, it promised its subscribers a range of products and services that offer guaranteed free benefits.

Patel says the new offer takes Free4Sho further and its new bid provides better choice with three "simple" offers to choose from. Cell C's latest advertising campaign challenges subscribers on other networks to quiz their providers about what exactly they are paying per second, and argues that it has the simplest, cheapest plan.

Free4Sho was introduced on 11 February and offers a per-minute rate of R1.20 to all networks - while calls made to Vodacom customers are charged at the same rate for the first three minutes, after which the rest of the hour is free. Vodacom's three price plans are now: Anytime Per Second, Daily Free Calls, and Vodacom4Less.

The operator has also reacted to the broadband offers and slashed its prepaid data pricing by up to 84% on its latest data promotion, which is set to run from today to the end of April. Patel says: "The market is rapidly moving towards smartphones and we'd like our customers to enjoy more Facebook, Twitter and e-mail whenever they want. We hope the new promotional rates will enable them to do just that."

Customers who consume large amounts of data can "score" up to R2 700 in savings on the MyGig 20 data package which now offers 20GB for R499, providing 84% savings; while light data users get to double the value on MyMeg 30, which was previously charged at R25 and is now available for only R12, says Vodacom.

However, analysts are sceptical of further cuts as margins are under pressure, and suggest that only companies with deep pockets will be able to stay in the race to the bottom.

Brian Neilson, research director at BMI-T, says the operators with deep pockets can afford to take on the price war, but the question is how much longer newcomers can take them on. He asks how much longer it will be before smaller entities have to hike prices, because they are making a loss.

Telkom's mobile arm, 8ta, made what it said were "big changes" to its More prepaid calling product on 1 March. The offer allows subscribers to effectively pay 95c a minute if they recharge for R5 or more, and did away with the sliding scale of free airtime awards previously in place, simplifying the sliding scale.

Cell C, in January, kicked off the campaign for its Supacharge product, which gives Cell C prepaid and contract TopUp subscribers unlimited Cell C to Cell C anytime voice calls, valid for 30 days from the date of recharge, when recharging with R500 or more.

Neilson says Vodacom's move, while not cheaper than Cell C, is targeting an audience that talks for less than a minute and is a bid to find niche ways of differentiating itself. He says the company has been forced into the battle as it has been losing market share.

Ovum analyst Richard Hurst adds that everyone is testing for a bottom and the bigger players can tough it out more so than smaller operators. He says the larger companies can lower prices to a point and still look good.

However, Hurst points out there are signs that the war is coming to an end, such as mobile termination rates having reached the end of the glide path. Operators' margins are also under pressure, and subscriber growth is slowing.

Hurst says it is a question of: "Who can keep their hand in the paper shredder the longest?" He notes there will come a point when operators will have to increase prices.

MTN SA MD Karel Pienaar has said there is an 18-month window, which could run out sooner, before capacity will become so constrained that quality will drop and the operator will have no choice but to limit use by pushing up the price.

The "wild horse" is the growth in use of data on networks, said Pienaar, adding that the competitive environment has also led to increased network use. He added that the effective cost of both voice and data declined substantially last year.

Hurst says operators are rushing to gain subscribers, and are looking to each other's bases to grow due to the high penetration rates in SA.

Vodacom's new prepaid Internet promotional pricing: