ECN squares up to mobiles

Local alternative telecoms operator ECN is planning to compete against Vodacom and MTN by getting a mobile offering off the ground. However, while analysts say there is room for competition, the company may have trouble cracking the market.

ECN CEO John Holdsworth says there is definitely room in the South African market for a new mobile operator, and ECN is planning to fill that gap. He says SA has similar population density and teledensity to the UK market, which currently supports six mobile operators with relatively equal market share.

The company's plan is to launch an initial prepaid offering that will come into the market at an “aggressive price point”. Holdsworth says the company will later include a post-paid solution and then a data offering.

He says ECN already has a backhaul network in place that services its fixed-voice offering, and will use roaming agreements for termination. The method is similar to the way Cell C entered the market, when it piggybacked off the Vodacom network.

Cell C has subsequently built up its own network over time.

He says ECN is in discussions with MTN and Vodacom to get the roaming agreements in place. However, the company will not run with the mobile solution until the interconnect rates make it viable, he adds.

The company has been at the forefront of the ongoing interconnect debate, which is intended to bring down the rates that operators charge each other for cross-calls. A lower rate could make ECN's access to the market easier; however, the company will not make the large profits off interconnect that the incumbent mobiles are currently getting.

Mark Walker, director of the vertical industry practice at IDC Middle East and Africa, says without the profit from interconnect, the company will either need a large business backer, or extremely deep pockets to succeed.

“However, where there is a big profit margin, there is space for competition,” he says.

Walker explains that the company's plans to compete on price could be very short-lived. He says the incumbent operators could come in with the same price cut, leaving ECN without a value proposition. He adds that ECN will have to subsidise the cost cut from its own pocket.

ECN is not a listed company and its financial statements are not published in the public domain.

However, Holdsworth says there is little initial outlay, because the business runs a converged network. He says adding a mobile component will take little effort on the company's part, since it can use most of the technologies already in place.

The company is also hoping to beat Telkom to the punch. Telkom announced its mobile plans a few months ago, after the sale of Vodacom went through. The telecoms giant already has base-stations in place in certain areas and will roam off Vodacom where it doesn't have its own infrastructure.

Earlier this year, Telkom's chief of strategy, Naas Fourie, said the company's mobile strategy is well advanced. However, the company has been quiet about the offering since.

BMI-Techknowledge research director Brian Neilson says ECN could very well have a place in the market.

However, he adds that it is at a disadvantage to Telkom when it comes to assets. He says where Telkom already has its own mobile infrastructure in place, ECN will be leasing from the operators.

He adds that if ECN wants to compete with Vodacom, MTN and soon Telkom, it will have to place substantial amounts of money into marketing its position. Nielson points to the trouble Virgin Mobile had coming into the local market. “They underestimated the power of the incumbent mobile brands.”

Nielson says ECN would do well to find a differentiator by targeting a niche market, instead of playing to the mass market.

Meanwhile, ECN believes its place is to provide competition to a strangled market. Holdsworth says the company's hope is to bring the concept of offering an affordable reliable service back into the mobile market.

“The industry has become distorted, and consumers are not buying a communication service, but dishwashers and microwaves. We are hoping to change that,” he adds.

The company is fighting for lower interconnect and plans to turn its attention to unbundling the wireless local loop owned by the mobile operators.

Imara SP Reid analyst Stephen Meintjes says competition will always be good for the consumer. However, he says ECN's success will depend on regulatory changes making it feasible, like lower interconnect and the local loop changes.

ECN says it will continue to fight for a more liberal market. While the company is hoping to get off the ground next year, ECN says an official launch date will depend on the landscape after the holidays.