MTN has changed its approach to the prepaid cellular market after finding that volume can be as important as value when it comes to telecommunications customers.
Presenting the MTN Group`s interim results to end-September yesterday, CEO Phuthuma Nhleko said the company was now willing to dig far deeper into the low value prepaid market than previously in order to gain an "acceptable balance" of the prepaid market.
The change, backed by a rash of recent product and incentive launches, is a significant departure from the "value over volume" approach espoused by former CEO Paul Edwards.
Although MTN produced results which showed a 68% increase in revenue and R796 million in after-tax profit, earnings before interest, tax, depreciation and amortisation (EBITDA) margins for its South African operations declined to 29% from 31%.
Nhleko blamed a recent change in interconnect rules between South African operators for part of that decline. Interconnect agreements determine how operators share revenue when a subscriber of one network calls a number on a competing network. The new rules, and the fact that Vodacom has nearly twice as many subscribers as MTN, is seeing more money changing hands between the two, and the balance of payment is not in MTN`s favour.
Now, Nhleko says, MTN will scrape the bottom of the prepaid barrel "as long as the contribution is positive".
At this time last year its approach was very different. With third entrant Cell C just launched into the market, then-CEO Edwards said MTN would not be perturbed to lose the bottom end of its subscriber base to competition. The company was to focus on those customers who spent most in an effort to stabilise falling average revenue per user numbers.
"We have found that the bottom end [of the prepaid market] is not particularly loyal and will chase the best deal," Edwards said at the time. "We expect Cell C to find this."
Cell C did find that those leaving MTN and Vodacom are its biggest market: it recently said 65% of its customers were formerly connected via one of the two.
MTN, however, says Cell C has had little direct impact on it. "It is pleasing to note that MTN`s share of active subscribers has not been negatively impacted by the third operator," it says in the review of its interim results.
Yet the indirect impact is responsible for the rest of its EBITDA margin. Nhleko says the cost of acquiring customers and keeping them, with promotions and subsidised handsets, among other enticements, increased significantly in the last year. MTN blames Cell C, which aggressively marketed itself over that period.
Those higher costs have also increased the importance of churn, or subscribers moving between networks, for MTN. Not satisfied to see expensive customers leave, Nhleko says the company is "putting together some very aggressive programmes to reduce that".
Reducing churn would effectively cut off the lifeblood of Cell C. But despite reducing monthly prepaid churn by 1% this year, MTN is still losing an estimated 85 000 subscribers every month.
Related stories:
Cell C: One year, one million connections
MTN readies for Cell C onslaught
Share
