Prepaid price war on the cards

Mobile operators are playing the price game, with both MTN and Vodacom hacking a chunk out of prepaid tariffs.

Vodacom yesterday announced it will drop its prepaid tariff to 2.8c per second, meeting MTN's announcement last week that it is slashing calls to less than 3c per second.

SA has been hoping that local operators would cut call rates off the back of interconnect rate cuts, the first of which was implemented at the beginning of the month.

With a high penetration of prepaid subscribers, analysts and industry watchers will be pleased to see the cuts begin in this market segment. Many had expected consumer cuts to happen in the contract space, where there is a lower density of subscribers.

Vodacom SA's MD, Shameel Joosub, says: “By lowering the All Day Prepaid call rates, our customers can pay less and talk more at any time of the day when calling Vodacom family and friends - they don't have to wait for off-peak times to make that important call.”

MTN has also dropped SMS and MMS rates.

The one-for-one price drop between the operators could be the beginning of a price war between the two companies; however, it is likely this prepaid price cut will be the last for some time.

Global consulting firm Bain & Company says a price war between the operators is not sustainable, and will not provide the operators a means to curb the high churn rates in their customer base.

Bain's newly-appointed managing partner in SA, Vittorio Massone, says the operators will need to look at more innovative ideas to hold onto customers and a price drop may not be the right way to go. This is despite the fact that locals still feel they pay too much for telecoms.

Massone says high churn is a specific characteristic of the South African market, with the prepaid market facing a rate as high as 40%. Local industry analysts have attributed the churn to the ease with which consumers were able to buy SIM cards and take advantage of specials.

However, Massone believes SA's mobile operators now have a chance to create a loyalty base that does not rely on price drops. “When competition is fierce, the kneejerk reaction is to cut prices; innovative applications and services could keep the customer loyal and provide the value-add that operators need to differentiate,” he says.

With content and services growing internationally at an exponential pace, Massone says local operators should be taking advantage of the trend that will become integral to South African customers.

Apple and Google have proved that useful mobile applications can be a significant revenue driver, and Massone says the “open” approach to application development will boost operators' options.

“Many operators will not be willing to risk the investment in in-house development of products, so if they open it up to the market, and then find the application that is doing well and support that, they will have a good model to work with,” he notes.

Local operators have not yet responded to ITWeb's query as to whether the services and application opportunity is one they plan to follow.