Pushing the SIM card

Local mobile operators MTN and Vodacom are facing dwindling growth prospects as the African market starts to saturate.

The South African market already has over 100% penetration of mobile phones, and both Vodacom and MTN face a high level task of gaining new mobile customers.

MTN's interim results, released earlier this year, show the company's local operations have hit something of a ceiling. At the time, CEO Phutuma Nhleko blamed the global economic crisis and said increased competition only represented a minor setback.

Vodacom's interim results presentation, early this week, showed far better results for SA. However, analysts are concerned the company is about to hit the same wall its rival faces.

MD of Kaplan Equity Analysts Irnest Kaplan says it is clear Vodacom's results are far better than MTN's when looking at SA. He says the company seems to have had a stronger distribution channel.

Vodacom is not ignoring the South African market. It has embarked on a campaign to double up the number of contract subscribers, by offering existing contract users a second contract.

CEO Pieter Uys, responding to questions at the company's results presentation, said: “I believe there is still some growth, but not a lot.”

He said Vodacom is well positioned to take advantage of growth in broadband, a focus area for the company. Uys, however, expects competition to increase in this segment of the market.

In addition, despite SIM card penetration being between 102% and 104%, he sees opportunities to add more subscribers as many of those cards would be pulled out of the system by RICA.

The company's other area of focus is to expand in sub-Saharan Africa, said Uys. However, there are few areas left on the continent that don't have two or three cellular companies already entrenched.

Kaplan says there does not seem to be a healthy growth path for the company, especially when compared to MTN's largely growing international operations.

However, even MTN's fast-paced growth in countries like Nigeria and Iran will soon face a similar situation to the South African market.

Chris Gilmour, an analyst with Absa Investments, has said MTN needs to find a new area of growth, as the operator cannot rely indefinitely on Nigeria and Iran. He says the cellular markets in these countries will see stagnation in around three years' time.

MTN did not respond to queries for comment at the time of publication, but the cellular giant has previously indicated it is looking for growth in other possible emerging markets. Nhleko has also noted it would go as far east as Afghanistan.

MTN, like Vodacom, is pushing enterprise Internet services through newly created broadband divisions. The broadband market still has a long way to go in SA and across the continent, which both operators are now spending billions to cater for.

Telkom already has the upper hand in the fixed broadband market, which is traditionally considered the more stable Internet connection.