Rumours - Telkom Mobile to launch soon

There are rumours that Telkom will soon launch its mobile division to compete with the likes of Vodacom, MTN, Cell C and Virgin Mobile.

For the first time in the history of the telecommunications industry in South Africa, this is the only time we are going to see a major shake-up. I foresee a major shake-up in the telecommunications industry merely because the market itself is saturated.

Recently, Telkom announced the unbundling of its stake at Vodacom, which saw Vodacom being listed at the Johannesburg Stock Exchange. What is Telkom`s strategy? What does this mean to South Africans? How will this affect the industry? Let`s look at some of the factors.

For the past 16 years, Vodacom and MTN shareholders have enjoyed high consistent dividends payout every year.

When Telkom Mobile launches, this is going to change. Things have already started changing, with Vodacom reportedly losing $79 million three months after the regulatory rate cut.

MTN might be slightly impacted compared to Vodacom, since the majority of its profit comes from abroad, mainly from North Africa and the East. For Cell C and Virgin Mobile, the future is more uncertain; with Cell C`s turnaround strategy, maybe it can still meet its shareholders expectations.

Vodacom and MTN still dominate South Africa`s cellphone market. I have no doubt that this is going to change. Cell C is currently busy with its re-branding strategy to remind South Africans of its existence in order to protect its current customers, because it is more vulnerable than its counterparts. It is quite obvious to see that when Telkom launches its mobile offerings, all of the four existing network service providers will lose some of their customers.

Due to the fact that the market is saturated, Telkom will not be hoping to attract new customers but to steal existing customers from other operators.

However, as I have mentioned before, if Cell C didn`t go all out with its marketing and advertising campaign, it was going to be hit hard by the new rival.

The Cell C re-branding strategy will protect Cell C from losing some of its customers, if not all. The strength of Telkom lies with the brand, after being a monopoly for decades; surely almost everyone in South Africa is familiar with the brand Telkom. This is also going to push other operators like Vodacom, MTN and Virgin Mobile to follow Cell C`s footsteps with rigorous marketing and advertising campaigns reassuring their existing customers.

Of course, all these operators will incur high operating costs, including Telkom.

If Telkom is launching, it is quite obvious that it will invest lots of money to get its new baby off the ground. However, relying on its existing resources and wealth of experience in the industry, it might not spend much.

Other operators will be losing some of their customers, remaining with high operational costs and less income. I will not be surprised if existing mobile operators announce employee retrenchments as part of their strategies to curb operational costs.

Almost every operator in South Africa has been doing infrastructure upgrades with the latest or advanced technologies, and rolling out fibre-optic cables infrastructure.

For existing mobile operators, when they start losing some of their customers it simply means their infrastructure will be under-utilised; this will result in a wasteful expenditure.

This is good news for the South African economy, since consumers will have to pay less for their cellphone services due to competition among the operators, and as a result they can use the money for something else.

It is also good news for small and medium enterprises because they will be able to afford to purchase both voice and data at cheaper prices and efficiently run their businesses. Hopefully, this can also contribute towards job creation in our country.

Looking at the share prices, Vodacom shares might be affected since it relies heavily on its South African operations going forward, while MTN is unlikely to be affected because it has a presence in quite a number of countries and it is still seeking to expand.

Opportunities still lie with data. Last time I checked the statistics, there were about 5 million South Africans with access to Internet. Since all of these operators offer both voice and data services, I have no doubt they will be pushed to reduce their prices to attract more customers and maximise their profit in this area, since there are huge growth opportunities.

Finally, this will be a victory to all South Africans after paying high costs for cellphone services for the past 16 years. The competition among these operators will drive the prices down. Government, particularly the Department of Communications and ICASA, will be happy to see healthy competition among the operators.

This is going to be interesting, and in my view, I think a winning strategy in this kind of environment will be to embrace the following factors such as price, brand loyalty, product types, availability and quality of service.

Author: Tom Tshitangano
Independent ICT industry analyst
E-mail: tom.tshitangano@gmail.com
Contact: 082 628 1254