Telkom already faces strong competition in the provisioning of fixed lines to its residential customers. Furthermore, the speculation over fixed/mobile substitution in SA can now be laid to rest. These observations are based on the results of BMI-T's Third Cellular Study that shows that some 29% of prepaid users do not have a Telkom line.
The strong demand for service delivery in SA firmly swings the advantage to MTN and Vodacom.
What we are observing is not the traditional competition within the fixed line network where two operators compete across their whole network, but rather competition in different areas of the network. Telkom, MTN and Vodacom are all competing for the business in the access component of the network.
Distinguishing offerings
How do MTN and Vodacom differentiate their services from Telkom? The following illustrates how:
- Speed of service delivery : Entry to the mobile market either on a prepaid or contract basis is instantaneous, whereas there is a waiting period of up to four to six weeks for Telkom to process and install your new telephone line. This assumes that Telkom has the capacity on its local exchange to add a new line.
- Entry costs: Telkom charges R207 to install your telephone line while you would need to spend between R95 to R100 for your mobile connection. In addition, you would need to buy a cellular handset which can set you back between R250 to R3 000 depending on the make and model, and whether it is second-hand.
- Usage costs: The cheapest entry by prepaid is to purchase the R55 prepaid card twice a month from Vodacom, whereas the average Telkom bill is in the region of R100 to R150. The R55 prepaid card gives you 25 minutes of outgoing calls and provides you with unlimited incoming calls over 14 days. Two such cards will provide you with 50 minutes of outgoing calls and unlimited incoming calls per month.
This simple comparison across these three parameters shows that while Telkom provides a lower cost of entry, it fails on service delivery. MTN and Vodacom provide service within 24 hours. Regarding usage costs, Telkom does offer a lower per minute cost but the value of mobility probably makes up for the higher per minute cost of prepaid. The strong demand for service delivery in SA firmly swings the advantage to MTN and Vodacom.
Prepaid growth
The SA prepaid market has outgrown the contract market in net connections per year and many valid reasons have been put forward as to why prepaid has done so well. The fixed/mobile substitution is a serious factor that has helped the growth of the prepaid market. The mobile operators face a unique opportunity and need to further examine the value-added services delivered to the prepaid market to identify what other services these users need.
There is one more question to be answered in evaluating the fixed/mobile substitution factor and that is what percent of the research sample plans to apply for a Telkom line? The answer is less than 9%, with 20% stating that they did not intend to apply for a Telkom line.
In summary, Telkom already faces strong competition in the provisioning of basic access in the residential market. It has lost an equivalent of 20% of the prepaid market to mobile operators. The fixed/mobile substitution is here already!
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