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Vodacom inches ahead in price war

Half of SA's mobile duopoly inches forward in the mobile price war, while the other loses out.

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 11 Nov 2013
Analysts say Vodacom's gain in subscriber numbers is most likely MTN's loss.
Analysts say Vodacom's gain in subscriber numbers is most likely MTN's loss.

The mobile price war - ignited by Cell C CEO Alan Knott-Craig last year - is slowly developing, with half of SA's mobile duopoly inching forward while the other falls behind.

This is according to industry observers and comes as Vodacom today released its latest interim results for the six months ended 30 September - revealing an increase of nearly a million new subscribers.

Vodacom this morning reported a net increase of 949 000 connections - the vast majority of which (927 000) are prepaid customers. While the increase is not significant in terms of percentage, given that Vodacom has a current subscriber base of 30.14 million, analysts point out that the landscape is becoming increasingly competitive.

The operator - SA's biggest by customer number - attributes the increase to commercial action and investment in its network. CEO Shameel Joosub says the gain in market share was possible because of a capacity increase that allows for volume to increase and prices to gradually drop.

"Growing the subscriber base has been a real win," says Joosub. He points out that Vodacom took a lead on its competition by way of introducing promotions and lowering prices, which compare favourably to the 99c a minute the competition has been "shouting" about.

Customer churn

World Wide Worx MD Arthur Goldstuck says the fact that Vodacom has made a turnaround in customer numbers is most likely indicative of its biggest competitor losing out. "Cell C is growing its subscriber base, so if anything MTN is probably losing customers to Vodacom."

He notes the high level of churn in SA is also driving numbers, with many subscribers "promo-hopping" between operators.

MTN, he says, has - by its own admission - been slow to react to salvoes fired in the price war. "They have had certain promotions, but I am not convinced the company is ready to compete on price. They compete on services, not price, and have always been slow to move on firing back with lower prices."

He says the yellow operator - second in line with customer numbers - looks at accounting before it looks at customer issues.

Ovum analyst Richard Hurst says Vodacom's acquisition of some 950 000 more customers is a result of the company's price war strategy. "If you look at the way they have reacted in the price war, you can see where the growth is coming from. Vodacom has brought its massive network to bear and has shown small victories by winning subscribers."

Hurst notes Vodacom's growing customer base "probably does not come from Cell C" - meaning MTN is the one losing out.

He says Vodacom is starting to react more aggressively in the mobile price war - a development analysts expected. "Vodacom is fighting for subscribers, while MTN has been slow to react. I wouldn't say the operator is winning the war, but it is certainly inching forward."

Analyst at Africa Analysis, Dobek Pater, says SA's mobile market is highly penetrated, with subscriber numbers having increased dramatically over the recent past. As a result, he says, all subscriber gains will be churn from other operators - in this case MTN, as Cell C is fighting for customer retention on price - and Telkom Mobile is not significant enough to feel the dent.

"MTN was late to react in the price war and that has cost [the company]. They are trying to fight back with packages offering better contract value for money, but at the same time their market share has decreased."

In April, ITWeb reported MTN had lost 470 000 subscribers in the March quarter from the December quarter due to aggressive offerings by competitors and widened disparity in flat call rates.

At the time, MTN group CEO and president Sifiso Dabangwa said, while the group subscriber numbers were up 3.2%, local operations were impacted by a high level of churn.

Voice drop

Significant - although not unexpected - says Goldstuck, is Vodacom's 2.6% drop in mobile voice revenue. A sign of the times, he says this is a "historic" development and notes that mobile revenue is up 20.6%.

Growing the subscriber base has been a real win, says Vodacom CEO Shameel Joosub.
Growing the subscriber base has been a real win, says Vodacom CEO Shameel Joosub.

World Wide Worx is set to release its latest mobile study results - the findings of which Goldstuck says bears out the fact that voice is reaching a stage of rapid decline in terms of telecoms spend in SA, while spend is rising.

Hurst says voice is declining in accordance with the global trend and this is set to continue - perhaps to the point where voice is offered as a "free" service amid the data services customers will be focused on buying.

"As we look to data, the world will have to get around the fact voice is data ? and it should be viewed in that way. The revenues operators have been getting from voice are being eroded by over-the-top players, and the more we look at voice as a communications application - the more it looks like data. In future, you will see voice becoming more like SMS, which is presented as a 'free' service in a bundle. This will be offset with data services."

For Vodacom, says Hurst, data is now the magic wand. In future, the packages will probably be structured in a way that data is the buying point, with voice and SMS merely being value-adds, he says.

Pater notes the 2.6% drop in voice revenue is nothing new, with it recently having gone on a mild curve of dropping, levelling out and flattening - and then dropping again. "It's a trend we have seen in the mobile market for about two years."

He says it is a global trend - but in SA indicative of the mobile price war starting to take effect. "It is a trend we can expect to see going forward and operators are going to have to find alternative sources of revenue."

Machine to machine SIMs - where MTN has historically led - is also seeing Vodacom catching up, says Pater. While this is not at the forefront of the war, he says, with it only indirectly touching consumers, it is a growing part of the market.

Last month, Phil Patel, chief officer of the consumer business unit at Vodacom, said the company would put a lot more energy into value-added services (VAS) - an avenue he said it had underinvested in.

"[Music and video] are big areas of VAS for Vodacom, but they have not been developed enough. Now that data is affordable enough to start using these services more, we can expand on these. Things like Spotify and video are top of mind for us."

Patel said payment services - like prepaid electricity and perhaps even an e-toll payment service - would also be a focus for the company.

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