Bad news for Vodacom and MTN

Cell C CEO, Alan Knott-Craig sent a warning to his cellular rivals, saying that the cellular battle has not started yet and that “when we get into the ring, be careful. Someone is going to get hurt”.

Speaking to Business Times, Knott-Craig said that he has “not been taking jabs at his rivals yet, despite announcing new specials weekly”.

Knott-Craig said that Vodacom and MTN, his main rivals, should not be underestimated, but that they “got a little bit heavy”.

Over the past few months Cell C has slashed the price of both voice services and data products, and the Cell C CEO said that this will continue for the rest of the year.

To date, Vodacom and MTN have not been able to match Cell C’s new voice and data prices, instead opting to launch free airtime promotions (instead of cutting prices) and driving marketing campaigns to fight Cell C.

Knott-Craig seems to be preparing the company for a high volume, low margin environment where data will play an increasingly important role.

Vodacom and MTN stand to lose billions of rands in profit if they follow Cell C’s example, and it is hardly surprising that they are trying other avenues (hence, not cutting call rates) to impress subscribers. This strategy may not be sustainable, one analyst warned.

Hlelo Giyose, chief investment officer and principal at First Avenue Investment Management, said that he would not touch any telecommunications share because of the high margins these companies have become accustomed to.

“These companies have done a really great job of psychologically manipulating our consumers here at offering mahala (a free package) when there is actually a cost here,” argued Giyose.

“They have done a great job of psychologically convincing the regulator that the prices here are cheaper than anywhere else in the world, yet South Africa has the third highest cost for mobile calls globally.”

Giyose said that if an investor buys shares in Vodacom and MTN, they are betting that society stays dumb for a long time and that people do not see that these mobile companies are lying. “That is not a bet I want to make,” Giyose said.

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Bad news for Vodacom and MTN