MTN’s decision to launch a flat prepaid call rate of 79c per minute will place pressure on Cell C to follow suit – removing the financial benefit of lower termination rates to the smaller operator.
It is well known that Cell C is under financial pressure; in March 2014 the company said that its ability to pay back its debt could be under threat if the new call termination regulations are not implemented.
Cell C added that stopping the implementation of the regulations will also limit its network investment and negatively impact its ability to improve its customer care services.
Cell C said that the only real alternative, if the 2014 regulations do not come into effect, will be for the company to increase retail rates.
Despite the implementation of the new termination rates, Cell C is still increasing prices. On 1 May 2014 Cell C will be increasing its out of bundle data rates by 560% (from 15c per MB to 99c per MB) – a sign that the company needs to increase revenue.
MTN strikes at the heart of Cell C
When the new termination rates were unveiled in January 2014, Cell C CFO Robert Pasley said that “Cell C’s rates are already very competitive, so consumers shouldn’t expect dramatic price reductions”.
Pasley indicated that Cell C was looking to benefit financially from the lower termination rates. MTN’s new rates may remove this luxury.
MTN’s decision to reduce its prepaid call rates to 79c per minute means Cell C is under pressure to do the same to maintain its ‘consumer champion’ image.
Consumers also have a right to expect a price cut from Cell C. In March 2014 Cell C said that it will be able to drop its cellphone call rates from the current 99c per minute to 79c per minute if the new mobile termination rates (MTR) are implemented – which has happened.
If Cell C reduces its call rates to 79c per minute, it sacrifices the financial benefit of lower MTRs for off-net calls. But the bad news doesn’t stop here.
On-net calls (Cell C to Cell C) will also be 20c per minute cheaper, and here the company will lose 20c per minute on its bottom line without any compensation.
The following charts show the impact of lower call rates on Cell C’s bottom line (based on Cell C CEO Alan Knott-Craig’s calculation in 2012, which may have changed since then).
MTN twisting the knife
MTN’s prepaid price reduction is therefore a shattering blow to Cell C, and if Vodacom follows suit – which is likely to happen – the situation will become even more pressing.
MTN and Vodacom can survive a price war for years, but Cell C may not have the finances to support a sustained battle.
The company is already struggling to invest enough in its network to compete against Vodacom and MTN. Without more money flowing into the company’s coffers, the situation is unlikely to get better.
MTN is now twisting the knife it put into Cell C in its latest ad campaign. MTN is promoting its 79c per minute call rate, adding “move to the network that works”.
This article was first published on MyBroadband.