Price promises, why its different this time

 ·7 Jun 2012
Cell C Alan Knott Craig Senior

Alan Knott-Craig is shaking up the South African cellular market with aggressively priced voice and data products aimed at both prepaid and postpaid customers.

The new Cell C CEO slashed the mobile voice prices to 99c per minute, introduced affordable international calling rates, unveiled aggressively priced data promotions and simplified contract and prepaid prices. This was done in less than three months after Knott-Craig took the reins at the company.

Knott-Craig also hinted that there is more to come from Cell C. “We have still not finished giving consumers what they want. Not perfect yet I know, but a helluva lot better in terms of simplicity, choice and price than they can get today anywhere,” he said.

To date only Vodacom has responded to Cell C’s price cuts with its 99c per minute prepaid promotion. But the implementation of this special has led to the impression that it was a knee-jerk reaction – Vodacom failed to provide the same value and then there was a hiccup on the regulatory side as the new tariffs weren’t filed with ICASA.

Cell C’s competitors have tried to downplay Knott-Craig’s move in the market.

Vodacom CEO Pieter Uys said that the South African mobile market is already very competitive, and that Knott-Craig is merely one of the competitive forces in the market.

Telkom’s mobile arm, 8ta said that it will not respond to Cell C’s prepaid price cuts, stating that, whilst competing on price ultimately benefits the customer in the short term, “competing on value is more sustainable in the long term”.

MTN argues that its prepaid tariffs are already the most affordable in the market despite prepaid price cuts by its competitors.

So whilst each of the rival mobile operators try to talk away Knott-Craig’s impact on the market, it still leaves one wondering what they are really saying behind closed doors regarding SA’s third mobile operator.

No surprise

Vodacom, MTN and 8ta seem to be surprised by Knott-Craig’s aggressive moves in the cellular market. What may be the biggest surprise is that Knott-Craig has targeted the high mobile voice prices in South Africa which, until now, remained virtually untouched.

Vodacom, MTN, Cell C and 8ta have all launched hard-hitting data promotions in the past, but they did not mess with their expensive and very profitable voice rates. It was nearly seen as an unwritten rule – avoid a mobile voice price war at all costs – in other words why mess with the goose that lays the golden eggs?

Knott-Craig is slowly turning the market on its head and Cell C’s competitors look ill prepared for what Cell C is doing in the cellular arena. They did receive ample warning though.

Before Knott-Craig took over at Cell C, he said that he planned to grow Cell C’s market share to 25%, and would achieve this by ‘changing the old rules’ of the South African cellular environment.

Knott-Craig said that he plans to adapt Cell C to a low margin, high volume business where low voice and data prices dominate. He added that he will change the current distribution model where the reseller gets an up-front kicker and an ongoing share of the revenue.

The Cell C CEO even told media that he plans to simplify the mobile voice and data pricing models, adding that his competitors would find it difficult to respond because of their reliance on high voice profits, shareholder pressure and other problems related to being a large company.

The simpler, cheaper products which Cell C have launched are therefore exactly what the Knott-Craig promised he was going to do.

The chief executive has also started to streamline the company to be better suited to a low-margin environment by announcing that Cell C will retrench up to 150 employees – again exactly what he promised he would do.

But who would blame the other cellular operators and the public for not believing Knott-Craig when he made these promises three months back? It is, after all, nothing that we have not heard before.

All the telecoms CEO’s have been promising lower prices for years, and the Department of Communications is the biggest culprit for continuing to beat the ‘cheaper broadband for all drum’ for years. Empty promises have become commonplace in the SA telecoms space.

It is therefore not only surprising, but also refreshing to see a leader in South Africa whose actions are in line with his words about lower prices and a changing telecoms environment.

The changes that Cell C are enforcing should be giving any telecoms CEO sleepless nights – especially if your business model is based on high voices rates and massive profits from voice revenue.

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