South Africa’s mobile space is starting to feel the impact of stronger competition, despite a regulator that is “still sleeping”, an investor says.
Speaking to Bruce Whitfield on Talk Radio 702, chief investment officer at First Avenue Investment Management, Hlelo Giyose opined that Vodacom and MTN‘s results show that the companies are starting to feel the impact of Cell C‘s competitive stance against them.
Analyzing MTN’s results published on Wednesday (6 March 2013), Giyose noted that it was first time that MTN had spoken “solemnly” about the competition it’s facing across the continent in terms of voice pricing.
“Before, MTN was not as pessimistic as one would have expected them to be on pricing – this time they’ve acknowledged it.”
Giyose also said that it was “distressing” that MTN’s results showed how South Africa is the only place where prices aren’t coming down as much as in other African countries.
“The regulator (Icasa) here is still sleeping,” Giyose said.
Despite the slumbering regulatory status quo, however, Giyose was quick to point out that it’s thanks to Cell C that there is a competitive stance in the market.
Cell C’s disruption
“When a new entrant comes in and is willing to spend as much money as it takes – that distorts the profitability you had before, they start to compete for that level of profit.
“Cell C has actually done a great thing to foster competition in this market,” Giyose said.
“I think it’s making a difference. Vodacom’s results a couple of weeks back (6 February) show that. They’ve also talked about it for the first time very openly – that this is a problem.”
On 6 February 2013, Vodacom reported flat results for the quarter ended December 2012, which failed to impress investors.
“MTN is talking about it this time around,” Giyose said.
“It’s a wonderful thing that for the next six months – or the next six months after that – as these companies report results, we will see the impact that Cell C’s having,” the analyst said.
Whether Cell C will ever command the same slice of market share, however, Giyose doubts it.
“If they get to 25% market share, that’s good enough for them – but there’s a lot of pain between now and then.”
Cell C currently claims a 14% market share in SA, while Vodacom’s share is over 52% with 30.6 million customers, and MTN, with 25.4 million subscribers, has an approximate share of 33%.
When asked about Telkom‘s place in the mobile market, Giyose was frank about the company’s position.
“The most value Telkom is providing to this economy is to distrupt the duopoly of MTN and Vodacom.”
“As to whether Telkom will ever be as successful as MTN or Vodacom – or even Cell C – I don’t think so.”
“Telkom on has one trick that it can run, and that’s convergence – using mobile, data, fixed and voice. I don’t think the infrastructure in this country is fast, efficient or reliable enough to have world-class convergence take place.
“Telkom is actually in a spot of bother,” Giyose said.