Is there space for Cell C and Telkom Mobile?

The increasing competition in an increasingly saturated mobile space in South Africa is forcing a squeeze on profitability, while operators clamor for each others’ customers.

Industry incumbents MTN and Vodacom have both seen growth slow down quite dramatically in SA in recent reporting periods, while both firms have reported decline in local customers.

Vodacom currently leads in SA in market share, followed by MTN – while Cell C has recently upped its growth substantially, with Telkom Mobile, at last count (31 March 2013) at only 1,534,265 active mobile subscribers, up a modest 3.4% from a year earlier, given its low base.

The head’s of the four leading mobile operators in South Africa, namely Vodacom, MTN, Cell C, and Telkom Mobile, have given their views on whether there is space for four players in the SA landscape.

Subscribers (Millions) and Market Share

Operator	2011	Market Share	2012	Market Share	2013	Market Share
MTN	20.9	33.6%	24.5	37.3%	25.0	36.8%
Vodacom	31.7	50.9%	29.97	45.6%	29.28	43.0%
Cell C	8.2	13.2%	9.4	14.3%	11.7	17.2%
Telkom Mobile/8ta	1.14	1.8%	1.48	2.2%	1.54	2.3%
Virgin Mobile	0.3	0.5%	0.4	06%	0.5	0.7%
Total*	62.24	100%	65.75	100%	68.02	100%

Vodacom

Vodacom CEO, Shameel Joosub said: “The mobile business is highly capital intensive. New entrants would need to invest extremely large sums (we’ve spent R28 billion in South Africa in the last five years) in order to build a network.”

He said that, with a limited customer spend available, the number of operators that a market can support is also limited.

“Typically we see efficient markets supporting in the region of three to four operators, but it’s important that these competitors have the requisite funding in order to compete effectively.”

MTN Group

MTN Group CEO Sifiso Dabengwa said in August that there is no room in the local market for a profitable fourth player.

“I don’t think there is space for four (operators in South Africa), Dabengwa said, adding that, amid increased saturation, “consolidation has to happen”.

The company lead said that, in discussion with regulators across numerous markets and territories, it has become clear that “some players are going to fall by the wayside”.

He said further that in some markets where the fourth, fifth or sixth, player will never deliver returns, “they start doing very destructive things in the market in the hope that it will improve their position”.

Cell C

Despite Cell C’s recent market share gains, CEO Alan Knott-Craig believes that the local market is not conducive for four profitable mobile operators.

He said in July that it was probably too late, by as much as seven years, to have a fourth operator in SA.

Knott-Craig said that an ideal situation would see four operators each with a market share of 25%; however, that isn’t the case.

Speaking in a television interview last month, the industry veteran opined that, in general, South Africa has never been good at regulating the telecommunications space.

“Essentially it goes around MTRs (mobile termination rates)…and the second thing is symmetry,” he said, adding that while regulators did it with MTN and Vodacom until only recently, the same did not apply for 8ta (now Telkom Mobile) or Cell C when they came into the market as a third and fourth operator.”

“These two operators, for that reason, never got off the ground,” he said.

“The reason why you licence a third and fourth operator when you are heading toward 100% saturation anyway, is only to get prices down.”

“If you don’t make it possible for them to be financially sustainable in taking market share from other operators – which is the only way prices come down anyway – then don’t do it; don’t license them and be happy with the status quo.”

Alan Knott-Craig Snr — Cell C CEO, Alan Knott-Craig

Telkom Mobile

When BusinessTech addressed the question to Telkom Mobile’s Attila Vitai, the group simply stated: “Telkom Mobile believes that as the fourth entrant in this industry we have been a catalyst for much needed competition.”