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.”

Shameel Joosub
Shameel Joosub

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”.

Sifiso Dabengwa

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.”

Attila Vitai
Attila Vitai

More news on South Africa’s mobile landscape

No space for 4 mobile players in SA: Knott-Craig

MTN CEO warns “destructive” rivals

Cell C’s Knott-Craig warns backers may stop investing

 Half of SA mobile users would change their operator

Mobile subscribers in SA: who’s eating whose lunch?

25% market share achievable: Knott-Craig

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Is there space for Cell C and Telkom Mobile?