Another mobile price war brewing in 2014?
Investors are playing a ‘wait and see’ game in the mobile space after the Independent Communications Authority of South Africa (Icasa) halved mobile termination rates at the end of January.
Starting in March 2014, MTRs will fall to 20 cents per minute from 40 cents, and will gradually decline over the next three years to 10 cents per minute.
MTRs are the amount mobile phone companies have to pay each other to terminate calls on another network.
The big question which may lead to a correction is whether Cell C and Telkom will trigger an aggressive pricing move on the market.
Nadim Mohamed, investment analyst and partner at First Avenue Investment Management noted that MTN and Vodacom have reverted back to the levels they were trading at in mid-December. “This after a strong run in the last few trading weeks of 2013.”
Shares in Vodacom and MTN have both climbed since Icasa’s announcement on 29 January, albeit marginally.
“In my opinion, the market is in ‘wait and see’ mode with MTN and Vodacom and the signal that will prompt a correction is an aggressive pricing move from a Cell C or a Telkom Mobile,” Mohamed said.
“It is not clear yet whether the smaller operators have appetite for another round of price competition,” the analyst said.
Cell C and Telkom respond
Telkom said that the new termination rates would “substantially contribute to reducing the cost of communication and the consumer will be the biggest beneficiary”.
“Telkom will pass on reductions to consumers and will communicate these savings once it has fully assessed the impact of the regulations,” the group said after Icasa’s announcement.
Cell C’s chief financial officer, Robert Pasley, told Techcentral that “Cell C’s rates are already very competitive, so consumers shouldn’t expect dramatic price reductions”.
Cell C said in an official statement that the new rates will promote and foster a more balanced and competitive mobile industry to the benefit of consumers.
“By increasing its share of the market and putting further pressure on the dominant competitors, Cell C is confident it can drive access to more affordable communications for all South Africans, even those not on its network,” Cell C said.
Further direction needed
Mohamed noted that MTN and Vodacom may well challenge Icasa legally as an effort to delay the MTR cuts in March.
“I expect that MTN and Vodacom will trade side-wards until there is more direction on two issues.”
Mohamed commended Vodacom on excellent execution of its pricing transformation strategy in SA.
Vodacom shrugged off new call termination rates (CTRs) by announcing a 10.5% rise in group revenue to R20.2 billion for the quarter ended December 2013.
“The ability to manage elasticity through the new price plans has enabled it to retain subscribers and ARPU during a period of sharp declines in tariffs. It was so successful that they’ve even been able to attract new prepaid customers,” the analyst said.
Vodacom said that group active customers grew 12.3% to 56.0 million.
Active prepaid customers increased by 5.7%, minutes of use grew by 21.5% and ARPU was flat at R80, while active contract customers grew 1.7% to 4.8 million, with ARPU declining 3.9% in the quarter to R393.
“MTN have been slow to react in terms of pricing strategy in SA and this has possibly resulted in loss of prepaid market share to Vodacom. As far as I can see, within the SA market, Vodacom are well ahead of MTN in its strategy to mitigate against the negative effects of MTR cuts/asymmetry,” Mohamed said.
More on Vodacom and MTN
New termination rates – will you see lower prices?
Telkom to pass on CTR cuts to consumers
Vodacom lifts quarterly revenue by 10.5%
Expect poorer quality from Vodacom and MTN
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