Changing the rules
New Cell C CEO, Alan Knott-Craig has said that the saturated South African cellular market needs a new approach to grow the business, and that he will change the ‘old rules’ to grow Cell C’s market share to 25% in three years.
Cell C currently has 13% market share in South Africa, but Knott-Craig stated that 25% market share is needed to compete effectively, and to create a sustainable business.
Cell C and 8ta found out that it is no easy task to wrestle market share from Vodacom and MTN – and Knott-Craig reiterated that it is just too difficult to beat South Africa’s two cellular giants at their own game.
Changing the rules
The solution: change the old rules. “We have to play a different game. We can’t play the same game they [Vodacom and MTN] are playing, they’ve become experts at that game,” Knott-Craig told Moneyweb.
However, the rules which Knott-Craig is referring to, are not around the regulatory environment in South Africa, but rather the way contracts are structured; billing is done; and how distribution channels get managed.
One of the strong focus areas for Knott-Craig will be to boost Cell C’s distribution and change the way the distribution channel works.
“The model in South Africa has always been that people get a new phone every year, or every two years, or every 18 months. The distribution channels get an up-front kicker to get a customer, and they get an ongoing share of the revenue,” said Knott-Craig.
“That’s been around since I can remember. To continue down the same path of relatively large amounts of money upfront, and not being able to get that tariff down because of those amounts of money, is not sustainable in other markets and is probably not sustainable in this market,” said Knott-Craig.
“The model needs changing,” said Knott-Craig. “Right now we have saturation of the market in terms of the numbers of people, we do not have saturation in market in terms of traffic, and data traffic is the big growth-point for all of cellular going forward,” explained Knott-Craig.
The low margins on data, compared to relatively large margins on voice, means that the business models may have to be adapted to accommodate the high-volume, low-margin data environment.
“So you’re working with very tight margins; huge amounts of traffic coming at you, or will be coming at you; much, much lower prices on data, sucking in customers; [you’re] probably going to find a lot of the voice going on the data networks in future – so [you’ve] got to do something about that cost structure, there’s no question about that,” said Knott-Craig.
Knott-Craig added that Cell C is well-positioned to compete in this changing business environment because it is a much smaller company than Vodacom and MTN, which means it can adapt to changing business models easier, and with much less to lose, than its bigger counterparts.
Making it sustainable
A changing cellular market with a bigger focus on data and lower margins, means that costs will need to be cut to be sustainable.
Knott-Craig suggested the following changes to make sure cellular operators are prepared for a data-based telecoms market:
- Employees of telecommunications companies must become more productive to drive down the operational costs and staff bills;
- Duplication of networks is not sustainable. Network operators must come together to share infrastructure and save money on network rollouts and operations;
- Data cost will have to come down to accommodate higher speeds and higher data consumption.
Knott-Craig said that all cellular operators will have to adapt to become sustainable in the new world, which is strongly focused on smartphones, data and social networks.
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