MTN CEO warns Cell C on price war
MTN Group president and CEO, Sifiso Dabengwa has warned South Africa’s smaller operators about the current price war, claiming “it’s very difficult to win”.
Speaking on his Money Show programme on Talk Radio 702 on Wednesday (6 March), Bruce Whitfield questioned Dabengwa on Alan Knott-Craig‘s impact on the “price war game” since his appointment as Cell C CEO in April 2012.
Dabengwa said: “One of the advantages of operating in many countries, is that you can always say, well I have seen this movie before, and it’s no different from what we have seen in any other country. So what will happen is that there will be the price war.”
Dabengwa warned though, that if the likes of Cell C tried to fight the bigger operators on price, “it’s very difficult to win”.
“I think you have to fight it on other fronts, other than price,” he said. “It’s very difficult to grow value share on price competition.”
The CEO said that MTN has experienced significant pricing competition in a number of countries including the likes of Uganda, Ghana, and Nigeria.
“But the reality is…in most of these countries there are too many operators, and all operators are fighting for market share, and probably the easiest way to try and get market share is to reduce prices.”
“The reality is that also has an impact on the overall market value. There definitely is value destruction in that form of competition,” Dabengwa said.
He further stated that what tended to happen, as had been the case in India, was that as prices hit “rock bottom”, some operators “decided to literally pack up and go, and prices start inching upwards again, because at the end of the day, these business have to invest a lot of money”.
Dabengwa said that in order to get a reasonable return, the pricing had to reflect the kind of investment that had to be made.
Analyst and chief investment officer at First Avenue Investment Management, Hlelo Giyose said that it was “distressing” that MTN’s financial results showed how South Africa is the only place where prices aren’t coming down as much as in other African countries.
“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.”
Shares in MTN declined for a second straight day on Thursday (7 March), down R1.93 or 1.09%, to R175.40 after the group’s results fell below analysts estimates.
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