{"id":26956,"date":"2012-11-21T23:58:58","date_gmt":"2012-11-21T21:58:58","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=26956"},"modified":"2012-11-22T08:11:52","modified_gmt":"2012-11-22T06:11:52","slug":"mobile-voice-the-next-price-war-analyst","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/telecommunications\/26956\/mobile-voice-the-next-price-war-analyst\/","title":{"rendered":"Mobile voice the next price war – analyst"},"content":{"rendered":"

While both Vodacom<\/a> and MTN<\/a> remain within touching distance of record highs on the JSE, an analyst believes that pricing\u00a0transparency may well lead to smaller rivals, Cell C<\/a> and 8ta<\/a>, challenging their current market dominance, thereby creating uncertainty for MTN and Vodacom\u2019s investment case.<\/p>\n

Nadim Mohamed<\/a>, investment analyst & partner at\u00a0First Avenue Investment Management<\/a>,\u00a0notes in a research paper<\/a> that over the past year, Cell C and 8ta have disrupted the SA mobile market by introducing aggressively priced data and voice offerings. These come against a backdrop of an implicit duopoly in the local industry that is protected by a strong \u2018network effect\u2019.<\/p>\n

The network effect refers to a phenomenon where the value of a product\/service increases exponentially with the number of customers using the service.<\/p>\n

Mohamed pointed out that, within mobile telecoms, local players leverage this effect by offering preferential pricing to customers for calls made within the same network (on-net) compared to calls that terminate on another network (off-net).<\/p>\n

\u201cInitially supported by high termination rates, high voice prices are now justified through marketing and advertising spend at least three times that of Cell C,\u201d he said.<\/p>\n

He added that this has created information asymmetry in the minds of the consumer who infer a premium to the value of the very products whose pricing he\/she is failing to decode.<\/p>\n

“By branding a commodity (a voice minute), the \u2018smoke and mirrors\u2019 has helped counter the need to immediately match the more transparent voice pricing introduced by Cell C. As a result, a full-blown price war has not yet developed within the mobile voice segment,\u201d Mohamed opined.<\/p>\n

For mobile data, however, the war has already begun. Operators like MTN and Vodacom are already matching Cell C and 8ta\u2019s aggressive and transparent deals.<\/p>\n

\u201cAbsence of the \u201cnetwork effect\u201d in the data segment makes it easier for Cell C and 8ta to compete directly on the basis of price. As the World Wide Web is not the preserve of any one player, and cannot be defended through interconnect fees, it is highly susceptible to price. Thus, prices have dropped as much a 60% from the standard rate over the past few months in some cases,\u201d Mohamed said.<\/p>\n

\u201cOur view is that transparency in pricing will eventually cause the consumer to gravitate towards the lowest-priced offer in the market both for voice and data. As Cell C and 8ta take advantage of falling legislated termination rates, the network effect in voice will continue to weaken. This materially increases uncertainty for MTN and Vodacom\u2019s investment case,\u201d the analyst said.<\/p>\n

\u201cWe think that current record-high market valuation does not sufficiently reflect the potential negative impact of these developments,\u201d Mohamed said of Vodacom and MTN.<\/p>\n

Related article<\/strong><\/p>\n

MTN and Vodacom continue record surge<\/strong><\/a><\/p>\n

SMS revenue decline to continue: Vodacom<\/strong><\/a><\/p>\n

Cell C: \u201clet the fight begin\u201d<\/strong><\/a><\/p>\n

Cell C marches on in mobile data war<\/strong><\/a><\/p>\n

MTN surges to record high<\/strong><\/a><\/p>\n

MTN Group subscribers up to 182.7 million<\/a><\/strong><\/p>\n

Vodacom shares up 2.3% on H1 results<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Transparency in pricing may well lead to smaller rivals Cell C and 8ta challenging the current dominant market positions held by Vodacom and MTN, thereby clouding their investment case.<\/p>\n","protected":false},"author":9,"featured_media":16634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34,21],"tags":[407,42,2160,26,28,3757,27],"class_list":["post-26956","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","category-telecommunications","tag-8ta","tag-cell-c","tag-first-avenue-investment-management","tag-headline","tag-mtn","tag-nadim-mohamed","tag-vodacom"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/26956","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=26956"}],"version-history":[{"count":8,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/26956\/revisions"}],"predecessor-version":[{"id":27073,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/26956\/revisions\/27073"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/16634"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=26956"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=26956"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=26956"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}