{"id":49154,"date":"2013-11-10T23:19:28","date_gmt":"2013-11-10T21:19:28","guid":{"rendered":"http:\/\/businesstech.co.za\/news\/?p=49154"},"modified":"2013-11-10T23:23:59","modified_gmt":"2013-11-10T21:23:59","slug":"sa-mobile-price-war-part-ii","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/mobile\/49154\/sa-mobile-price-war-part-ii\/","title":{"rendered":"SA mobile price war part II?"},"content":{"rendered":"

Financial services group\u00a0First Avenue Investment Management<\/a>\u00a0argues that a reduction in\u00a0termination rates, as proposed by recently by\u00a0Icasa<\/a>, may arm the likes of Cell C and Telkom Mobile to\u00a0initiate\u00a0yet another price war.<\/p>\n

Regulator Icasa announced in October 2013, that it aims to cut the costs of terminating a call on a mobile network to R0.10 over the next three years.<\/p>\n

A termination rate is the money networks pay to each other for connecting a call.\u00a0MTRs have declined from R1.25 in 2009 to a current price of 40 cents.<\/p>\n

In a research noted entitled: SA Mobile Telecoms \u2013 A Price War Part\u00a0II<\/em>, First Avenue noted that Cell C\u00a0essentially kick-started the price war in 2012\u00a0by introducing a 99c per minute tariff offering a single rate to all networks.<\/p>\n

Cell C CEO\u00a0Alan Knott-Craig pointed out recently that it has taken 18 months for the market to respond the 99c tariff, adding however, that the third mobile operator in SA has grown its base by 33% (1.8 million customers since) over this period.<\/p>\n

“From a strategic point of view, the question may arise as to whether Cell C and Telkom Mobile have sufficient \u2018firepower\u2019 to enter into another price war. Their profits before fixed cost will increase substantially with the termination rate reduction if current tariffs are maintained,” First Avenue said.<\/p>\n

Cell C cost structure for off-net calls (if tariff remains unchanged)<\/h3>\n
\n\n\n\n\n\n\n\n
<\/td>\nCurrent<\/strong><\/td>\nMarch 2014
\n<\/strong><\/td>\n		March 2015<\/strong><\/strong><\/td>\nMarch 2016<\/strong><\/strong><\/td>\n<\/tr>\n
Tariff<\/td>\n99c<\/td>\n99c<\/td>\n99c<\/td>\n99c<\/td>\n<\/tr>\n
VAT<\/td>\n12.2c<\/td>\n12.2c<\/td>\n12.2c<\/td>\n12.2c<\/td>\n<\/tr>\n
Distribution cost per min.<\/td>\n26c<\/td>\n26c<\/td>\n26c<\/td>\n26c<\/td>\n<\/tr>\n
Termination charge per min.<\/td>\n40c<\/td>\n20c<\/td>\n15c<\/td>\n10c<\/td>\n<\/tr>\n
Profit before fixed cost per min.<\/td>\n20.8c<\/td>\n40.8c<\/td>\n45.8c<\/td>\n50.8c<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

“They (Cell C) will also become a net recipient of interconnect\/termination fees. Our view is that there is sufficient scope to pass on a large proportion of the termination rate reductions in order to gain critical market share,”\u00a0First Avenue added.<\/p>\n

The group said that asymmetry should enable both operators to pass on at least the full benefit of termination rate cuts.<\/p>\n

\n\n\n\n\n\n\n\n\n\n
Termination rate per minute
\n<\/strong><\/td>\n		Vodacom \/ MTN<\/strong><\/td>\nCell C \/ Telkom Mobile
\n<\/strong><\/td>\n		% Reduction
\n<\/strong><\/td>\n		% Asymmetry<\/strong><\/td>\n<\/tr>\n
March, 2013<\/td>\n40c<\/td>\n40c<\/td>\n29%<\/td>\n10%<\/td>\n<\/tr>\n
March, 2014<\/td>\n20c<\/td>\n39c<\/td>\n50%<\/td>\n95%<\/td>\n<\/tr>\n
March, 2015<\/td>\n15c<\/td>\n33c<\/td>\n25%<\/td>\n120%<\/td>\n<\/tr>\n
March, 2016<\/td>\n10c<\/td>\n26c<\/td>\n33%<\/td>\n160%<\/td>\n<\/tr>\n
March, 2017<\/td>\n10c<\/td>\n20c<\/td>\n–<\/td>\n100%<\/td>\n<\/tr>\n
March, 2018<\/td>\n10c<\/td>\n14c<\/td>\n–<\/td>\n40%<\/td>\n<\/tr>\n
March, 2019<\/td>\n10c<\/td>\n10c<\/td>\n–<\/td>\n–<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

Cell C also recently received an equity investment of $350 million from its largest shareholder as well as a R2.2 billion long term financing package allowing it to enhance the quality of its network.<\/p>\n

First Avenue suggests that the war may already have started, with\u00a0Telkom Mobile recently introducing an enhanced Sim Sonke plan that enables calls to any network for 75c per minute even when roaming nationally on the MTN network.<\/p>\n

Asymmetry<\/strong><\/p>\n

Asymmetry is often awarded to a third operator at point of entry to a market in order to achieve a sustainable level of scale in their business.<\/p>\n

First Avenue stressed that\u00a0Cell C was not awarded this regulatory assistance until after a full 11 years of its operational life.<\/p>\n

“Instead, the company lived with artificially inflated rates right up to the regulator\u2019s first attempt to correct market failure in 2011. It is both a testament to the company\u2019s instincts of survival and a miracle that it lived to see the day”.<\/p>\n

Both Cell C and Telkom Mobile were provided with preferential, asymmetric tariffs of 20%, 15% and 10% in 2011, 2012 and 2013 respectively , in order to compete against larger operators.<\/p>\n

More on SA operators<\/h3>\n

Vodacom and MTN\u2019s rude awakening<\/strong><\/a><\/p>\n

MTR price cuts: how it will affect Vodacom and MTN<\/strong><\/a><\/p>\n

MTR cuts would cost us R1 billion: MTN<\/strong><\/a><\/p>\n

Vodacom bemoans asymmetry plans<\/strong><\/a><\/p>\n

Operators mull action on termination rate cuts<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

A financial services group argues that a reduction in termination rates, as proposed by recently by Icasa, may arm the likes of Cell C and Telkom Mobile to initiate yet another price war.<\/p>\n","protected":false},"author":9,"featured_media":24517,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34],"tags":[43,42,2160,26,36,28,6847,1075,27],"class_list":["post-49154","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mobile","tag-alan-knott-craig","tag-cell-c","tag-first-avenue-investment-management","tag-headline","tag-icasa","tag-mtn","tag-mtrs","tag-telkom-mobile","tag-vodacom"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49154","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=49154"}],"version-history":[{"count":13,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49154\/revisions"}],"predecessor-version":[{"id":49226,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/49154\/revisions\/49226"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/24517"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=49154"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=49154"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=49154"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}