South Africa: Telecoms firms eye data services for gains

Competition on call-pricing packages continues to be a major feature of the South African mobile market, although data services are taking on an increasingly significant role this year, one that is expected to grow in the short to medium term.

In March, mobile operator Vodacom launched a new prepaid reduced tariff plan, the Anytime Per Second plan, at which calls are billed by the second at an effective rate of R1.20 ($0.13) per minute. The rate matches MTN’s One Rate deal after the provider reduced its tariff from R1.75 ($0.19). Subscribers who signed up to Vodacom’s Daily Free Calls receive the same rate, but pay per minute from the start of the call.

Vodacom’s decision to launch a new package serves as a reminder that competition among South Africa’s mobile operators remains fierce. Vodacom and MTN are currently facing competitive rates established by other operators, including Cell C, which is offering calls for R0.99 ($0.11) per minute, and 8ta, owned by state telco Telkom, which charges an effective rate of R0.95 ($0.10). Small virtual networks operating in the market are also vying for business.

MTN and Vodacom, who together represent around 56m subscribers, have already introduced “dynamic tariff plans” which give users discounts on call charges of up to 100%, depending on the level of network usage at a specific time and place. The lighter the usage, the bigger the discount, meaning subscribers will benefit from cheaper calls in less-concentrated areas at quieter times of the day.

Working out the correct pricing strategy is crucial for South African operators. Despite the steady fall in tariffs, average revenues per user (ARPU) have shown reasonable stability. It appears that lower prices are encouraging subscribers to make longer or more frequent calls, or both, with the overall usage in the South African market (measured as minutes of use per subscriber per month) still relatively low by international standards.

Mobile penetration topped 130% last year. However, this number may be skewed by the high incidence of “multi-SIMing”, or subscribers taking second or third SIM cards from different operators to exploit a specific deal or promotion. In 2012, 8ta saw the highest year-on-year rise in subscribers, at 31%, followed by Vodacom at 22%, MTN at 17% and Cell C at 14%.

Vodacom was the market leader at the end of 2012, with 30.6m subscribers and a market share of 45%. It was followed by MTN with 25.5m subscribers and a 37.4% market share; Cell C (10.4m, 14.8%); and 8ta (1.5m, 1.5%).

Experts view the current market as dynamic and competitive. A change of management at Cell C has reinvigorated the company in the past year, resulting in new price plans and a long-term strategy, while moves are under way at MTN to aggressively gain market share

While competition on voice pricing remains strong, providers have also intensified their efforts in recent years to make gains in the fast-growing, but currently moderately sized, data market. Data services generate higher revenues and can thus help bolster ARPU.

Data penetration in South Africa is currently low by developed-country standards. Grundberg estimates that although 16-17% of subscribers have smartphones, up to half of them rarely or never use data. The scope for growth is therefore substantial and likely to increase further as both handsets and data charges begin coming down, bringing them within reach of more South Africans.

“Data will be the next big playing field for the sector for the next two years,” Zaid Gardner, a telecoms expert at Senior Associate at Edward Nathan Sonnenbergs, a major law firm, told OBG.

The next phase of data competition is likely to involve roll-out of long-term evolution (LTE), also known as 4G, in infrastructure, which can carry considerably-higher data speeds than the existing 3G set-up. However, LTE remains in its infancy, and operators will be keen to continue bringing new subscribers onto 3G services in the immediate term.

The switch over to LTE will involve both the allocation of new spectrum capacity and, in time, the conversion of 3G infrastructure to LTE. With investment in LTE set to be capital-intensive, observers suggest the roll-out could galvanise a move among operators to consider sharing network infrastructure.

Fierce competition should bring a two-fold benefit to customers in the form of lower prices and improved services. Operators, meanwhile, will continue in their efforts to boost business through voice plans, while seeking out ways of building a presence in the data segment.