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SA mobile competition starting to ease

SA mobile competition starting to ease

Photo by Bloomberg

24th April 2015

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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Competition in South Africa’s mobile market is starting to ease, global ratings firm Standard & Poor’s (S&P’s) Paris-based telecoms and technology director for the Europe, Middle East and Africa region Mark Habib said this week.

Speaking to Engineering News Online during a visit to South Africa, he said there seemed to be a slowdown in competition since South Africa’s third-largest mobile operator Cell C sparked a price war in the sector to improve its market position.

South Africa’s already saturated mobile market, with 140% mobile penetration, did not leave much room for growth and the country’s three largest mobile operators this year started hiking their prices – a reverse on the significant price cuts initiated by Cell C over the past three years.

In April, MTN revised its subscription rates upwards for its contract and data plans and was currently reviewing its prepaid data bundle prices.

“The reduction in mobile termination rates (MTRs), coupled with the increased costs of network investment, has necessitated a review of pricing,” the company said at the time.

This had followed on Vodacom’s announcement in March that its prices would increase on selected price plans as from May.

Cell C, which had leveraged Independent Communications Authority of South Africa’s (Icasa’s) MTR cuts and ploughed all the savings to undercut the prices of competitors, had also hiked prices on some of its offerings in January.

In September, the MTR rate was reduced by half to 20c, with an asymmetry rate reduced from the initial 44c to 31c, as Icasa started its new glide path from October 2014 to September 2015.

Following this, the MTR would decline to 16c, with an asymmetry of 24c until the end of September 2016, before dropping to its final rate of 13c, with an asymmetry of 19c.

Cell C’s aggressive price war had netted a 16% increase in revenue in 2014, with a 44% year-on-year rise in subscribers, closing the year with 19.6-million customers.

Cell C’s growth story, Habib said, was one of achieving market and scale, but it had not gained traction on profitability, and despite some significant success, its sustainability would rely on whether its parent company Oger Telecom continued to inject funds into a nonprofitable company for an indeterminate amount of time.

However, the shift in initial glide path, which had resulted in the asymmetry rates cut by nearly half, had seemingly sparked Oger Telecom to review the possibility of selling its 75% stake in Cell C.

In March, newswire Reuters quoted Oger chairperson Mohammed Hariri as saying the Saudi Arabian company was considering shedding the asset after the MTR rates were revised in September.

Providers with smaller customer bases were most sensitive to changes in the termination fee, since more calls made by their users were to customers of other networks.

Cell C currently had an S&P’s non-investment grade rating of B-, which was indicative of business and financial strain. According to the ratings agency, companies with B ratings had the capacity to meet their financial obligations but faced “major ongoing uncertainties” that could impact their financial commitments.

However, Cell C had announced that R2.2-billion had been budgeted for the company’s growth strategy, with another R8-billion set to be injected over the next three years to roll out its long-term evolution (LTE) infrastructure.

Cell C had signed supply agreements with its primary LTE partners, Chinese companies Huawei and ZTE, to roll out more than 4 000 LTE sites, the first of which would roll out in Gauteng, KwaZulu-Natal and the Western Cape.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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