Cell C takes mo­bile rates war up a notch

Finweek English Edition - - INSIDE - BY TANDISIZWE MAHLUTSHANA

Per­haps con­sumers can f ind some cheer in the fact that af­ter the re­cent in­ter­est rate hike mo­bile op­er­a­tor Cell C is drop­ping its pure-voice tar­iff from 66c to 50c per minute billed per sec­ond, ef­fec­tive from 25 July un­til the end of Septem­ber.

The cam­paign is in an­tic­i­pa­tion of the fi­nal reg­u­la­tions on mo­bile ter­mi­na­tion rates (MTR) ex­pected to be an­nounced by the com­mu­ni­ca­tions reg­u­la­tor, the In­de­pen­dent Com­mu­ni­ca­tions Author­ity of South Africa (Icasa), in Septem­ber.

Mo­bile telecom­mu­ni­ca­tions gi­ants MTN and Vo­da­com en­gaged Icasa in a le­gal bat­tle chal­leng­ing the im­ple­men­ta­tion of the 2014 Call Ter­mi­na­tion Reg­u­la­tions and seek­ing to have the same re­viewed and set aside. How­ever, the South Gaut­eng High Court later ruled in March that while un­law­ful, the planned in­ter­con­nec­tion fees for the year ought to be im­ple­mented. This saw the rates drop by half from 40c to 20c for Vo­da­com and MTN while no re­duc­tion came into ef­fect for small oper­a­tors.

Ac­cord­ing to Vo­da­com, the le­gal ac­tion was based on the fact that a proper cost­based study had not been con­ducted in or­der to de­ter­mine these rates. The court

agreed with this po­si­tion and ruled that the cor­rect process had not been fol­lowed. The reg­u­la­tor was then given six months to com­plete a suit­able cost study be­fore the rates were fi­nalised.

For the year ended March 2014, re­duc­tions in MTRs had a neg­a­tive im­pact on Vo­da­com’s pre-tax prof­its of R692m.

One of the ar­gu­ments put for­ward by Vo­da­com and MTN against the pro­posed tar­iffs was that they would suf­fer ir­repara­ble dam­age to their cus­tomer base. Vo­da­com spokesper­son Richard Boor­man told Fin­week that it’s worth keep­ing in mind that the reg­u­la­tor had set out a sched­ule of cuts which, by 2016, would see Vo­da­com pay­ing four times more to con­nect a call to Cell C and Telkom Mo­bile than those oper­a­tors would pay to con­nect to Vo­da­com.

“This would in ef­fect mean that our cus­tomers were sub­si­dis­ing those net­works.”

Speak­ing to Fin­week at the op­er­a­tor’s new of­fices in Jo­han­nes­burg, Cell C chief ex­ec­u­tive José dos San­tos says that the com­pany would con­sider mak­ing the new pro­mo­tional tar­iff of­fer per­ma­nent based on the out­come of the mo­bile ter­mi­na­tion reg­u­la­tions by Icasa.

Cell C first in­tro­duced its call charges to a f lat (any net­work, any time) rate of 99c per minute in May 2012 amid mount­ing pres­sure to at­tract cus­tomers and be­ing com­pet­i­tive. At that time voice call rates in the in­dus­try were any­thing up to R2.50 per minute on pre­paid and on con­tract the rate was even higher. It took com­peti­tors MTN and Vo­da­com close to two years to re­spond on pre­paid with their cur­rent 79c-per-minute of­fer.

When Dos San­tos took over the reins of­fi­cially from Alan Knott-Craig in May this year, Dos San­tos “f lipped up­side­down the 99c of­fer and in­tro­duced a 66c pure-voice tar­iff of­fer”.

Cell C, though a rel­a­tively smaller player com­pared to MTN and Vo­da­com, has seen its cus­tomer base grow from 8m in 2012 to 18m to date and has in­creased its sec­tor rev­enue share to 12% by end June 2014 com­pared to 8% a year prior. The op­er­a­tor is happy just grow­ing in the do­mes­tic mar­ket, with no am­bi­tions of ex­pand­ing into the rest of Africa.

“Africa is not for us,” says Dos San­tos. “We want to build a solid op­er­a­tor that will give cus­tomers qual­ity ser­vice and sus­tain­able value, so for now [else­where in] Africa is def­i­nitely not in our sites.” Dos San­tos adds that “we’re not look­ing to be as big as the other two ei­ther” but re­veals that in­creas­ing rev­enue share to over 20% over the next three to four years is a mis­sion of man­age­ment.

Knott-Craig, though only at the helm for a brief pe­riod, set Cell C apart from the rest through a de­lib­er­ate po­si­tion­ing as a low cost op­er­a­tor. But how sus­tain­able is that strat­egy for a small op­er­a­tor like Cell C?

“We are an ef­fi­cient ser­vice provider, we are not reck­less at all, we have sound agree­ments with our ven­dors and sup­pli­ers so we are able to build and run a sus­tain­able oper­a­tion,” says Dos San­tos.

Cus­tomer dis­sat­is­fac­tion about the provider’s cov­er­age, how­ever, es­pe­cially in the ru­ral out­ly­ing ar­eas, continues to rear its ugly head.

Dos San­tos agrees that there is a lot of ca­pac­ity that the op­er­a­tor still needs to build for voice com­mu­ni­ca­tion and R2.6bn has al­ready been in­vested to achieve that in­tent.

“For a while we were sleep­ing, just cruis­ing, and as a re­sult our cus­tomer growth ex­ceeded our ca­pac­ity growth and we were com­pletely overwhelmed, hence we ex­pe­ri­enced a lot of cus­tomer sat­is­fac­tion then be­cause our net­work couldn’t cope with the vol­umes,” says Dos San­tos.

Cell C fur­ther has a roam­ing agree­ment with Vo­da­com where if there is no Cell C cov­er­age in a par­tic­u­lar area, then Vo­da­com pro­vides the cov­er­age.

Dos San­tos re­futes mar­ket spec­u­la­tion that Dubai-based Oger Tele­coms, which owns 75% of Cell C, is look­ing to dis­pose of its in­vest­ment. “In­stead,” he says, “they are as com­mit­ted as ever to the busi­ness.”

Asked about any plans to list, Dos San­tos says it’s an ideal de­vel­op­ment that man­age­ment would like to hap­pen “but share­hold­ers would have to de­cide on it. For now we’re fo­cused on build­ing a solid and sus­tain­able oper­a­tion.”

Mean­while, ac­cord­ing to the South African Govern­ment News Agency, Telecom­mu­ni­ca­tions and Postal Ser­vices Min­is­ter Siyabonga Cwele says that he plans to meet with the main play­ers in the telecom­mu­ni­ca­tions sec­tor to per­suade them to re­duce the cost to com­mu­ni­cate.

“We will speak to them; we will per­suade them and have tea with them be­cause we are all South African by and large. We will also use the reg­u­la­tions by Icasa and the pol­icy di­rec­tive to help us in low­er­ing the costs,” said Cwele in par­lia­ment re­cently af­ter tabling the Budget Vote for his depart­ment.

He said that low­er­ing the cost to com­mu­ni­cate as well as rolling out Govern­ment’s broad­band pol­icy – SA Con­nect – and dig­i­tal ter­res­trial mi­gra­tion were among the pri­or­i­ties that Govern­ment wanted to im­ple­ment in the com­ing fi­nan­cial year.

José dos San­tos

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