Cell C takes mobile rates war up a notch
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