Value-added services key to cell companies

Lower termination rates compel service providers to look elsewhere, writes Thabiso Mochiko

SERVICE providers Altech Autopage and Nashua Mobile will have to invest in more value-added services to mitigate the potential losses brought by the proposed reduction in termination rates.

SA’s telecoms regulator has proposed that termination rates — fees mobile operators pay to carry each other’s calls — drop to 10c by 2016 from the current rate of 40c. The further cut will enable small entrants to place further pricing pressure on the incumbents and that could result in a drop in retail pricing.

Altech Autopage and Nashua Mobile resell mobile services packages for mobile network operators Cell C, MTN, Vodacom and also Telkom Mobile. The resellers have limited flexibility, and often their retail prices are linked to that of the mobile network operators.

Telecoms analyst at Ovum Richard Hurst says companies such as Nashua Mobile and Altech Autopage are going to find themselves coming under increasing pressure, particularly in the wake of the latest mobile termination rate determination.

“These companies will probably find a niche in being able to serve the larger enterprise and business segments of the market, but will have to diversify these services to make voice a smaller part of their overall revenue stream,” he says.

In its latest interim results, Altron reported revenue at its subsidiary Altech Autopage was marginally down as a result of a decline in the voice environment and a clean-up of the subscriber base. However, the business increased pretax profit by 14%, showing the benefits of its strategy of bundling products and value-adding services along with the traditional voice product. Altron, the owner of Altech Autopage, stated that the average revenue per user has continued to decline, although average revenue per users on new subscribers “are encouraging”, while churn is being maintained at industry leading levels. Value-added services and data sales were up, and the number of subscribers increased to approximately 1.1-million.

“I think that given the circumstances the company did well to produce a set of numbers such as those mentioned. I think that going forward, margin pressure will see companies such as Altech focusing not only on bundles services but also efficiency in their business,” says Mr Hurst. Altech Autopage MD Boyd Chislett says the reduction in termination rates did not affect the group, but the expected decline in the retail rate could have a knock on the company.

“There is a protection we have. We have a fixed-margin agreement with network operators … (which provides) some degree of certainty,” he says.

Mr Chislett says retail prices could drop by half to 45c per minute over the coming years as a result of the reduction in termination rates.

As mobile termination rates decline, Vodacom and MTN are expected to embark on a defensive strategy to protect their market share and profits. Mr Hurst says service providers should focus on maintaining their existing relationships with their customers and their partners such as MTN and Vodacom, but look to inject greater value to their enterprise customers. “This could be achieved via data services, or perhaps even a greater focus on enterprise mobility services and the ability to sell a service over a simple connection or SIM card,” he says.

Frost & Sullivan business unit leader for ICT Ian Duvenage says more focus on value-added service development from Nashua and Altech could be required to make up for potential losses due to a decrease in income from packages sold.

Altech Autopage has already started providing value-added services to its clients. It will provide a platform for consumers and enterprises to buy airtime of any mobile network. Autopage is looking at a number of new services and products. It will strengthen its internet service provider business, and will focus on the provision of more solutions for the small to medium enterprise markets.

Being part of the Altron group provides new opportunities for the company to far broader managed services, including cloud computing services and payroll services.

“We are able to mitigate the risk by introducing value added services,” said Mr Chislett.

Meanwhile, executive director at Research ICT Africa Alison Gillwald says as the voice market reaches saturation, and competitive pricing begins to reduce voice revenues, mobile operators are increasingly looking to their growing data revenues for profitability.

As smartphone take-up increases and more people choose voice over internet protocol and other free IP voice and text services, data will become an increasingly important revenue stream, she says.

“In SA and other countries where large numbers of people will not be able to afford or effectively use smart devices, ensuring affordable access to voice and SMS services of course remains important, but it may be less important to operators as it stops being their major revenue stream,” she says.