Cell C eats into MTN’S share of prepaid market

CELL C seems to have made major inroads into MTN’s share of the prepaid market, according to Blue Label’s prepaid airtime growth per network.

Virtual prepaid distribution company Blue Label Telecoms released its annual results this week. As the one with exclusive contracts to distribute airtime for Vodacom, MTN, Telkom and Cell C, it has the perfect overview of the prepaid market. Its figures suggest that as far as customer numbers go, Cell C seems to be reaping the benefits of the ‘‘price war” started by CEO Alan Knott-Craig.

Blue Label’s figures show that from August 2011 to July last year, Vodacom had a 51% share of the prepaid airtime market while MTN had 38%, Cell C had 10% and Telkom 1%.

But during the year to this July, MTN surrendered 2% of its share to Cell C, which now has 12%. Vodacom kept its market share constant at 51%, and Telkom at 1%.

Brett Levy, who runs Blue Label with his brother Mark, said they were expecting more growth from Cell C — and that this was just the beginning.

“Consumers in South Africa are gen- erally quite lethargic, but consumers out there are beginning to see value,” said Levy. “When Cell C launched this (the 99c/minute call promotion) on 14 May 2012, the first time it had impact was in March 2013. So it takes a long time for consumers to adapt and change, but when they do it happens rapidly. I think that’s what you can look out for in the future.”

While one would expect that the JSE-listed Blue Label telecoms would also have won big thanks to the price war currently dominating the telecoms space, the drop in the average revenue per user stemmed the company’s growth.

Dobek Pater, an analyst at Africa Analysis, said that between the 2011 and 2012 financial years “revenue from prepaid airtime sales declined by 12% due to the price wars between operators [in the South African market] and the declining voice [and data] tariffs”.

“This is a concern for Blue Label as the trend is likely to continue, although perhaps not at this level of year-onyear decline.”

Blue Label grew revenue by only 1% to about R18.7-billion in the financial year ended May 31 2013, but net operating profit fell 5.9% to R408-million, illustrating the drop in margin.

However, Keith McLachlan, an analyst at Thebe Securities, said that despite continued declines in most mobile telecoms prepaid ARPU’s, Blue Label also had a growing contribution of prepaid electricity sales.

This is turning into quite a handy business for the company at a time when mobile sales are under pressure. Four years ago, Mark and Brett Levy started selling prepaid electricity through their distribution network that has over 150 000 points of presence around the country.

In their first year in prepaid electricity they managed a R3-million turnover. Now, four years later, it has brought in business worth R7.2-billion — up sharply from R5.5-billion the year before and accounting for nearly 40% of Blue Label’s sales.

Brett Levy said he expected the growth path to continue as the number of prepaid meters increases. There are now about nine million prepaid meters. Levy expects this to rise to 14 million in the next two years.

Internationally, Blue Label has faced major challenges, particularly in Mexico where it reported a loss of nearly R51-million. But Blue Label isn’t backing off from that country — Mark Levy said they had over 60 000 points of presence in Mexico and were planning on increasing this to 140 000 by the middle of next year.

McLachlan said the losses in Mexico were just teething problems.

He expects the Mexican business to break even during mid-2014 and that it will start to be profitable a year later. The share price climbed 25% over the past year.