Cell price war’s first victim won’t be last

IF there was anyone still doubting that the price war, triggered in part by communications regulator Icasa’s cuts in calltermination rates, is starting to take its toll on South Africa’s mobile industry, they would have been disabused of that notion this week with the news that the Reunertowned Nashua Mobile is to close.

As many as 600 people could lose their jobs — and that excludes the people in the company’s channels who will be affected by the move.

Nashua Mobile, which has almost a million customers on its books, is one of two remaining independent cellular service providers that emerged when the industry started in the mid-1990s. The other is Altech Autopage Cellular, which is part of the listed Altron group.

Reunert announced this week that it had agreed to sell Nashua Mobile’s Vodacom and MTN customer bases to the two mobile operators.

The situation had become untenable for Nashua Mobile: the big operators, facing growing margin squeeze as voice tariffs tumble, have become ruthless in cutting costs. And

MTN’s move is bad news for Cell C, which is creaking under a mountain of debt

Then the status quo was upended. Icasa began cutting termination rates — the fees the operators charge each other to carry calls between their networks. The result has been dramatic. Icasa created a situation in which smaller operators could start cutting their retail prices in an effort to build market share.

Vodacom’s founding CEO, Alan Knott-Craig, made a dramatic return to the industry as the boss of Cell C in 2012. To say that he upset the applecart would be an understatement. Last year, he famously and hubristically declared: “I take a little bit of responsibility for how this industry was built. I [was] proud of this industry, but not any more. I will make it my damn business to fix this industry.”

If it was his intention for rates to come tumbling down, it’s a job well done. This week, MTN fired the latest salvo in a price war that Cell C began two years ago when it slashed its rates to 99c a minute. The yellow operator said it was chopping its standard prepaid tariff from R1.20 to just 79c a minute. Although the new rate is “promotional” for three months — in other words, it has not been lodged as a regulated tariff with Icasa — MTN said it intended making it permanent.

MTN’s move is bad news for Cell C, which is creaking under a mountain of debt. The recent decision by the high court to implement cuts to termination rates for the next six months, from 40c to 20c a minute — despite Icasa’s regulations being declared unlawful — gave Cell C something of a reprieve as it benefits from an “asymmetric” regime skewed in its favour. If MTN’s latest move forces it to cut its rates to 79c, too, it will lose that advantage. MTN may be hoping that it has just checkmated its struggling rival.

The high court has ordered Icasa to come up with new termination rates before the end of September. MTN and Vodacom are going to put immense pressure on the regulator to produce a regime that is more favourable to them. If they are not successful, expect more blood-letting.

McLeod edits TechCentral.co.za. Find him on Twitter @mcleodd