Why Vodacom and MTN will probably ignore Telkom’s price cuts

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Drastic mobile tariff price cuts by telecoms company Telkom could be ignored by the country’s biggest networks MTN and Vodacom, says an expert.

Telkom on Thursday announced its ‘FreeMe’ contract plans, a simplified offering of six products that will go live on July 25.

The contracts, which are classified according to data usage, will be priced as follows per month: 1GB (R99), 2GB (R149), 5GB: (R299), 10GB (R399), 20GB (R599) and unlimited data (R999).

These prices are competitive as Vodacom and MTN charge customers up to R150 for 1GB, according to Research ICT Africa.

Meanwhile, all of Telkom’s new plans will include free texts, free instant messaging service calls, free calls to Telkom Mobile and Telkom fixed line numbers, and free Wi-Fi.

Telkom’s 20GB and unlimited data services will further include free calls to any network as well.

But MTN and Vodacom may not react to these price cuts as Telkom is still a small mobile player with just 2.6% of South Africa’s handset market, according to data cited by Bloomberg.

“In reality, Telkom is a small player and I think this will help them grow market share, and I think over time this will help with the gradual shifting of tariff structures in the market,” Antony Seeff, CEO of local phone bill monitoring company Tariffic, told Fin24.

“But what we’ve seen in the market is that the big players dominate. It’s very, very difficult to move market share away from them,” said Seeff.

Local customers are not only concerned about prices but also other factors such as the signal and service they receive, explained Seeff.

“You look at Telkom, you look at Cell C – both have been very competitive when it comes to price but yet Vodacom is the biggest operator out there in the post-paid space,” Seeff said.

“There is a level of complacency in the market unfortunately. It’s changing over time.

“But people are happy with the status quo and they don’t want to go through the perceived complexity of porting their number and finding a new operator,” Seeff added.

Vodacom is South Africa’s biggest mobile network with 35 million customers, MTN has 28 million subscribers and Cell C has 24 million.

Last month, Telkom reported that its mobile prepaid subscribers number 1.9 million while its contract subscribers number almost 800 000.

Previous market disruptions

Apart from Telkom, South Africa’s third largest network Cell C has also moved in recent years to try and disrupt the local mobile market with various initiatives.

Among Cell C’s initiatives was the launch of its contract buyout option in 2015 which paid customers up to R20 000 to help buy them out of Vodacom or MTN contracts.

But Cell C this year quietly discontinued its buyout option via its franchise channels and Seeff told Fin24 that he thought the offering was not a “resounding success”.

“We’ve seen with Cell C over the years, that Cell C has been acting as this consumer champion that has been offering really great and cheaper initiatives. They came out with their buyout deal and everyone said this is a game changer,” Seeff told Fin24.

“And what happens a lot of time is Cell C make a big noise about something, they get lots of press, it probably helps their brand… but the ball is really in Vodacom and MTN’s court to do something about it and to follow suit.

“It seems over the past few years that it’s their (Vodacom and MTN’s) prerogative just to follow the status quo and not even to budge,” Seeff said.

Still a step forward

But despite the concerns over the big players’ reaction to Telkom’s price cuts, Seeff has still lauded Telkom for the move.

“I think generally it’s a revolutionary move. It’s really great to see mobile operators not just doing the same – not just following in the same direction,” Seeff told Fin24.

“It’s nice to see like a complete shift in strategy, which is what we’re really seeing from Telkom.

“It seems like they’ve been more successful in the data side than the voice side, and I think this is a great exercise to help them leverage their data strength, their data competency and their data success and reputation into the voice side,” said Seeff.

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