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Cell shrinkage

Apr 19 2011 12:00 Simon Dingle

Company Data

TELKOM SA SOC LIMITED [JSE:TKG]

Last traded 0
Change 2,43
% Change 0
Cumulative volume 947304
Market cap 35.58bn

Last Updated: 19-12-2014 at 04:40. Prices are delayed by 15 minutes. Source: McGregor BFA

VODACOM GROUP LIMITED [JSE:VOD]

Last traded 0
Change -1,12
% Change 0
Cumulative volume 588086
Market cap 191.22bn

Last Updated: 19-12-2014 at 04:40. Prices are delayed by 15 minutes. Source: McGregor BFA

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THIS week Cell C will launch an upgrade to its new cellular network following an announcement by Vodacom Group [JSE:VOD] on the weekend that effectively amounts to the same thing.

Both operators have installed a new 3G standard that technically allows for speeds of up to 43.2Mbps – or about ten times faster than Telkom’s best ADSL offering.

But you won’t see those speeds in practical use, so why do they bother advertising them?

The answer to that has to do with both marketing and the practicalities of cellular standards.

It sounds great to be able to say that you’ve doubled the speed of your network and left the competition in the dust. It makes it sound like consumers are getting twice what they’re paying for.

The nasty – and increasingly infantile - spat currently going on between Cell C and Vodacom was another reason for the moves.

In case you missed it, Vodacom recently rebranded, switching to the red colours of its holding group Vodafone.

Cell C used the occasion to launch a cheeky advertisement that poked fun at Vodacom and suggested that Cell C has a superior network.

Vodacom retaliated by hauling Cell C to the Advertising Standards Authority (ASA) and … well, it’s been downhill from there.

When it emerged that Cell C was going to launch its 43.2Mbps network this week, Vodacom seemingly scrambled to beat its competitor to the market, announcing the same speeds on its network on the Saturday before this Tuesday, which was set for Cell C’s announcement.

So that’s the strategy and marketing angle - Cell C has a new network and plans to stay ahead of the competition in terms of throughput and standards in its strategy to take customers away from the big guys.

Vodacom is South Africa’s leading cellular network in terms of subscribers and needs to keep it that way.

MTN is also a player here, of course, but has – fortunately for it – not been involved in the latest round of mud-slinging.

Now back to the speeds.

At the Vodacom press briefing on Saturday the company’s CTO Andries Delport explained that the advertised speeds are theoretical.

He said that one would only experience these peak speeds if you are right next to the antennae and no one else is connected to it.
 
But in the real world you will have some trees, walls and other things between you and the tower you are connecting to.

You will also be sharing it with other users. All of these things reduce the speed.

Delport added, however, that there has to be some way to separate an update to a standard from its predecessors, and peak speeds are used to do this.

Cell C and Vodacom previously rolled out a version of HSPA+ that supported 21.6Mbps – and this update to that standard supports up to 43.2Mbps, but you won’t actually experience that speed on either network.
 
In order to make use of the new standard you need to buy a new 3G modem that supports it.

And even then you are likely to see only a marginal improvement over what you experienced before, unless you live next to a tower and have no neighbours.

The other part of the equation is what these networks are able to support at their core.

The base station might be able to connect at 43.2Mbps, but supporting those speeds for individual users at the internal network level is a whole different story.

I’d venture that the standards battle is irrelevant to consumers. I’m quite happy with the speed of my existing 3G connection, and have been for more than a year.

What I’m not happy about is how much it costs – and this is the one metric that South Africans do care about.
 
Your network might function like a Ferrari, but if it costs as much as one then I’m not interested.

It’s not that I don’t like Ferraris, but I’m more interested in a practical German sedan that allows me to get from point A to B without having to sacrifice my children’s education.
 
At the launch of Vodacom’s new network this point was raised and CEO Pieter Uys responded by saying that prices have already started to come down and that they will continue to do so.

He also hinted at the possibility of a Vodacom announcement in this regard in weeks to come.

Uys added that the new network speeds are being made available to existing customers at the same price as the old network – you obviously just need a new modem.

Cell C continues to offer the cheapest 3G data connections, although at the time of writing the new network announcement has not been made and there might be some price movement – either up or down – when it is.
 
In the US it is possible to get an unlimited 3G data connection for $40 (about R280) per month that is “soft capped” at 5GB.

That’s the kind of connection that we need in SA – and it seems we are getting close to it. Of course, we also need viable competition for Telkom’s ADSL services because 3G should never be considered as an alternative to fixed line connectivity.

Today the West African Cable System (WACS) lands in South Africa, bringing with it more international bandwidth, but our domestic networks are the real problem.

Plugging South Africa into the rest of the world is hardly an issue any more, but getting from the coast to your home is where Telkom [TKG] still has a stranglehold and where cellular operators have found a niche that doesn’t exist in developed markets.

And wireless standards may well offer something better than ADSL in the future.

For now, however, the likes of Vodacom and Cell C need to stop focusing on each other and start focusing on their customers. Without decent service and affordable pricing the marketing battles and network upgrades don’t matter much.

mtn  |  cell c  |  vodacom  |  broadband
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