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José dos Santos, CEO of Cell C – the third-largest mobile operator in South Africa – is hoping his play for the postpaid market will garner him 500 000 new subscribers by the end of the year.
After rattling the prepaid market with a price war a few years ago, Dos Santos is hoping his offer to pay subscribers up to R10 000 to relieve them of a rival cellphone contract will draw them to Cell C.
Since its launch in 2001, Cell C has struggled against the bigger operators, Vodacom and MTN, to attract subscribers. But when it appointed former Vodacom CEO Alan Knott-Craig to the helm in 2012, it became more aggressive.
Cell C dropped its prepaid prices to 99c, forcing the other operators to drop their prices as customers began to migrate to Cell C. MTN took a while to respond to the aggressive advances of Cell C and found itself losing subscribers quickly.
Experts suspected the prepaid price war would not be sustainable, especially as Cell C did not have
pockets as deep as other operators. And it appears it has cooled down anyway, as Vodacom, MTN and Cell C all increased their prices recently.
Dos Santos admitted the lower prices could not be sustained.
“We’re going to be spending about an extra R100 million this year on diesel alone due to load shedding,” he said.
And though Cell C is going after the postpaid market with this new stunt, it is not doing so on price, but rather by spending money to bring people on to its network in the hope they will spend money.
So consumers should not necessarily expect cheaper data prices anytime soon, especially after the recent price increases.
Enrico Calandro, a researcher at Research ICT Africa, said: “The increase of prices is not attributable to a negative overall financial performance, which in reality did not deteriorate.
“Vodacom’s mobile contract revenue and data revenue increased. MTN, on the other hand, was not as strong as Vodacom. Although both MTN’s total revenue and [earnings] margin were under pressure, the primary driver of MTN’s revenue is data services. Since data prices have increased, consumers have limited scope for choosing a cheap provider. In addition, contract customers are inelastic and therefore are able to absorb instantaneous price increases,” said Calandro.
The prepaid price war seems to have been a superficial success for Cell C, and it reported this week that it grew its subscriber base to 17.7 million by March 31, from about 10 million in 2012. However, the effect on the bottom line for Cell C is not known because the company does not release annual results.
Dos Santos said the contract buyout scheme was conceptualised as a way to bring more consumers on to its network in response to research that showed that subscribers could not move around because they were tied to their subscription contracts.
In response to this latest attack by Cell C, MTN said it welcomed competition because it fostered innovation for the benefit of customers. Vodacom declined to comment.
