Cell C move sparks price war

Johannesburg - There’s a price war raging between South Africa’s cellphone networks after Cell C lowered the rates of its prepaid calls by more than 34%.

Last Thursday, Cell C, the third most popular cellular network provider, announced a new product – 99 Cents for Real – with which users can phone any network at any time for 99c a minute. The cost of the calls is measured per second.

It took Vodacom Group [JSE:VOD] only a few seconds, literally, to strike back with its Freedom 99 product, which also offers calls to any network for 99c a minute. But unlike Cell C’s offer, its cost of calls is measured per minute.

These price cuts mean that prepaid users pay less than contract users pay.

Cell C is planning to correct this situation with lower contract fees, says Cell C chief executive Alan Knott-Craig.

“We have already devised new, cheaper contract products which will be introduced in the next few months,” he said.

The purpose of the price cuts, Knott-Craig says, is not to start a price war, but to extend Cell C’s market share. “Lower prices are one way of achieving this.”

He says the price cuts were done in anticipation of lower interconnection rates to be prescribed by the Independent Communication Authority of South Africa (Icasa).

The interconnection rates are the amounts that networks pay one another to handle each other’s calls. These were recently reduced from 89c a minute to 73c a minute by Icasa. By next year, they will be down to 40c a minute.

Vodacom spokesperson Richard Boorman says their network has no immediate plans to reduce contract prices.

“But our prices are constantly being revised to ensure we remain competitive,” he says.

Vodacom’s Freedom 99 product has been available since last Sunday.

Boorman says the product also offers free calls between midnight and 7am.

Arthur Goldstuck, managing director of research company World Wide Worx, says the price cuts are among the biggest in the past decade.

“The reductions are impressive,” he says. “In addition, the products have been made as simple as possible so that users know exactly how much they are spending when they make a call.”

No distinction is made between networks or peak times, and the rate is charged according to a fixed time, says Goldstuck.

He adds that it’s logical that contract rates will have to be lowered in order to keep valuable contract customers happy.

Goldstuck says he thinks Cell C lowered its prepaid prices firstly to make it easier for the prepaid market to move over to Cell C, which would allow it to gain market share.

AppChat founder John Holdsworth says prepaid users should be excited about the lower prices. “Users have in the past had very little faith in cellphone companies because they pay hopelessly too much for cellphone calls.

“Cell C’s announcement is the first step towards regaining users’ confidence. I hope users will reward Cell C’s vision and courage by switching to Cell C.

Alison Gillwald, director at Research ICT Africa, says there is a direct link between lowering the cost of calls and lower interconnection rates.

In other countries, like Namibia and Kenya, the lowering of interconnection rates also ledt to a cut in call fees, she says, adding: “The result is more subscribers phoning for longer, which ultimately translates into higher profits.”

According to Gillwald, calls in South Africa were very expensive before these recent price reductions. A study by Research ICT Africa, released last month, reveal that South Africa is ranked 19th on a list comparing call fees in Africa.

MTN Group [JSE:MTN] and 8ta, which are owned by fixed-line operator Telkom [JSE:TKG], have so far refused to join in the price war. MTN spokesperson Serame Taukobong says their customers “could rest assured” their prepaid rates are still the most affordable in the market.

MTN offers free calls at certain times of the day. “We believe our competitors’ prices are uncompetitive because they are not based on our clients’ use of the network,” says Taukobong.

8ta chief executive Amith Maharaj says their prepaid rates are affordable, bearing in mind that their customers get additional free airtime when they make calls.