[By Duncan McLeod]

Telkom has revealed the first phase of its strategy to take on the incumbents in the mobile sector. With 8ta, Telkom has slashed the cost of mobile-to-landline calls and cut out-of-bundle data rates in half. Now what?

Telkom spared no expense in launching SA’s fourth mobile operator, 8ta. At a glitzy launch event at Lanseria airport last Thursday, a who’s who of SA’s telecommunications industry was treated to an extravaganza of music and special effects.

The traditionally fixed-line operator was making one thing abundantly clear above all: it was going to grab the mobile industry by the proverbial horns and give (now direct) rivals MTN, Vodacom and Cell C a run for their money.

And it’s set a target on the table: it wants 8ta to secure 12%-15% of the market within five years. Analysts have said that’s a stretch, but some think it’s doable.

Telkom has unveiled only part of its strategy so far. It’s revealed its plans for the prepaid market and will reveal its post-paid options in early November.

Already, though, its tariffs are likely to give its rivals restless nights. Cleverly, it has slashed the cost of making calls from mobiles to fixed lines to 65c/minute (other operators charge more than twice that much).

This will encourage an increase in traffic onto its fixed lines, especially if the other mobile operators cut their rates for calls to Telkom’s landlines.

It may not halt the steady slide in the number of fixed lines in service, but it could help Telkom arrest the sharp decline in recent years of call minutes flowing across its network.

Telkom is also going for the jugular in SMS pricing — a tactic aimed clearly at securing a share of the youth market. 8ta customers who send five SMSes at 50c each on any given day are given an additional 50 messages “free”. In effect, then, R2,50 buys 55 SMSes, pushing down the price of texting to just 4,5c/message.

It will be instructive to see whether its rivals feel compelled to respond with new SMS options of their own. To be sure, the operators make fat margins from SMS and so there’s plenty of scope to cut.

The new operator has also done what the incumbents should have done a long time ago: it has cut the cost of out-of bundle or ad hoc data to R1/MB.

Vodacom and MTN both charge R2/MB for ad hoc data and have done so for years, even though in-bundle data costs less than 20c/MB on some of their bigger bundles.

It’s long past time for the R2 rate to be slashed. One hopes 8ta — and Cell C’s new and aggressive data pricing — will force Vodacom and MTN to bring down ad hoc data rates.

In mobile-to-mobile calls, 8ta’s all-day rate of R1,50/minute is not as compelling, especially since it bills customers per minute and not per second. This has the effect of pushing up effective call costs: customers are billed for a full minute, even if a call lasts only 10 seconds.

Billing per minute is a poor practice — Cell C is also guilty of it — and all mobile operators ought to charge per second from the first second on all their prepaid options.

Generally, though, consumers, hungry for a better deal, appear to have welcomed 8ta’s entry into the market.

Whether it will translate into big market share gains for the new player remains to be seen.

The established players will react quickly if they begin losing market share to 8ta. Telkom’s entry into the market hasn’t triggered an immediate reaction. Down the line, though, the mobile market is probably sufficiently competitive now to accelerate the decline in retail rates.