SA’s mobile operators are unlikely to slash their retail call tariffs, even if mobile interconnection rates are cut dramatically.
That’s the view of AltX-listed telecommunications company Huge Group, whose CEO, James Herbst, says Vodacom and MTN would “rather lose market share” to smaller players than cut their rates sharply.
“If I was Vodacom, why would I slash my rates immediately?” says Herbst. “Why not just lose a little bit of market share over time?”
Herbst thinks mobile interconnection rates — what the cellular operators charge each other and other operators to carry calls on their networks — will drop to R1/minute during peak time next year, from R1,25 now. But this will be followed by a drop of only 5% in retail prices, he predicts.
Huge Group chairman Anton Potgieter says smaller, alternative telecoms providers are tiny next to the big players and will struggle to compete, even if interconnection rates tumble.
“They’re like a pimple on the likes of a Vodacom,” he says. “The mobile operators will employ every trick in the book to protect their base while making it look like they’re embracing competition.”
Potgieter says the incumbent mobile operators have the human resources needed to frustrate smaller players at every turn, and will do so. “The small guys will get 1% of the market, if they’re damned lucky and they work damned hard,” he says.
Herbst agrees. He says there are only three serious telecoms players in SA: Vodacom, MTN and Telkom. The rest are “wannabes”. “They’ll be there, and they’ll make profit at the margin,” he says. Eventually, though, the smaller players will have to consolidate to compete more effectively with the big threem he adds.
In the meantime, the big players will be reluctant to cut prices. “It’s better to lose market share [and keep profits higher],” Herbst says. “BT Group [formerly British Telecom] lost 15% market share and did not drop its rates post the deregulation of the UK market. The same thing may happen here.”
Customer inertia will also help ensure Telkom, Vodacom and MTN won’t lose significant market share, he adds. “You’ll also have to port your numbers and there’ll be confusion in the market.”
Some people will switch, though, and this will force a decline in prices over time. “But it’s not going to happen immediately,” Herbst says. — Duncan McLeod, TechCentral
