“No options are off the table” as MTN South Africa looks to take an axe to high channel distribution costs.
That’s according to the operator’s CEO, Zunaid Bulbulia, who says acquiring independent cellular service providers and cutting margins offered to the channel are among the options under consideration.
Bulbulia reckons there are “probably a few hundred million rand” in costs that can be removed from its distribution chain.
“We reduced some margin in 2013, but not on a massive scale,” he tells TechCentral.
South Africa’s cellular operators are putting pressure on their channel partners as mobile termination rates — the fees they charge each other to carry calls between their networks — come down and as competition intensifies, crimping profit margins.
Bulbulia says that when the cellular industry was established in South Africa in the mid-1990s, operators leant heavily on third-party distributors to take their products to market. He says they were now “paying the price” for this approach. “We were always reliant on dealers or wholesalers or retailers to get product as widely distributed as possible. The cost of distribution was inordinately high.”
He says there is “now room to reduce that in the medium term”.
“Obviously, the challenge we face is to what extent our competitors do exactly the same thing.”
Bulbulia believes there is room for negotiation with MTN’s channel partners given that volumes have increased substantially over time. “The volumes justify a lower percentage [margin]. It’s a scale game.”
Companies likely to be affected include big retailers as well as third-party distributors of airtime.
Meanwhile, Bulbulia has warned that between 400 and 500 jobs could also be on the line at MTN South Africa as it seeks to trim costs in 2014. The cuts will be needed if communications regulator Icasa goes ahead with plans to chop mobile termination rates on 1 April.
Both MTN and Vodacom have challenged Icasa’s final regulations and are seeking an interim order stopping their implementation pending a judicial review. They argue that the authority failed to follow the correct processes in determining the rates.
If MTN goes ahead with jobs cuts in 2014, they will come on top of about a thousand people who were let go between July and December last year. Bulbulia emphasises that most of those who were affected by the cuts were external contractors rather than full-time MTN employees. — (c) 2014 NewsCentral Media