Price increases could bite mobile operators - TechCentral

Price increases could bite mobile operators

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South Africa’s big three mobile operators have taken a “short-term view to satisfy their shareholders” by increasing the price of their post-paid packages, a decision that could come back to haunt them in the longer term.

That’s one of the conclusions contained in a new research brief by Research ICT Africa, which examines which of the country’s four mobile operators offers the best value for money for contract users.

The research said claims by operators that increased input costs necessitated recent price increases for contract customers are not reflected in current annual financial statements.

“Revenue has increased faster than operating expenditure for Vodacom, while both revenue and operating expenditure are in decline for MTN,” it said.

Capital expenditure per subscriber has been in decline for several years, it added. “The test will be whether the big three will use the extra revenue from price hikes to reverse this trend.”

The researchers said that internationally, telecommunications prices have either fallen or remained constant and thus declined in real terms. “The increase in post-paid prices by South Africa’s operators are contrary to global trends,” they said.

“The three biggest operators increased post-paid prices more or less at the same time because they can. If only one had increased prices, then consumers could have switched at the next opportunity to one of the other operators. Post-paid subscribers are locked into contracts with high termination fees, leaving them with no choice but to accept the price hikes,” the report said.

But Research ICT Africa believed the price hikes could backfire in the long term in two ways: by decreasing the trust of consumers and by harming operators’ bottom line by increasing the move to so-called over-the-top (OTT) providers such as Skype, WhatsApp and FaceTime.

“The trend toward OTT is inevitable, but accelerating it through price increases that are going to drive consumers away from traditional communication mediums does not make much business sense while they remain significant revenue streams,” the report said.

“Instead, operators should aim to maintain constant Arpus by providing more value to customers through more minutes, SMS and data,” it said. Arpu is average revenue per user and is a key financial metric used by operators.

The report found that, even after its recent price increases, Cell C provides the best value for post-paid users, followed by Telkom Mobile.  – © 2015 NewsCentral Media

3 Comments

  1. William Stucke on

    Come on, Duncan. Get over your silly journalistic conventions of misspelling acronyms. “Arpus”? You mean ARPUs, I trust