R2/MB could trip up SA's mobile operators - TechCentral

R2/MB could trip up SA’s mobile operators

ryk-van-niekerk-180The cellular industry may soon become the victim of the next wave of disruptive technology, much as this industry virtually destroyed traditional fixed-line telephony in the late 1990s.

This may happen sooner than many think. The mobile operators’ current business models are not adapting fast enough to counter new technology, while their arrogance will drive away customers when new and cheaper communication solutions inevitably emerge.

This perspective flows from a very “unfortunate” event which caused me to reflect on the business models of the local mobile networks.

On a leisurely Saturday afternoon a few weeks ago, my son pinched my cellphone and proceeded to watch YouTube videos. A full 1,8GB later, of which a substantial portion was “out of bundle”, I gawked at the SMS “alerting” me to the 400 out-of-bundle megabytes my son had used.

At R2/MB, my Saturday afternoon was ruined — not because I was R800 out of pocket, but because I had that peevish feeling that I was being exploited as I had forfeited around a gigabyte of unused data the previous month. (It didn’t help that the call centre operative sniggered at my predicament.)

Ironically, this happened during the same week a new a 300GB, 100Mbit/s fibre connection was activated at my house … for R750 a month!

This disconnect between the value perception of the two services is startling. They are so out of kilter that they influence the way in which I use them, although they essentially offer the same service. The fibre service allows me to use broadband as much as I want at a very affordable rate, while I use the mobile service as little as possible fearing another penalty.

I regard myself as a typical contract user who is not too price sensitive. I do not mind paying more for a reliable service, but I most definitely don’t want to feel that I am being exploited.

No one does, not even Warren Buffet.

This blatant disconnect in pricing models may be one of the key reasons why mobile operators should be concerned. The value perception of mobile convenience is quickly disappearing. Many new technologies and applications have and will continue to emerge that will disrupt these high-margin services.

Over-the-top technologies such as WhatsApp and Skype are becoming preferred communication products, mostly because they are virtually free in comparison to traditional mobile pricing models.

WhatsApp has already virtually destroyed the networks’ high-margin SMS services and, with a bit more handset integration, WhatsApp and Skype will seriously dent the operators’ voice revenue.

It is therefore not a surprise that MTN and Vodacom recently argued in parliament that these services must be regulated.

The mobile operators have one significant competitive advantage, and that is the convenience of mobile access. This advantage is, however, disappearing as the availability of other services, such as my 300GB fibre service, changes user behaviour.

Mobile subscribers may adapt their behaviour to use the mobile service as a last resort and rather wait to phone and browse the Web when they enter a Wi-Fi zone. (I will in future never make a cellphone call from my house again, a scenario in which my mobile network will not even receive data revenue.)

Can R2/MB out of bundle be justified?

Can R2/MB out of bundle be justified?

Although this migration will not happen overnight, this behavioural change will accelerate, and when a disruptive technology emerges to “circumvent” the expensive mobile convenience advantage of the mobile networks, there will be a swift and brutal migration. Think Model T and the horse trade.

Isn’t it ironic how history repeats itself? Back in the 1990s, Telkom was the dominant player and the big bully that controlled the market. Telkom was protected by draconian regulations and MTN and Vodacom entered the market as niche players. Telkom was always quick to complain to the regulator when these young disruptors conjured up innovative solutions.

But to their credit, these two players seized the opportunities when the market was partially deregulated and they managed to drop their pricing aggressively.

Unfortunately, over the next two decades, these innovative operators transformed into less nimble and fat cash cows. I am sure these networks will disagree.

The question is not only how the big mobile operators will react to these technology changes. I am sure they have their strategies, but they should not alienate their clients in the way I have been. Arrogance makes the fall much harder.

  • Ryk van Niekerk is editor of Moneyweb. This column was first published on Moneyweb and is used here with permission

15 Comments

  1. “Out of bundle” rates are tantamount to fraud in my mind. It’s daylight robbery. I wish ICASA would do something about it =(

  2. Yep, it’s almost like no one at these companies sees the threat to their businesses. How they’ve allowed people to have the option of going elsewhere for better deals when they’ve had the capital, expertise and the network to offer something better is beyond me.

    I spent a few months without internet access earlier this year and regularly spent over R2 000 a month buying 10+GB data (as I was used to my uncapped package at my old place). I’ve now opted for an LTE package from Telkom for R699 a month and soon as fibre reaches my side of town I will jump to that.

    When I’m at work, I’m connected to the work WiFi there so I never have to use network data either. I’ve also found it relatively cheap to just import a Nexus 5 using the Orange online store instead of getting a new contract or buying a phone from any of our operators. They need to respond to these threats ASAP.

  3. There is no excuse for this. Telkom successfully prevents this and the virtual operators such as Afrihost can do it too.

    Amazing the peace of mind when I went prepaid on MTN with Afrihost data. No more rip offs and no more having to monitor my spend.

  4. marktechnology on

    The OOB changeover without limitation is borderline fraudulent. As has been said, Telkom offer it across the board, but ALL of the MNOs offer it on their prepaid billing model for obvious reasons. The only explanation for not enabling it for contract customers is pure exploitation and unfair revenue generation.

  5. They do not HAVE to respond to this. Sooner or later the majority of consumers will just walk away from this old colluding, extorting duopoly.
    My family is doing perfectly without VC, MTN or Telkom fixed line for years now.

  6. That’s my point; you’d expect that a company on the top of their game would respond to these threats somehow. They don’t have to respond, and because they don’t seem to be, they may suffer the effects of doing nothing.

  7. I had a R3000 and a R2500 bill over two months. I cancelled the contract as soon as it was done. No warning, nothing! And stuff MTN.

  8. tongue in cheek on

    yeah that’s interesting, as a prepaid user when I buy airtime I get 3 SMS ‘s from Vodacom, confirming and thanking me for the purchase,so who pays for these SMS’s? If they do they are obviously not paying the end user rate, so wouldn’t that imply that they over charging for SMS’s? it’s like passing their ad spend to the consumer whether it be the contract or prepaid user, in the form of overpriced rates

  9. William Stucke on

    > If they do they are obviously not paying the end user rate

    ROFL.

    Of course they are overcharging. As the article hints, MxIt (2007-2015), WhatsApp (2009 – ) and WeChat (2011- ) destroyed the SMS market. Wherever a market is seriously distorted, someone will find a way to disrupt it. Always.

    The actual cost to send an SMS via another operator is significantly less than R0.00000068. Yes, you read that right. Millionths of a Rand. As 87% of that is the transit cost to the interconnection point, it costs Vodacom essentially nothing to send you all three SMSs via their own network. About R0.000000016 each. Count the zeroes.

  10. William Stucke on

    You went prepaid with MTN? How? I’ve been trying to do that since February, and have dealt with one idiot after another. Some of their outlet staff say it’s impossible, you have to go via their call centre. Others have more clue, but my SIM is still disabled.
    2016-05-19: “Yello, Please note that we are in the process of reactivating your services.” No change since then …

  11. Are you currently with MTN on a contract? I just called and told them that I wanted to continue on prepaid when my contract came to an end. Try their “retentions” department.

  12. Telkom Sucks on

    They’re still charging per MB? What is this, the 80s?

    The ITU has time and again shown that affordable internet access is the best way to reduce poverty. I hold all these companies personally responsible for poverty in South Africa.

    Not only do your prices suck, but you suck at turning a profit. If you worked on a turnover based model, and connected millions, you’d make far more. Think about it.