While the two companies offer very different products in the communications market, both companies had monopolies which afforded them the opportunity to become nearly impossible to challenge.
One company made the most of this opportunity and is now making more money than ever. The other company is battling to show a profit after it decided to prioritise shareholder interests over investing in the future of the business.
Naspers-owned MultiChoice enjoyed a monopoly in the pay-TV market until the launch of TopTV on 1 May 2010.
The company has been raking in billions every year through this monopoly, and it made the most of its position by launching new services, securing exclusive content rights and making sure it provides South Africans with exactly what they require from a pay-TV service.
MultiChoice has continually strengthened its product range, with more content, great sports coverage, HD services, PVRs, DStv Mobile, DStv on Demand, BoxOffice and a range of online services.
Through investing heavily into its services MultiChoice made sure its DStv products are very difficult to compete against – not only because of exclusive rights on sports content, but also because of the overall quality of its offerings.
While MultiChoice’s DStv prices are often criticized, there is no shortage of people willing pay hundreds of Rands to enjoy the best TV experience in South Africa.
Telkom fixed line numbers
Telkom has been losing fixed line subscribers hand over fist for the last decade. Telkom’s fixed line subscribers peaked at 5,493,000 in 2000, but declined every single year since then to the current level of 3,000,000 subscribers.
All traditional fixed line telephony providers faced the challenge of competing against the rise of mobile services over the last two decades. There was one thing which helped fixed line players to survive and grow: broadband.
Converting traditional fixed line telephone users to broadband users meant more money per subscriber (by adding a data component to a telephone line), and more loyal subscribers.
Unfortunately Telkom was slow on the ADSL draw. Instead of providing a world class fixed broadband service and converting as many fixed line users to ADSL subscribers as possible, it provided a crippled ADSL product to protect its lucrative business data products (like Diginet).
Telkom also did not invest a large enough percentage of its billions in profit into its network to prepare for the data growth which was to come. Instead, it paid out special dividends to shareholders, especially after the sale of its share in Vodacom.
Telkom also erred massively by investing in Nigeria, resulting in a R10 billion loss.
At the same time, the company missed an opportunity to enter the data content domain by selling Telkom Media at a significant loss.
The result was telling. A decade after it launched its first ADSL service, the company still has less than 1 million ADSL subscribers. This equates to less than 20% of fixed lines at the time it launched ADSL (when there were around 5 million fixed line users).
So poor were Telkom’s broadband products that many people opted to use mobile broadband services as a primary connection.
At long last, Telkom is investing heavily in his broadband network with high-speed 20Mbps and 40Mbps VDSL services, and a fibre to the home trial.
This is good news, but Telkom lost the opportunity to become as entrenched in the telecoms and broadband market, as MultiChoice is in the pay-TV market.
The simple truth
The following graph shows the growth of MultiChoice’s South African DStv subscribers, and Telkom’s fixed line numbers decline over the last decade.