Telcos rerated

hrm they might be taking over but i don't see it becoming cheaper.. i think they takeover for profit margins.
 
"Minnaar said: “Vodafone has yet again affirmed that indeed these companies should attract higher multiples than what we were maybe willing to pay on the SA market, or what the market price happened to be.”"
Click to expand...
Translation: "Now that there is demand from a big company with lots of money, let's pump the value of the stock so we can get the highest possible price."

Barclays/Vodafone are buying in for two main reasons: (a) to get in place to "own" the growing African markets for banking / mobile telephony (markets which are going to be huge) before anyone else does, and (b) to add "cash cows" to their portfolios - ABSA/Vodacom have very high profit margins, and the purchasers are NOT going to do anything to upset those profit margins - the last thing they want to do is trigger a price war in such high-margin markets. Prices will not come down unless real competition is introduced, it's naive to think otherwise. (And those that think that bank charges will come down here because Barclays has lower bank charges overseas (DA *cough* *cough*) are especially naive, because those are two different, separate markets - one with competition, the other not. These people are not stupid.)

A shallow analysis reveals an apparent attractiveness to the idea of a price war: Be much cheaper than everyone else, and you'll gain so much market share that you'll make up for lower revenues per customer via economies of scale. However this notion is highly flawed for one reason: If any one party (be it a bank or mobile or fixed line operator) slashes prices, all of them will be forced to slash prices in response to prevent a customer exodus --- and since everyone will thus soon be cheaper, the net effect will be very little movement of customers anyway. And because profit margins are so high right now, the fall in profits for every player will be huge --- it's like "Mutually Assured Destruction". Believe me, companies like Barclays, Vodafone, SNO etc. all understand this.

Only a 'market underdog', who comes in with no market share and wants to quickly gain as much as possible, can and will be willing to upset such a cosy scenario. However "market underdogs" usually lack the capital and other resources that the big dominant players already have. However Richard Branson does not lack capital, and will come in to the market as an underdog --- so let's hope --- but he will apparently be using Cell C's infrastructure, so I'm not sure how much power he will have to change prices, when Cell C also wants to keep prices in the market high.
 
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Thats why we need a truely south african owned teleco as perhaps a third op who is determined to bring down prices instead of just providing extra services and feed of everyone. Why does the SNO not want to get into a price war ? cause it won't help em if they only make standard profit instead of the huge profits they can rake in by providing services for just around the current price lvls.

Seems if you want prices to come down you need alot of competition.
 
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