Virgin Mobile cuts its customer target
Virgin Mobile South Africa has set itself new subscriber targets, dropping from the ambitious 10 percent market share of three years ago to less than 1 percent in two years.
The company, jointly owned by Cell C and UK businessman Richard Branson’s Virgin Group, has struggled and failed to attract the 10 percent market share that it hoped for when it launched in 2006.
Steve Bailey, the chief executive of Virgin Mobile, said yesterday that the firm was now looking at signing up 500 000 customers in two years’ time.
Bailey’s new targets come after previous chief executive Peter Boyd hinted last year that the firm would review its targets to look for fewer clients.
So far the company has just more than 200 000 subscribers. Bailey is its third chief executive in three years.
Virgin Mobile was brought in as a partner to boost Cell C’s customer base by targeting contract customers while Cell C, with 6.4 million customers or 13 percent of the market share, focused on the prepaid market.
Its competitor, Vodacom, has a market share of 53 percent with 28.7 million subscribers, while MTN has 17.4 million subscribers with 34 percent market share.
Bailey, brought in by Cell C in November to turn around the ailing firm, said yesterday that Virgin Mobile was showing signs of improvement. In the contract market, customer growth of 90 percent was recorded in the past six months.
Bailey replaced Peter Boyd, who left in September after spending two years at Virgin Mobile. Bailey’s task is to revert to the original business model of targeting mainly the contract subscribers and slash costs in the process.
In the eight months he has been at the helm, Bailey saved R100 million in costs by reducing staff by 40 percent from 400, cutting marketing and advertising spending, and selling the firm’s 25 branded Virgin stores.
“For every rand we spent it should give us R1 plus in returns,” he said. Bailey expected Virgin Mobile’s earnings before interest, tax, depreciation and amortisation (Ebitda) to be positive by the end of the year. It is steadily reducing its Ebitda losses.
He said: “Shareholders are demanding return on investments. So far we are happy with the progress… We are a small business growing well.”
Arthur Goldstuck, the managing director at World Wide Worx, said Virgin Mobile’s business model was disadvantaged by the high interconnection fees that it had to pay to competitors.
“It absorbs a lot of costs and (is forced to) cut margins to the bone to compete. But it is still a viable business as long as it is (run) effectively,” he said, adding that it should differentiate itself from the competitors. But Goldstuck believed that Virgin Mobile was an acquisition target. Bailey did not rule out the possibility of the firm selling shares in future, but said that was not on the radar at the moment.
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