The telecoms monopolies tumble
The two most entrenched telecoms monopolies, Telkom and Multichoice, have been forced to watch their exclusivity disappear as competing companies are licensed to play in their space. Both companies received ample warning of what was to come but it appears that the one monopoly is faring far better than the other.
Multichoice well positioned
Multichoice has had a very easy ride in the pay-TV market for the past decade. The lack of competition meant that the DStv provider had the luxury of developing and selling products which served its needs as much as that of their customers.
This luxury will however disappear when the newly licensed pay-TV operators – notably Telkom Media, e-Sat and ODM – open their doors in mid-2008. Telkom Media, with a war chest of over R 7-Billion, is widely seen as the biggest threat to Multichoice. Telkom Media’s plan to use both satellite and IP-TV to deliver services is another notch on their belt.
The pay-TV monopoly is however not sitting back and waiting for competition to eat away at its market share. It is in fact surprisingly pro-active at developing new services and bringing more value to its subscribers to create loyalty and ensure that its competitors will have as hard a time as possible to enter the pay-TV space.
Multichoice has over the past few months added new channels to all of its current bouquets as well introduced a ‘jacked-up’ R 20-00 a month DStv EasyView product for the lower end of the market.
But it is not the lower end of the market where the true threat lies. The new pay-TV players have set their sights on the emerging middle class but Multichoice is well aware of their plans. In reaction, they partnered with Vodacom to offer a more affordable DStv Select product at R 139-00 per month designed to scoop up as many new subscribers in the segment of the market as possible.
The satellite television provider has most market segments covered through its current range of DStv offerings, but it is also preparing for potential future developments in the telecoms space – typically triple play (broadband, voice and video) and High Definition TV from a company like Telkom Media.
Multichoice has already announced that it will launch a high definition TV service in 2008, and MWEB has recently unveiled their bundled DStv, PVR, ADSL and Voice service at significantly reduced rates.
The DStv provider has also launched its DStv Broadband service – a Web TV offering which allows its DStv premium bouquet subscribers access to a full range of programs online which they can view at their leisure.
The company is however not only using consumer-centric initiatives to ensure its future dominance of the market. Long term content contracts and locking competitors out of its decoders all form part of a comprehensive ‘hold on to the monopoly’ strategy.
Multichoice is clearly making the most of the few remaining months of being the only provider in the pay-TV market by developing more consumer centric services and adding value to subscribers – something which should pay dividends in future.
Telkom suffering
Telkom had the same window of opportunity but appears to have let it slip by. During its monopolistic rein, afforded to them by their biggest shareholder Government, Telkom opted to maximize profits by maintaining high prices and reducing staff. The result is that they offered ADSL connectivity at inflated prices, which angered customers, and aggravated the situation further with their poor service delivery.
For a long time the South African ADSL community could do little but watch helplessly as Telkom put customers on hold whilst simultaneously filling their coffers. Even with the impending threat of the growth of wireless broadband services, Telkom stuck to their game plan and continued to show tremendous profits despite customer dissatisfaction.
But now the consequences of these decisions are starting to rear their ugly head and the party appears to have come to an abrupt end. Telkom’s interim results saw the monopoly announce significantly reduced fixed line profits which they attributed partly to competition eating into their profits.
In the early part of the new millennium Telkom had a dominant grip on the broadband market with its ADSL service being the only real alternative to traditional dial-up Internet access. Despite the very high prices for its ADSL offerings, users did not have many alternatives and the company could pretty much do what it wanted in this market.
This however changed when Sentech, iBurst, Vodacom and MTN all started to aggressively target the broadband space. One would have expected Telkom react swiftly by lowering prices and improving service levels, but this did not happen.
The result was not unexpected – Telkom steadily lost market share to the wireless broadband providers. The situation has now reached the stage where there are significantly more wireless broadband connections in South Africa than ADSL subscribers. When one considers that over 98% of all broadband connections worldwide are fixed line services it becomes clear how big a mistake Telkom has made.
It is however not only the revenue from the broadband connection itself which is lost to Telkom, but also the potential future revenue from value-added services like IPTV or VoIP. Internationally operators know that a broadband connection is extremely valuable because it is a ‘pipe’ into the subscribers’ home which can be used to provide revenue generating services – something which is fought over fiercely.
Telkom Internet has also seen its ADSL market share slip from 42.5% in 2004 to its current level of 36%. This decline may be attributed to a more competitive ADSL ISP space as well as the aforementioned backlash from consumers because of poor service levels and high prices from Telkom.
Telkom’s fixed line numbers have also steadily declined from 4.709 Million in 2003 to 4.642 Million in 2007.
The differing reactions from Telkom and Multichoice to a more competitive market can be used as a study of good versus bad future planning. While Multichoice is digging in its heels and improving services, Telkom appears to have put its head in the sand.
Telkom’s poor handling of their customers is clearly starting to influence their bottom line. The news that the Telkom-MTN deal is in tatters has seen investors jump ship causing Telkom’s share price to fall dramatically – a possible sign of a lack of trust in Telkom’s future prospects.
Multichoice on the other hand looks set to ride the storm when competition finally does arrive to test the mettle of the pay-TV provider.
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