Did Telkom underestimate Multichoice?
Telkom is pulling funding from Telkom Media and looking to offload it’s investment in the pay-TV company, making outsiders wonder if the fixed line provider hasn’t bitten off more than it can chew by tackling the well-entrenched Multichoice.
Telkom announced at their recent analyst day that it was curtailing it’s investment in Telkom Media from the original R 7.5-billion to R 5.3-billion and would be looking for other investors to buy its stake in their new hobby-horse.
One has to wonder if Telkom hasn’t woken up to the fact that Multichoice made full use of their monopoly days and basically own the market. While Telkom used its monopoly to line the pockets of shareholders to the detriment of their network and customers, Multichoice was far better at building up their business while they were the only operator.
Telkom was initially very confident that Telkom Media would not only provide it with an additional revenue stream, but that it would be able to challenge Multichoice in the pay-TV market.
The announcement from Telkom CEO Reuben September that they would be pulling funding from Telkom Media raises the question as to whether the telecommunications incumbent hasn’t underestimated Multichoice.
Competing monopolies
During its monopolistic reign Telkom did not invest heavily in infrastructure, nor did they display any urgency to sign up as many customers as possible. For Telkom it was more of the same, charging high rates for sub-standard services and passing profits on to shareholders.
This lackadaisical approach has given companies like Vodacom, MTN, iBurst, Internet Solutions, Vox Telecom and Verizon Business a foot in the door. Basic common sense tells you that no one should be able to compete against the only fixed line provider in the country, but in South Africa Telkom is getting a whipping from wireless providers and even some of its ADSL resellers.
One example of where Telkom failed miserably is by not providing sufficient ATM bandwidth and facilities which meant that their service offerings and ability to grow their ADSL subscriber base was severely hampered. It is only now that Telkom’s Metro-Ethernet services are coming online that there is some relief.
The result of Telkom’s poor performance in terms of network investment and customer growth is that there are now more wireless broadband subscribers than ADSL users.
Unlike Telkom, Multichoice did not whittle away its monopoly years by bleeding the company to ensure maximum returns to its shareholders. The Naspers owned pay-TV company invested enough back to ensure that they would be well positioned to face the impending competition in this market.
The company’s products are seen as expensive by many of its subscribers, and realizing that the LSM 3-7 group was not being accommodated Multichoice decided to introduce a range of more affordable options.
With its four bouquets MultiChoice provides something for most portions of the South African population. Their DSTV Premium (R468.99), DStv Compact (R199.99), DStv Select (R139.00) and Easy View (R20.00) packages leaves very little room for a competitor to target a ‘virgin’ part of the market.
But the company did not stop there. It has already established a web-TV presence – a video on demand service free of charge to its premium subscribers – and is also testing its HDTV offering set for a 2008 launch.
The wide array of offerings, firmly established content contracts and early adoption of new technologies means that Multichoice has practically sewn up the local pay-TV market. Its DSTV offerings are not necessarily cheap, but apart from small niche markets Multichoice has basically all bases covered.
Competition welcomed
MultiChoice attributes its good growth over the years to sourcing and acquiring high quality channels, providing a state of the art technological process of taking these channels to the viewer and offering a world class customer interface.
This definitely sounds like something that fell off the back of a marketing brochure but the fact remains that Multichoice does offer viewers the shows they want to watch.
The company confidently says that it “welcomes competition as we believe it will be good for customers, they will have more choice, it will grow the industry and the skills base in the country.”
It was always going to be interesting to see one monopoly take on the other, but Telkom seems to have realized that it is ill-prepared to tackle Multichoice.
While Telkom Media was widely seen as the likely candidate to battle Multichoice, it will have to find a new shareholder and financial backer soon if it is to live up to its promise.
This latest announcement from Telkom means that Multichoice is unlikely to face stiff competition any time soon as the other new pay-TV licensees On Digital Media (ODM) and e.tv's sister firm E-Sat are not really a match for Multichoice.
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