Cell C puts cat among the pigeons

Moneyweb’s Gugulethu Mfuphi interviews World Wide Worx MD Arthur Goldstuck about Cell C shaking up the mobile market.

GUGULETHU MFUPHI: It’s Thursday May 31 2012 and in this special Boardroom Talk podcast we speak to technology guru and our own go-to guy here at Moneyweb, Arthur Goldstuck, who’s the MD of World Wide Worx. Arthur, looking at the local telco sector we’ve seen what could be described as yet another price war that’s developed between the mobile operators in both the voice as well data sectors. What do you make of the landscape so far?

ARTHUR GOLDSTUCK: There’s no question that Cell C is putting the cat among the pigeons and shaking up the market. As much as the two major players don’t like to position themselves as competing with Cell C, they don’t have a choice in the matter because Cell C is aiming at that massive prepaid market of something like I think it’s now close to 16m accounts, which is churning at the rate of 43% a year. That means that there’s something like 40m prepaid accounts in play every year and if someone can persuade people to look at a different brand as their choice when they are churning then that means potentially a massive grab for market share by Cell C.

GUGULETHU MFUPHI: Speaking of Cell C, it’s newly appointed CEO Alan Knott-Craig Senior formerly with Vodacom, now he’s wasted no time since being recently appointed as the head of the company. He initiated the price war and the company also received R1.5bn boost from its shareholders internationally. What might we see the company potentially do with these funds?

ARTHUR GOLDSTUCK: I think one of the clear factors behind that cash injection from the shareholders is to enable them to concentrate on winning market share and not to have to worry too much about what it’s going to do to their margins because if you have large debt to serve you’ve got to make sure that your margins are big enough to serve that debt. So by reducing the debt they can also live with reduced margins, in other words they can take a position in the market that they’ll take far lower margins offering people a far better deal and obviously losing money on that but not necessarily running at a loss, as long as they can serve their debt with the kind of margins that they’re generating.

Arthur Goldstuck

GUGULETHU MFUPHI: Now the smallest of all the mobile operators in the country must be Telkom’s 8ta, which is still very new to the market. Clearly it will have to lift up its socks as all the other operators enhance their product offering as well as services.

ARTHUR GOLDSTUCK: 8ta are in the fortunate position now of having Telkom as their big daddy and it’s almost like having a sugar daddy because they can get the kind of funding they need to go to market with the same kind of strategy that Cell C has. We’ve seen that in the data space where 8ta has an unbeatable deal, their ten gigs a months for R199 over a 12 month period. Nothing beats that and even in the landline space is almost nothing as good as that. So they certainly have shifted the landscape there, although the message hasn’t got out to the market of how dramatically they’ve made that change because Cell C has a high profile executive coming in as CEO and someone who previously had shaken up the market with the biggest player in the market. Far more attention is paid to the manner in which they are likely to shake up the voice market than to what 8ta is doing in the data market.

GUGULETHU MFUPHI: Arthur let’s turn to the issue around roaming prices, now the cost around these has been so exorbitant that we’ve seen the European Commission step up to have the price of data usage when roaming in the European Union being capped at a certain amount. Now just how serious is this issue around roaming costs and even for locals who might travel abroad quite often?

ARTHUR GOLDSTUCK: Roaming is a burning issue for South Africans travelling overseas, in fact it’s one of the key issues that results in tremendous antagonism towards the networks because of the absolutely high cost. The cost of roaming outside South Africa ranges from R104 to R125 per megabyte of data. Now that is equivalent to what people are paying for a gig of data, in other words 1000 times more data they’re paying those kind of prices for, in fact they’re paying even less for a gig. So when someone goes overseas and uses the same amount of data as someone might use locally, they are probably paying 1000 times more. So it’s completely common and almost normal to hear of people coming back with data bills ranging from R10 000 to R100 000. That clearly is not viable, it’s not tenable and the networks have to do something about it.

GUGULETHU MFUPHI: Speaking of the networks doing something about it, why isn’t there some kind of middle man or larger authority or regulator that’s stepping in to intervene on this matter locally?

ARTHUR GOLDSTUCK: The problem with the roaming fees is that it’s a matter of an international bilateral arrangement and the regulator can’t control what is charged by foreign players and as a result of that they can’t insist that the local guys charge substantially less for the foreign players coming into this market because that’s the basis on which those fees are set. Hopefully the European Union has now set a precedent in capping the roaming fees, not just within Europe but for people from Europe roaming elsewhere, their networks can’t charge them the kind of rates that they have been. So I hope that’s going to have a knock-on effect and force a general resetting of those prices but if it doesn’t there is going to be a consumer backlash. If the networks are not working on that and not preparing for it they must take the consequences.

GUGULETHU MFUPHI: And for local South Africans roaming on local networks how should they avoid the costs of roaming besides getting a sugar daddy?

ARTHUR GOLDSTUCK: [Laughing] Local roaming is not really such a big issue because the networks tend to have agreements with each other. Certainly 8ta has agreements with other networks while they’re building out their own to roam on their networks. So generally speaking you’re not aware of the fact that you’re roaming if you’re travelling locally but the moment you travel outside the country my advice to people is to switch off data roaming completely. Keep data services on so that you can use WiFi services wherever you find them and look for the local equivalent of an ad hoc or prepaid 3G bundle. Most 3G cards that you buy internationally you can put into the modem that you bought locally. So you can use your 3G device with a foreign 3G card and that’s the first thing people should look for and back that up by looking for WiFi wherever you go. But whatever you do don’t use your local account for data when you’re outside the country.

GUGULETHU MFUPHI: And for voice calls, what do you suggest, Arthur?

ARTHUR GOLDSTUCK: Even with voice calls I recommend that people get to pay as you go service in whichever country they visit. To receive calls is not an issue but the problem is the person phoning you is going to be paying a chunk of international call costs, although those call costs have come down dramatically. Cell C have actually pinpointed where you can actually bring down those calls because of the volume of call traffic to certain countries the real cost of terminating those calls, in other words what it costs the networks to fulfil on your behalf is a lot lower than what they’ve been charging and they can afford to bring those prices down. That’s exactly what Cell C have done with countries like the USA, UK, India, Pakistan and China, where there is massive call volumes and it’s viable for them to bring the price down to 99c, cheaper than a local mobile call in most respects.

GUGULETHU MFUPHI: Arthur Goldstuck is the MD of World Wide Worx.

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