Prepaid price war, but contract customers still suffer

It’s been nine months since Alan Knott-Craig made his first big move as Cell C CEO. In May last year, six weeks after taking the job, he slashed prepaid rates to 99c per minute (with per second billing). This was followed by the flat-rating of all Cell C’s tariffs, with contract, top-up, prepaid and international calls to a large number of countries cut to the 99c per minute level.

There was no immediate reaction from larger rivals Vodacom and MTN, which preferred to fight back with sporadic promotional activity. There were free on-network calls on certain days of the week and others dependent on how much you’d spent. Not quite the reaction expected. 8.ta’s launched some innovative products and pricing, but there’s been nothing earth-shattering from the Telkom upstart.

Cell C doubled-down with the launch of Supacharge at the start of this month. For every recharge, customers receive a certain amount of free Cell C-to-Cell C minutes, SMSes and data.

And then a fortnight ago, Vodacom finally responded. Well, sort of. It was one of those announcements that at first seemed to underwhelm the market, largely because it wasn’t too clear what the operator was launching. A “range of products and services” under the Free4Sho “customer promise” (I’m not making this up). The first of these products was “Vodacom Daily Free Calls”, with a flat rate of R1.20 per minute.

Game on, sort of. The flat-rating to R1.20 per minute is a giant step forward for Vodacom (on some of its other prepaid plans, you could pay as much as R2.60 per minute). But, Vodacom Daily Free Calls is billed per minute, not per second like on Cell C.

There is big added value, with customers only paying for the first three minutes of calls to other Vodacom numbers. The rest of the hour (57 minutes) is free. There are stark differences in how this Vodacom tariff plan compares with Cell C when it comes to SMS and data.

MTN, too, has managed a reaction. Its launched Mahala starter packs into the market, which offers free airtime, free SMSes and free data, depending on spend. There’s no obvious indication of which tariff plan customers who buy this starter pack will find themselves on. The company has consistently cited MTN Zone, which offers variable discounts depending on your location and time of day, as proof that it has offered prepaid customers added value for a number of years already.

The problem for customers is that they’re already on some sort of prepaid price plan, and need to actively switch to these new offers to benefit from more attractive tariffs. Do the vast majority of customers even know how to switch between plans, or do they remain stuck on the default?

Unbelievably, Vodacom has eight (EIGHT) prepaid price plans. MTN has four, plus something it terms “Old Pay As You Go”. So five, then. No wonder customers are confused.

One wonders if the larger networks are happy with this obfuscation? Perhaps it’s a deliberate strategy? For over a decade, it’s worked for them on the contract side of their businesses.

Vodacom has almost 25 million prepaid customers in the country. MTN has around 21 million. Surely, the more customers who are on prepaid price plans that don’t suit their usage (and where they end up overpaying for calls), the better? Imagine what happens to revenue and margins if you drop every single prepaid call on your network to closer to R1 per minute? Those ARPU (average revenue per user) numbers will crater.

Hundreds of product managers whose sole purpose is to keep churning out complicated and (very) profitable tariff plans with all sorts of hidden bits-and-pieces (like out-of-bundle data billed at R2 per MB no matter which price plan you’re on) would have nothing to do.

Perhaps 99c per minute (billed per second) is not sustainable? Indeed, there have been rumours in the market that Cell C is burning cash in this war. Knott-Craig didn’t seem too fussed in a wide-ranging interview with Moneyweb in December. He maintains the operator’s tariffs are sustainable and profitable.

But what of contract customers? There’s consistent added value being offered to prepaid clients, given the intense competition to keep growing a very saturated market. Us contract clients, locked into 24-month deals with subsidised phones that we probably can’t afford, are forgotten. After all, we keep paying. And we can’t shift.

Aside from Vodacom’s launch of Smart price plans (voice, SMS and data), this space has been very quiet (almost eerily so) for over a year now. Could we see Cell C’s 99c per minute contract pricing finally force a reaction from the bigger two?

* Hilton Tarrant contributes to ‘Broadband’, a column on Moneyweb covering the ICT sector in South Africa. He knows he’s switching to prepaid (and probably porting too) as soon as his contract ends in a few months’ time.

Source: Another prepaid price war, but contract customers still suffer

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