Who ate my MTN share?

The trouble in MTN’s local operations, where prepaid subscribers were down 10% in 2009, manifested itself in the company’s estimated market share.

Last week at the presentation of its results to December 31, MTN said it has 32% of the South African market (this is on a population estimate of 49.4m). This is an 11% decline in market share over a year.

But MTN says the prepaid subscribers it lost due to Rica “were not as meaningful to revenue”, as its ARPU (average revenue per user) climbed by R3 to R100.

Irnest Kaplan, MD of Kaplan Equity Analysts, says this fact is significant. It leads him to believe that those subscribers lost on the lower end moved to both Vodacom and Cell C.

Kaplan says that Cell C has “generally” targeted the lower end of the market. Vodacom’s recent launch of its R2 airtime voucher signals it is also pursuing this segment of customers. Never forget that “Vodacom is a strong competitor,” he adds.

Frost & Sullivan ICT analyst Spiwe Chireka concurs. She believes that part of MTN’s market share was grabbed by Cell C, which “dropped tariffs quite significantly” last year.

“Vodacom and MTN followed, but Cell C had first-mover advantage.”

Chireka says the lower end of the market is incredibly price sensitive, and Cell C has been strong at attracting these customers.

She warns about the profitability of this segment of the market, as it’s “not very lucrative”.

These subscribers “don’t really spend money”. They will typically send “Please call me” messages to their “richer” friends and family.

We will continue to see innovation around the lower denomination vouchers. “The operators need to encourage that base of the market to make calls.”

The cheaper vouchers have translated into a pick up in minutes, volumes, calls, revenue, but it is “more expensive to retain or gain such a subscriber”.

But did subscribers simply move because of price?

Chireka suspects that the quality issues on Vodacom and MTN’s networks last year was likely to have driven some subscribers away from the two bigger operators.

It’s difficult to back up the decline in MTN’s market share – from 36% in December 2008 to 34% in June to 32% in December – as Vodacom hasn’t published its estimated market share in the quarter to December. Cell C very seldom publishes subscriber numbers.

Prepaid Postpaid Mkt share Prepaid Postpaid Mkt share
Dec-07 20720 3432 12288 2493 36
Mar-08 21177 3541 55 12589 2580
Jun-08 21138 3643 13002 2588 36
Sep-08 21391 3735 53 13525 2648
Dec-08 22450 3867 14415 2754 36
Mar-09 23561 3946 14594 2834
Jun-09 24578 4039 53 14363 2868 34
Sep-09 23926 4159 55 13466 2953
Dec-09 22636 4349 13044 3023 32

Kaplan also suggests that the operators’ definitions of “subscriber” are constantly changing.

“The way they define subscribers is not the same … they change these definitions from time to time.” This could lead to distortions in the numbers.

It’s one thing seeing a dip from, say 36% to 35%, but the trend does not look good for MTN.

The complication in all of this is, of course, the fact that South Africa currently has 103% SIM card penetration. That means there are well over 50m SIM cards in the country.

Kaplan agrees with the operators, who say that actual “human” penetration is closer to the 70% mark (or 35m). Many South Africans carry two or even three SIM cards, especially those on the lower end of the market who are sensitive to price and special call rates at specific times.

One analyst suggests that MTN may be “willingly” surrendering the lower end of its user base.

Chireka believes that the operators are being forced to move into the enterprise space to grow profits.

On the mobile voice side, their focus will be on sustaining the business. The real growth is going to come from the “business”-type offerings.

Currently MTN has the upper-hand in South Africa, thanks to its purchase of Verizon last year.

Its strategy is becoming clear in its other markets too. It has launched, or is planning to launch, internet service provider businesses in each of those territories.

That is where the real money is going to be made.

MTN Market share declines << Discussion


Related links

MTN May Move Beyond Mobile

MTN’s mobile broadband network

* Hilton Tarrant contributes to “Broadband”, a column on Moneyweb covering the ICT sector in South Africa. He suspects most of MTN’s lost prepaid subscribers moved to Cell C, but that they won’t really add much to that operator in terms of revenue or profit.



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Who ate my MTN share?