Virgin Mobile hardly better

“While the Virgin brand is undoubtedly a powerful one, we believe Virgin is going to find it very tough to compete against the establishment of Vodacom and MTN,” he wrote in a note to investors.

Virgin Mobile’s strengths include the simplicity of its tariff structure (same price is charged whether a person is a pre- or postpaid subscriber) and no obligation to take out two-year contracts (no lock-in period).

Virgin has three products: V0, which is a prepaid product; V100, where a subscriber puts down R100 a month; and V500, which requires an initial outlay of R500 a month.

For the first five minutes of calls made each day, Virgin charges R2,35 for each minute. After that, the tariff per minute comes down to R1,35. Virgin also only charges per second used, and does not levy the full per-minute charge should a user only be connected for part of the minute.

On V100, the first five minutes are charged at R1,95 per minute, while for the V500 package, the first five minutes cost R1,75 each.

Kaplan thus compared V0 with Vodacom’s 4U per second, MTN’s Pay as you Go per second and Cell C’s EasyChat per second products. “If one compares using the first five-minute tariff, we calculate that Virgin is 8% more expensive than the average of the incumbents across an equally weighted basket of all call types. If one uses the reduced tariff (after five minutes), Virgin is around 29% cheaper,” he concluded.

Despite the big savings once the five-minute threshold is reached, Kaplan reckons the V0 product won’t appeal to the masses of prepaid users in South Africa. “The reduced tariff only kicks in after five minutes per day of call time which translates to a spend of R 352 per month. This is way above what average prepaid users spend in SA,” he says.

According to the most recent financial statements available, Vodacom’s average revenue per user (Arpu) from its R16,7m prepaid customers in South Africa is R69 a month. MTN’s Arpu is R87 a month from its 8,5m subscribers, while Cell C did not disclose its prepaid Arpu figure for its 2,2m in 2005.

The V100 product fares better when compared against its competitors. Assuming a user makes 150 outgoing calls a month (spread evenly in peak and off-peak times) and sends 30 SMS messages per month, the monthly bill came to R310 a month, around 10% cheaper than similar packages offered by the other operators.

(Kaplan compared V100 with Vodacom Talk 100S, MTN ProCall 120 and Cell C CasualChat 100 for comparison.)

“However, one must bear in mind that the Virgin product does not offer a subsidised cellphone upfront. The monthly savings from Virgin in this calculation are more than made up by the free mid-range cellphone offers from incumbents,” he noted.

The V500 product was compared with Vodacom’s Talk 500, MTN’s ProCall 600 and Cell C’s BusinessChat400, using a subscriber that makes 600 minutes of outgoing calls and sends 90 SMSs per month.

“Virgin comes out at around 4% more expensive per month than the average from the incumbents. Also, on these packages, incumbents usually offer top-of-the-range handsets for free. In our opinion, Virgin will therefore not appeal to the high-end users. I certainly won’t switch!” wrote Kaplan.

“We find it difficult to say that SA’s cellphone users will find Virgin Mobile the sexy alternative. Low-end prepaid users should stay away. Middle volume users may find some benefits, but will probably not want to give up the opportunity of upgrading their cellphone every 18 months. We do not believe high-end users will be getting a better deal by switching, and certainly, most will not consider it until mobile number portability is adopted.