No-frills budget airline Kulula.com is preparing to take off in the cellphone market, raising the stakes in an already highly competitive telecommunications industry. The new cellphone company is still in the making and will be launched before year end. <\/p>\n
“We’re currently in discussions with various potential partners,” Kulula CEO Gidon Novick told Business Times.<\/p>\n
“We will launch very soon … before the end of the year. The time is right now. We’ve done extensive research, but we’re still deciding on which route to take.” <\/p>\n
Kulula’s cellphone company will probably be one of two mobile virtual network operators (MVNOs) expected to enter the cellphone fray within the next year, analysts say.<\/p>\n
Retailer Pick ’n Pay said it was not currently looking at competing in the cellphone space, but “that doesn’t mean we’re not considering it in the future”.<\/p>\n
Woolworths dismissed rumours that it was also looking at starting a cellphone company.<\/p>\n
Known for its zany marketing campaigns and for shaking up the airline industry in SA, Kulula could partner Vodacom or MTN and enter the market as an MVNO, which is a risky and costly option.<\/p>\n
Alternatively, it could buy bulk airtime from these companies, form a partnership with a service provider such as Nashua or Autopage, and offer people Kulula-branded cellphone packages. <\/p>\n
If it takes the MVNO route, it will compete with Virgin Mobile SA, which has a 50:50 joint venture with Cell C. Virgin Mobile entered the market in June last year, but has only secured about 100000 subscribers — below its expectations. This is despite its aggressive “bling” campaigns promising to substantially reduce mobile costs.<\/p>\n
Novick is hoping to change the face of cellphone offerings to South Africans. He has promised to bring down prepaid airtime costs for the consumer by more than 50%, and simplify mobile voice offerings. <\/p>\n
“Consumers won’t be buying airtime like they currently do. There will be a different arrangement, different structures, and they’ll have to interact differently with service pro- viders,” Novick said, without giving away his secrets.<\/p>\n
He added: “Prepaid cellphone users are currently getting no benefit in terms of rates offered and loyalty for buying top-up airtime. All that will change. We will significantly cut rates — by more than 50% — and focus on simplicity. The options out there now are too complex.”<\/p>\n
Kulula is known for entering consumer industries where it sees a gap in terms of affordability. It was the first low-cost no-frills airline to launch in SA in 2001, and last year it entered the financial services space with a loyalty credit card. <\/p>\n
In terms of its mobile offerings, Novick said Kulula would concentrate on voice only.<\/p>\n
While the prepaid market would be Kulula’s main target, Novick said there was also space to attract high-end customers by offering them more- affordable packages.<\/p>\n
“The airline experience has shown us that even people with money want reduced rates. We’ve found that higher-income individuals usually subsidise phones for their kids and domestic staff ,” he said. <\/p>\n
Richard Hurst, senior telecoms analyst at BMI-TechKnowledge, said there was room for another three MVNOs in the local market.<\/p>\n
In a new report on the emergence of MVNOs, he forecasts that these new players could gain between 3% and 7% of the total cellular market by 2011. He predicts there will be about 45- million SIM cards active when SA hosts the soccer World Cup.<\/p>\n
He said entities such as Kulula and Pick ’n Pay, with their strong brands, would thrive as MVNOs on the basis of being cost-effective and offering value to customers.<\/p>\n
“The real danger is that MVNOs can easily be squashed by the sheer might of the bigger players. The players that will be able to keep down costs — subscriber acquisition costs, cost of the SIM card, handset subsidy, the amount of marketing spend — will determine who survives,” he said.<\/p>\n
Hurst said that the regulatory environment would be key in terms of improving competition on a services-based level. <\/p>\n
He said: “Currently, Autopage and Nashua are the only enhanced service providers, and they have said they intend to remain as such. <\/p>\n
‘‘There is room for another three MVNOs — Virgin Mobile, if they can stick it out, Kulula, and a retail player such as Pick ’n Pay . All five would account for about 7% of market share in terms of subscriber numbers,” Hurst said.<\/p>\n
Virgin Mobile SA said it would welcome competition.<\/p>\n