Let’s take a step back. For much more than a decade South Africa’s cellphone users paid high termination rates by world standards, while a succession of communications ministers and the Independent Communications Authority of SA (Icasa) failed to tackle long-overdue regulatory reforms (termination rates are what cellular network operators may charge each other when consumers call across networks).
Only recently did the government and the regulator grasp this nettle and – after some kicking and screaming from MTN and Vodacom – agreed on a “glide path” for a phased reduction of termination rates until 2016.
Governments around the world use asymmetric termination rates as a standard practice for driving down overall consumer costs, while affording smaller operators additional revenue to grow and become more competitive.
In South Africa, Cell C and Telkom Mobile have argued that they deserve this advantage, as the MTN and Vodacom duopoly had benefited from a multi-year headstart to establish their networks and cement customer loyalty.
The biggest threat to the telecoms operators is the global “over-the-top” players such as Facebook, Google and Microsoft. These giants are intent on getting revenue from their voice offerings, which are carried rent free on networks assembled by mobile and fixed-line operators at great expense.
Microsoft bought Skype, Google has Talk, while, Facebook recently purchased WhatsApp for a staggering $19 billion (R206bn) and announced it would be launching voice through this platform in a few months. WhatsApp has the market penetration to be a threat to operator voice revenues in the next year. This does not give operators much time to reposition themselves for the challenge
The South African consumer market has been saturated by cell phones (140 percent), with the market share of smartphones climbing steeply as ever-cheaper handsets become available. As users in a mature market, consumers are losing patience with complex packages, with the major operators accused of making them deliberately confusing to extract revenue.
Consumers would like more flexibility with bundles and to be able to select from a range of products and services to customise their own packages.
Loyal consumers are their most valuable asset, but until now the two main operators appeared to take them for granted.
Customer service provided through a call centre with convoluted voice prompts, long waiting times and inexperienced call centre agents is no longer acceptable. The alternative of trying to engage the operators through their decidedly user-unfriendly web portals is equally frustrating for consumers.
In earlier years the operators could “lock in” their consumers through contracts (postpaid), but number portability across networks and the current dominance of prepaid means that brand loyalty really has to be earned.
Prepaid customers in particular can easily change plans or providers. They are more aware of price differences and special deals, especially as the overall cost of living gets steeper and household budgets become tighter.
Mobile operators invest heavily in developing their networks, but not enough on customer service. They need to balance their business models to retain market share by making customer service as important as networks.
Operators need to continually analyse tariffs and price packages against their competitors to identify selling opportunities and assess the profitability of new products and price plans.
How people connect digitally is a bigger business than cellphone networks, although these are fundamental to carrying this connectivity. South Africa’s operators will soon face a challenge to their revenue streams much greater than the current and damaging squabble over asymmetric termination rates.
How they reinvent themselves to face up to this threat could decide how viable they can remain in the longer term.
Marius Burger is the managing director for Indian Atlantic Telecoms in 2010, which serves the telecoms and financial services sector in Africa and the Middle East.