Telecoms price wars benefit consumers

THE dollarisation of the economy allowed mobile operators to improve their operations through expanding network capacity and broadening product offering to end users.

By Kumbirai Makwembere

Subscriber Identity Modules (Sim) cards, that were at one point treasured as gold, became readily available.

Their pricing again normalised from as high as US$100 to the current levels of US$1 if not 50 US cents in some instances.

Data products were also introduced over the period with the rollout of broadband services. Conducting business transactions through mobile phones became popular again.

There has been a remarkable growth in the number of subscribers over the past four years. However, market share distribution has remained skewed in favour of Econet which accounts for 75%.

Econet’s dominance in the sector relies greatly on the first mover advantage it has commanded since dollarisation. Telecel is next in line with 16% while NetOne holds the remaining 9%.

What is currently interesting in the mobile phone industry however, is the level of cut-throat competition.

Telecel is the most aggressive and has launched several promotions over the year including “Mo Fire”, Telecel Red and Broadband Plus. The common feature in all these promotions is that subscribers pay a set amount and in return they get a huge bonus in voice airtime and data bundles.

What is encouraging about the campaign currently being made by Telecel is that it is backed by the company’s ability to increase mobile sim cards in circulation, unlike in the past.

Econet initially introduced its Buddie Zone package, which offers discounts as high as 90% on voice calls to prepaid subscribers in 2012.

Recently they took competition to a new level altogether by slashing tariffs on calls made to other networks by 60%. In addition, the discounts on the Buddie Zone will now be applicable to both prepaid and postpaid customers.

Again, many view the move by Econet to disconnect Telecel on the basis that it had not renewed its operating licence as a smart way of elbowing out competition.

NetOne has not been left out in the promotional campaign race as it is presently offering the dollar-a-day promotion where clients get an amount of intra-network airtime much more than their recharge amounts.

The main thrust of promotions being offered by these companies is to increase usage of both voice and data services. Companies also aim at safeguarding their market share.

It is beyond doubt that competition is healthy and consumers are the main beneficiaries. On numerous occasions consumers have complained about the high charges offered by these companies.

A case in point was when Econet introduced broadband services.
The general feeling was that it was pricey when matched against other players in the region.

It would appear that Econet charges higher prices when it launches new products so that it can quickly recover the costs of production before competition comes on board. The price-skimming strategy is again adopted to limit the number of subscribers using the new product as it will be in its testing phase.

Thus having more players will force companies to appropriately price their products and in the process offer discounts and these benefit consumers through affordability.

Service quality, however, remains poor despite the huge profits that these companies are creaming off the market.

These promotions might however eat into the profits of the respective companies.

Normally, the Average Revenue Per User (ARPU) should go down in line with the drop in tariff. However, consumers tend to increase usage with the price cut hence average minutes of use (MoU) are likely to go up, thereby supporting revenues.

The advent of alternative instant messaging platforms such as Whatsapp and Viber nonetheless may conversely see MoUs gradually coming off.
Such price wars are not unique to Zimbabwe. The Kenyan market witnessed a bloody and gruelling price war which stretched for almost two years after Airtel cut rates by 75% on August 18, 2010.

Across the Limpopo, Cell C slashed its tariffs in March and it recently reported that its subscriber base had improved by 1,5 million from October 2012 to 11,5 million.

At the same time management at MTN disclosed that the competition had caught them off guard and resulted in their subscriber base declining by 400 000 to 25 million.

The overall benefit to subscribers has been reduced tariffs. A report by Research ICT Africa shows that the average South African basket price consisting of 40 calls and 60 SMSes declined from US$16,60 to US$12,60 for the second quarter of this year.
It therefore follows that after the recent move by Econet to slash tariffs, other network providers have to be more innovative if they are to lure subscribers away from Econet.

In any case, local consumers rarely shift networks but would rather have multiple sim cards so as to benefit from discounts on the various networks. Econet still has an edge over NetOne and Telecel in that the Net One shareholder is not strong financially while operations of Telecel are continually affected by shareholder wrangles.

Econet has also widened its revenue and earnings stream by coming up with the EcoCash mobile money transfer service. Other telecoms players may need to consider alternative revenue generating streams as steep tariff cuts erode the sustainability of the telecoms sector.

This level of competition calls on the regulator to be pro-active. The Postal and Telecommunications Regulatory Authority of Zimbabwe (Potraz) should up their game to ensure that the quality of services is not compromised through network congestion and dropped calls.

Additionally, the regulator should ensure that companies offer what they claim to be offering. For instance, some companies locally claim to offer 3G internet services yet their internet speeds are extremely slow.

Furthermore, to ensure that consumers fully benefit, the regulator Potraz should now compel these companies to share their infrastructure.

This will improve network coverage for all the service providers and ensure that companies compete on product offering, quality and price which again will transform into benefits for the consumer.

 

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