Mythbuster 2: Time for MTN to face competition

Research ICT Africa
26 Feb 2014

Research ICT Africa released a policy brief in July 2013 benchmarking prepaid mobile packages across Africa. It showed that MTN’s South Africa prices are much higher compared to other countries where MTN operates. It further showed that prices for MTN South Africa are higher compared to prices of CellC and Telkom Mobile. Out of 46 African countries, 22 were cheaper than South Africa in the June 2013 ranking.

Robert Madzonga, chief corporate services officer at MTN, responded to this saying:

1) MTN had found that, in some instances, prices quoted by Research ICT Africa were 60 percent higher than the average MTN prepaid package, and almost 80 percent higher than its cheapest.

2) It also failed to take into account differences between “per-second and per-minute billing increments in its benchmarking. Per-minute billing typically resulted in 25 percent higher costs than per-second. A variation of this magnitude could account for 10 places in South Africa’s ranking, Madzonga said.

3) RIA research methodology had “little to do with the reality of the costs MTN consumers actually face”.

Research ICT Africa would like to reiterate that all products and all tariffs can be transparently accessed on its website. MTN is invited to inspect any of the tariffs calculation methods.

Regarding point 1: We assume that MTN is referring to MTN Zone in its reference to MTNs lowest prices. RIA makes the following assumptions for dynamic pricing across Africa: On-net prices at 40% discount during peak time, 50% discount during off peak time and 60% discount during off-off peak time for on-net calls. For off-net calls RIA assumes a 10% discount. These assumptions are the same across Africa, i.e. the MTN Ghana vs MTN South Africa comparison is not affected. RIA has requested data from MTN to support its claims, but to no avail. In fact, the assumed discounts may well be far too generous. Someone working in town, having to co-ordinate daily life with a mobile during the day is unlikely to benefit from more than 10% discount for most of the time, for example. The invitation remains open for MTN to demonstrate that our assumptions are unreasonable.

Regarding point 2: Our baskets assume per second billing for all products. That makes some of MTN’s products cheaper than they really are. CellC’s and Telkom Mobile’s products are all per second billing in comparison.

Regarding point 3: Baskets are being used to allow objective comparisons across countries, operators and products. Individual use will of course differ from user to user not may be similar to the specified basket. Perhaps most telling is that consumers are voting with their feet. RIA’s findings of MTN being more expensive compared to CellC and Telkom Mobile appear to resonate strongly with the experience of consumers. The latest interim result of MTN for 2013 indicate that MTN is losing prepaid subscribers and voice and SMS revenues. MTN lost about 700,000 prepaid subscribers compared to the last quarter of 2012. This is attributed by MTN itself to it not reacting quickly enough to the price war of the last year which had created a ‘structural shift’ in what people were prepared to pay (Business Day 15 August 2013).

At the same time prepaid and postpaid ARPUs declined. With increasing subscriber numbers one expects a decline in APRU. MTN’s prepaid subscriber base and ARPUs declined at the same time, which should ring alarm bells at MTN’s head office. Outgoing voice revenues dropped by 5.3% and SMS revenue by 8.2% compared to the the first half of 2012. Falling SMS revenues and increasing data revenues also send a very clear message. SMS revenues will peter out altogether at MTN rate of R0.75. If SMS is required to be a revenue source the price needs to be aligned with costs. An SMS price of 5 cents would be reasonable. (MTN Ghana charges R 0.23 per SMS currently.)

There is no point arguing with your customers. Rather see what your competitors are doing right. MTN SA does not even need to look outwards from its own Group, it only has to follow leading continental performer MTN Ghana. The advertised prices for MTN Zone in Ghana are only a fraction of the prices of MTN Zone in South Africa, compared in US$ or in US$ PPP. Also, the implied prices (ARPU / MOU) are much lower for MTN Ghana compared to MTN South Africa, while the EBITDA margin is higher. Lower prices – higher profits.