Data wars rescue diving cell profits

The days of super profits for cellphone companies are long gone, unless data proves to be the next big thing.

Increased competition for data subscribers, which has driven down prices, has eroded margins and cellphone companies are now in many respects more like utilities, with little to differentiate what they offer.

Philip Short, an equities analyst at Old Mutual Equities, said this week that, although consumers were winning daily through lower prices, the cellphone companies were parting with more of their profits.

"It's hard to differentiate between networks. The only way they can compete is on price. As long as that is the case, you will see pricing coming down."

Vodacom cut its effective price per megabyte 26.5% amid tough competition during last year's December quarter, it revealed this week.

The strategy appeared to succeed as data subscribers increased 62.2% to 16.8million and revenue from data gained 18.8% to R3.5-billion in South Africa. Across the Vodacom group, data subscribers climbed 16.4% to 26.5million. Data now constitutes 27.4% of service revenue.

But this growth was not enough to avoid a 1.1% slump to R19.99-billion in group revenue. Service revenue, which reflects the sale of airtime and data, fell 2.7% to R15.8-billion because of increased competition, pressure on consumer spending and a 50% cut in fees that operators could charge to connect calls to each other's networks.

Explaining the group's strategy to retain subscribers, CEO Shameel Joosub said the company had transformed pricing "through integrated packages for contract customers and low-cost bundles for the prepaid segment". Joosub said 74.2% of contract customers had been migrated to integrated plans to give them an option to access prepaid promotions.

Vodacom increased the smartphones and tablets on its network 23.6% to 9.5-million through a subsidy and selling low-cost devices. Average monthly data usage rose 41.1% to 358 megabytes on smartphones.

Sibonginkosi Nyanga of Imara SP Reid expects growth to "slow down over the next couple of years ".

Could data still hold the key to growth? Short said: "You are going to be calling more over Whatsapp, WeChat and Viber. Voice revenue will suffer."

The operators' relationship with Whatsapp and WeChat is tense as these players are reluctant to share revenue even though they market their services to customers on cellphone networks.

Mobile operators have ventured into offering short-term insurance products and sim cards for machine-to-machine telemetry, such as in traffic lights and money.

World Wide Worx MD Arthur Goldstuck said the current problem for networks was "having to throw ideas at the wall and see what sticks rather than being able to chart a clear path into the future".

Struggling Cell C is one of the companies adopting desperate measures. Its customer base has grown, but this has not necessarily translated into higher revenue. Its major shareholder, Saudi Telecom, revealed a R1.2-billion write-down of its investment in Cell C last month. It is offering free connection to Whatsapp and is the only network to offer phones with dual sim cards.

Goldstuck said there was a need for dual sim phones, but the strategy would not give Cell C a competitive edge.

Cell C, he said, was "making a deal with the devil by embracing" competitors.