“The mobile operators are fighting the wrong war”, says Marius Burger, managing director (MD) of Indian Atlantic, “and they’re squaring up to the wrong enemy. They should be fundamentally revising their business models to prepare for Google, Facebook and Microsoft, who are aiming at their voice markets.”
Let us take a step back. For well over a decade South Africa’s cellphone users paid astonishingly high termination rates by world standards, while a succession of communications ministers and the Independent Communications Authority of South Africa (ICASA) failed to tackle long overdue regulatory reforms (termination rates are what cell phone operators may charge each other when consumers call across networks). The operators and their gleeful shareholders became used to the generous profits these rates provided, year after year.
Only recently did government and the regulator grasp this nettle and – after some kicking and screaming from MTN and Vodacom – all agreed on a ‘glidepath’ for a phased reduction of termination rates until 2016.
On 29 January 2014 ICASA took the operators by surprise when announcing new asymmetric termination rates, which meant that Cell C and Telkom Mobile, South Africa’s smaller operators, would pay significantly lower termination rates than MTN and Vodacom from 1 April 2014.
Governments around the world use asymmetric termination rates as a standard practice for driving down overall consumer costs, while also affording smaller operators the additional revenue to grow their networks and become more competitive. In South Africa Cell C and Telkom Mobile have long 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.
Nevertheless, MTN and Vodacom reacted by filing legal actions against ICASA, causing it to delay implementation until May 2014 or later. Since then the public media has been humming with the cut and thrust of opposing CEOs arguing their company positions.
But the termination rates conflict is a sideshow that diverts management attention and will probably damage MTN and Vodacom’s brands.
Cell phone operators should accept that South Africa’s interconnection costs are too high and rates will come down, as in the rest of the world. Our consumer market is maturing rapidly and operators must consider other strategies for protecting their revenues and retaining customer loyalty.
The biggest threat to the telecoms operators is the global “over-the-top” (OTT) players like 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 its Talk, while most ominously, Facebook recently purchased WhatsApp for a staggering US$19 Billion and announced that it would be launching voice through this platform in a few months. WhatsApp has the market penetration to be a real threat to operator voice revenues in the next year. This doesn’t give the operators much time to reposition themselves for the challenge.
You may think I’m being alarmist, but consider how much revenue the cable TV providers in the USA – similar to our DSTV – suddenly lost to OTT movie and video providers such as Netflix, Hulu and Roku, with Apple TV and Sony, even Google, now entering this internet streaming market in a big way. Cable TV may only survive there by entering into alliances with the OTTs, which is happening at the moment.
What consumers want
The South African consumer market has been massively saturated by cell phones (140 per cent), with the market share of smartphones climbing steeply particularly as ever cheaper handsets become available.
As users in a mature market, South Africa’s consumers are losing patience with complex mobile packages, with the major operators often being accused of making these deliberately confusing to extract revenue. Millions of cell phone users are probably using packages that aren’t fully aligned with their specific needs.
Consumers would also like more flexibility with bundles. Some prefer great deals on data, while others need best value for SMSs. Data expiry dates and data bundle rules are designed to generate operator revenue at the expense of subscriber convenience. South African consumers want to select from a range of products and services to customise their own packages.
Contrast the glibly marketed array of choices and ‘special deals’ advertised by operators with the simplicity of WhatsApp and Skype, which feature intuitive functionality across all handsets and computers. The mobile operators must rethink their business models fast, as the OTTs are going to eat their lunch.
Operator next steps: revenue optimisation and customer service
Operators and service providers alike need to critically analyse their business models, find innovative ways to maximise return on investment in infrastructure and hedge against the threat of the OTTs.
Loyal consumers are their most valuable asset, but until now the two main operators appear to take them for granted. A quick visit to www.hellopeter.com will quickly attest to this. 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 clearly not enough on customer service. It is rather ironic that upgraded networks benefit the marauding OTTs as much as consumers. The operators need to balance their business models to retain market share by making customer service as important as networks.
Good customer experience is not enough – it must be compelling. Compelling customer experience requires a consistently high quality of service through all channels and customer touchpoints; from the network quality, to the retail channel, to logistics and fulfilment, to the billing and payment services. The South African market is desperate for an operator or service provider that can differentiate itself properly from competitors in multi-channel customer experience.
At the sharp end: offensive strategies for cellphone operators
1. Compelling customer service
Without repeating what has already been said in this article, customer service has to become a first priority. South Africa’s consumers are no longer captive, or particularly loyal, to any specific operator. This reality is dangerous for South Africa’s mobile operators, whose current packages cannot match the universal appeal and simplicity of the global OTT products offered by Facebook, Google and Microsoft. They can only compete by keeping their customers loyal to their networks and continuing to consume their data and voice offerings.
2. Substantially enhanced customer management
Compelling customer service has to be intelligent to deliver optimum returns. Operators need to invest in the data analysis capacity to ensure that their customers are receiving the right value for the price they are paying. The technology exists to verify that service plans are optimised for each customer and market segment.
This technology can reveal deep insights into customer behaviour by drilling down into individual consumer preferences and predicting future behaviour. Marketing offers and customer interactions can be tailor made to provide better user experiences and therefore generating higher returns. Customer loyalty is retained by knowing when a customer needs an optimised offer that offers best value for price to both the operator and the customer.
3.Improved product conceptualisation and management
Operators need to continually analyse their tariffs and price packages against those of competitors. This enables them to identify selling opportunities and assess the profitability of new products and price plans. To extract greatest value, networks can build products from existing features merged with innovative new features and products based on what consumers want. The right products must be launched at the right time and at optimal rates. This requires a service provider’s big data processing to go beyond the traditional reporting and trend analysis offered by current systems.
Operators tend to task their marketing departments with conceptualising new products, which is often the wrong approach. In my experience, product development managers tend to develop products faster and that are better aligned with actual market needs. Speed to market is crucial.
4.Pushing mobile money services
South African retail is set to follow the trend in Europe and the USA, where shopping is increasingly moving to online. Retail centres in particular will defend their ‘foot traffic’ by introducing wireless networks in the centres that enable brands and outlets to engage in real time with their potential customers. Major brands will also encourage online shopping supported by home delivery or pick-ups at designated retail outlets. Consumers will access product reviews and ratings in any location, while being attracted by highly personalised incentives.
To prepare for this evolving market, brands and payment providers need to implement effective mobile commerce strategies. Mobile commerce offers a unique opportunity to increase loyalty, better serve consumers, and provide customised incentives that deliver real value.
Defensive strategies
1. Declining profitability and revenues
With reduced interconnection tariffs and stiffer competition coming into play, bottom line growth for mobile operators will likely slow down, unless they amend their business models.
Operators need to offer better value to retain customer loyalty. In South Africa, many longstanding customers are still being held to outdated and expensive contracts. In the short term the operator benefits, but may lose customers that become aware that they have been overpaying for what they get. South Africa’s operators should be advising their clients about the best value deals that they can get for their spend.
As voice and interconnection income declines, operators must work on growing their data revenues.
2.Halting Churn
In the mobile market, operators lose customers (“churn”) through poor service, or when their customers get better deals or value for money from competitors. To retain their customers, operators have to offer superior service and offerings, as well as value for money. This isn’t straightforward, as getting these three aspects right requires a service-oriented corporate culture built on skilled personnel and supported by top notch systems and technology.
3.Preventing revenue leakage
Small errors and losses from sales, network configuration, ratings and billing add up to considerable lost revenue. Such leakages can be the result of system errors, ranging from incorrect billing to call records not being correctly transmitted, rated or charged. Networks are also experiencing a sharp rise in fraudulent activity, such as SIM cloning.
As mobile operations grow more complex and fraudsters deploy increasingly cunning technology, implementing a proactive approach to identifying risks has become imperative. Revenue assurance and fraud management has to be prioritised.
4. Maximising value
Mobile operators need to manage their growing traffic volumes while simultaneously raising their customer service levels. At the same time, their services must be cost effective and generate revenue. Value added services should be designed to optimise usage of their specific networks and assets. Non-peak traffic hours on the network can be leveraged for revenue by using targeted offerings to encourage subscribers to use the network during off-peak periods. Customers should also be made aware of the extra costs of accessing networks during peak and congested hours.
In conclusion
How people connect digitally is a much bigger business than cellphone networks, although these are fundamental to carrying this connectivity. South Africa’s operators will soon be engaging 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.
The tools are out there for all South Africa’s mobile operators to secure their places in the sun. The bigger operators have the resources to implement the repositioning they need to take on the global OTTs, while there are specific strategies the smaller players can adopt to survive and thrive. The world of commerce is seldom merciful to companies – great or small – that do not embrace change in time. And the cellular industry is one of the quickest evolving industries of all.
