Bain warns consumers not to expect cellular price cuts | TechCentral

— Duncan McLeod, TechCentral

Consumers should not expect lower retail tariffs to flow from the recent reduction in mobile interconnection rates, as there is “no correlation” between the two concepts.

That’s the view of Vittorio Massone (pictured), newly appointed managing partner in SA at management consulting firm Bain & Company.

Mobile operators Vodacom, MTN and Cell C recently agreed to reduce the interconnection fee, the money they charge each other and other operators to carry calls on their networks. The rate fell from R1,25/minute to 89c/minute during peak times on 1 March.

Massone, who specialises in consulting to companies in the technology, telecommunications and media sectors, says regulators elsewhere in the world have pushed down interconnection fees to facilitate new entrants into the market rather than to bring down retail tariffs.

SA’s incumbent mobile operators have been accused by some industry players of using high interconnection fees as an crude anticompetitive club to keep new players from emerging. Because new players have few customers at first, most calls on their networks will be to networks of other operators. High interconnection fees make it difficult for them to enter the market.

In SA, the reduction in interconnection fees should help facilitate Telkom’s entry into the mobile market and could also assist Cell C in gaining market share from bigger rivals Vodacom and MTN, Massone says.

In saturated mobile markets like SA’s, where customer churn rates are also relatively high, a new entrant like Telkom could put downward pressure on retail pricing.

However, Massone says it’s unlikely the operators will engage in a price war. Rather, he says, they should focus on differentiating themselves by introducing segmented products and services designed to increase customer loyalty.

“In a country which is so complex and heterogeneous, you can find many ways to segment the customer base,” he says.

In the consumer space, for example, operators should consider introducing packages tailored to the millions of Zimbabweans working in the country. These consumers have specific needs, including the ability to transfer money electronically to their families back home and to home call relatively cheaply.

Another example on an area not well addressed by the mobile operators is small and medium enterprises, Massone says.

And experience in Europe suggests people who play videogames respond well to packages aimed at them.

Offerings aimed at specific religious groups also work well.

By introducing value-added services and offerings tailored to specific consumer segments, operators are able to increase loyalty and spend and reduce churn.

Despite political pressure for interconnection rates to come down substantially, Massone warns that industry regulator, the Independent Communications Authority of SA, should be careful not to reduce them too much.

If the cuts are too deep, the operators will stop investing in new infrastructure, he says.

“If I were the regulator, I would want the operators to build high-quality infrastructure in areas where it’s not so financially sustainable to do so,” he says. “If you cut interconnection too much, they won’t go into the rural areas.”

Turning to Telkom’s plans in the mobile market, Massone says the company should play to its strengths in the corporate and small and medium enterprise markets.

Telkom ought to offer integrated offerings to business customers, including fixed-line and mobile services, coupled with Internet access, outsourcing and network management.

He says Telkom shouldn’t be too aggressive in its retail pricing in cellular.

“Anyone can reduce prices,” he says. “The day after you do it, everyone will be out with an offer that is like yours or even slightly cheaper.

“Also, you’d be educating your customers to buy on price and telling them you don’t have anything else to offer other than price.”