Telkom relies on new mobile strategy

As per the analysts, Telkom is planning to launch its long-awaited mobile network this week, but considerable price cuts will be required to persuade consumers to change alliance.

The new name for Telkom Mobile is anticipated to not be disclosed before the launch on Thursday evening. The widely publicized Heita advertisements are most likely to be Telkom’s answer to MTN’s Ayoba campaign.

Following the sale of Telkom’s 50% share in Vodacom, the new mobile operation is seen as vital for the group’s future success. Telkom’s fixed-line business is in continuing decline and other attempts to spread revenue, most particularly through Telkom Media, since sold at a giveaway price, and the purchase of Multi-Links in Nigeria, have led to multi-billion money write-offs.

Telkom is likely to aim existing consumers, who are mostly on contract, by packaging contract-mobile services with existing fixed-line and ADSL services. Consumers are expected to get one bill, at a lower cost than buying these services separately.

According to Arthur Goldstuck, managing director of consultancy World Wide Worx, a big opportunity lies with Telkom’s existing customer base. Telkom has 4.2million accounts it sends monthly bills to – this is a superb tool for marketing new services. It would make sense for Telkom to also offer additional services to corporate clients, where Telkom is held in high regard.

According to Dobek Pater, partner at Africa Analysis, Telkom will have to cut prices substantially if it wants to make a compelling offer to consumers. Cell C’s entry into the market led to price cuts of around 10%, with very little impact. To really convince consumers that Telkom’s offering is worth the cost saving, price cuts of around 20% to 30% should be implemented. The problem is that they are spending R6-billion on this network and also need to realise some return on that investment reducing the scope for price cuts. In addition, Telkom will largely be roaming on MTN’s network as a start, which would mean higher operational costs for Telkom.

Pater further claimed that the chances of a fourth operator entering the market, and winning more than a 10% market share after a few years, are very slim. Telkom Mobile simply never will be a replacement for the 50% stake the firm owned in Vodacom. It could take 12 to 18 months for Telkom to start benefiting substantially from contract subscribers at other networks changing to Telkom, while prepaid customers will have to be persuaded by a better value offering before they decide to change networks.

While Telkom offers mobile-broadband services in limited areas where it already has W-CDMA network access, it is dubious that large-scale roll-out will start while Telkom still relies mostly on MTN’s network for coverage. W-CDMA technology allows fixed-wireless services at higher speeds than traditional GSM networks.

Unfortunately for Telkom, it is up against three dreadful players.

Cell C, certainly the smallest of the three, have 7 million customers and is aggressively rolling out its own wireless broadband network, with a number of SA’s smaller cities already connected.

Pater claimed that MTN, Vodacom and Cell C will put up a fight – they won’t just roll over and hand market share to Telkom. At this stage, they have the bigger coffers. They’ve been at this game for longer and they can probably put up a fight for longer.