Telecom firms trapped in a price war
Aug 20, 2008
MARKET INTELLIGENCE<br><br>MTN, uganda telecom (utl) and WARID are engaged in a price war that analysts think will lead some of them into the red and usher in further restructuring of the industry.
MARKET INTELLIGENCE
By Vision Reporter
MTN, uganda telecom (utl) and WARID are engaged in a price war that analysts think will lead some of them into the red and usher in further restructuring of the industry.
Each company is offering lower rates on calls within the same network to lure subscribers.
Market leader MTN recently launched MTN Zone, a tariff structure that offers discounts of up to 99%.
“The more capacity available, the greater the discount at the time of making the call,†the chief commercial officer, Erik Van Veen, said while launching the tariff band recently.
The discount varies according to the amount of traffic in particular areas. The more phone usage in a an area, the lower the discount and vice versa. The discounts are on a per second basis.
WARID’s latest promotion, Megabonus pushes the bar even higher in the tariff war. Under the promotion, subscribers can talk for free 24 hours after loading airtime. The free calls are only to WARID subscribers.
Zain, which was Celtel then, launched Chacha where calls within the network cost sh3 per second.
Utl under their Bonna Bogere offers free airtime to 17,000 clients a day if they load airtime. Its discount plan is akin to MTN Zone where pre-paid users outside Kampala can get discounts in less congested areas.
The perception is that the relatively newcomers are trying to eat into MTN’s dominance by offering huge discounts.
“For WARID, they have a huge fixed investment and need the numbers to make it viable. What they are saying to the public is “come and see what we have,†hoping that if 100 people can take up the offer and 20 stay on, they will have the numbers they want. As a new player trying to break into a relatively crowded market, it makes sense,†an analyst said.
“The beauty is that MTN cannot offer the same because their network would crash and inevitably hurt their subscriber base…. The question, however, is how sustainable is it? Can you continue to give free calls? What happens when you start charging for the calls which has to happen one day? Will you see major attrition on your numbers?†the analyst asked.
“MTN Zone and its utl equivalent are the smartest thing to happen to the industry, but they are not without pitfalls.â€
“Essentially, MTN is not giving anything away for free. Instead, they are getting more people to call who used not to and in effect, making more money,†he said.
“The more stable predictable income of MTN and utl’s subscriber base is their corporate clients, who though, are the minority in relation to the total subscriber base, are loyal. The pressure is going to be to offer them something as well or the battle will intensify for post-paid clients from people like WARID.â€
There are plans to license other players. HITS was supposed to switch on at the beginning of this year and has not done so. However, company officials insist the launch is imminent since issues that have been holding them back have been largely resolved.
One can expect that with new players coming into a seemingly crowded market, things can not stay the same. “Even ahead of banking, the competition in the telecom sector is extremely tight and one would not be surprised if some consolidation happens or people sell out to new investors.â€
Our nascent telecom sector will discover – if they have not already done so, that price wars are unsustainable, prone to imitation and chip away at brand value.
By Vision Reporter
MTN, uganda telecom (utl) and WARID are engaged in a price war that analysts think will lead some of them into the red and usher in further restructuring of the industry.
Each company is offering lower rates on calls within the same network to lure subscribers.
Market leader MTN recently launched MTN Zone, a tariff structure that offers discounts of up to 99%.
“The more capacity available, the greater the discount at the time of making the call,†the chief commercial officer, Erik Van Veen, said while launching the tariff band recently.
The discount varies according to the amount of traffic in particular areas. The more phone usage in a an area, the lower the discount and vice versa. The discounts are on a per second basis.
WARID’s latest promotion, Megabonus pushes the bar even higher in the tariff war. Under the promotion, subscribers can talk for free 24 hours after loading airtime. The free calls are only to WARID subscribers.
Zain, which was Celtel then, launched Chacha where calls within the network cost sh3 per second.
Utl under their Bonna Bogere offers free airtime to 17,000 clients a day if they load airtime. Its discount plan is akin to MTN Zone where pre-paid users outside Kampala can get discounts in less congested areas.
The perception is that the relatively newcomers are trying to eat into MTN’s dominance by offering huge discounts.
“For WARID, they have a huge fixed investment and need the numbers to make it viable. What they are saying to the public is “come and see what we have,†hoping that if 100 people can take up the offer and 20 stay on, they will have the numbers they want. As a new player trying to break into a relatively crowded market, it makes sense,†an analyst said.
“The beauty is that MTN cannot offer the same because their network would crash and inevitably hurt their subscriber base…. The question, however, is how sustainable is it? Can you continue to give free calls? What happens when you start charging for the calls which has to happen one day? Will you see major attrition on your numbers?†the analyst asked.
“MTN Zone and its utl equivalent are the smartest thing to happen to the industry, but they are not without pitfalls.â€
“Essentially, MTN is not giving anything away for free. Instead, they are getting more people to call who used not to and in effect, making more money,†he said.
“The more stable predictable income of MTN and utl’s subscriber base is their corporate clients, who though, are the minority in relation to the total subscriber base, are loyal. The pressure is going to be to offer them something as well or the battle will intensify for post-paid clients from people like WARID.â€
There are plans to license other players. HITS was supposed to switch on at the beginning of this year and has not done so. However, company officials insist the launch is imminent since issues that have been holding them back have been largely resolved.
One can expect that with new players coming into a seemingly crowded market, things can not stay the same. “Even ahead of banking, the competition in the telecom sector is extremely tight and one would not be surprised if some consolidation happens or people sell out to new investors.â€
Our nascent telecom sector will discover – if they have not already done so, that price wars are unsustainable, prone to imitation and chip away at brand value.