Price war takes its toll on MTN's subscribers

MTN's chief executive Sifiso Dabengwa admitted the mobile operator had been surprised by the viciousness of the fight saying "that the group did not react quickly enough".

A recent report by Research ICT Africa said price cuts in South Africa had lifted it from 30th last year to 23rd in its Africa prepaid mobile price index. The average South African basket price - 40 calls and 60 SMSes - had dropped from US$16.60 to US$12.60 for the second quarter of this year.

The change in the market follows Cell C's chief executive Alan Knott-Craig's promise that he would aggressively bring down prices‚ soon after he took the job in April last year.

Cell C said in July it had added 1.5m subscribers since last October‚ bringing its total number of users to 11.5m.

Dabengwa said the drop in prices was not only much deeper than expected‚ it looked as if the lower prices were here to stay‚ as there has been a structural shift in what the public was prepared to pay. The price drops were driven by a 23.1% decline to 40c/minute in the mobile termination rate (MTR) - the levy operators charge each other for carrying calls on their networks.

These price reductions‚ as well as the slowdown in the economy‚ resulted in MTN's South African revenue falling from R20.4bn to R20.1bn for the six months to June.

The softer numbers coming out of MTN SA reflected rival Vodacom's performance‚ which saw service revenue decline 0.2% to R11.67bn and saw its active subscribers fall 2.3% to 29.28m for the June quarter

Though Dabengwa said he did not believe prices would drop further‚ Strategy Worx's chief executive Steven Ambrose forecast that call rates could come down to as low as 60c/minute by the end of this year.

Though previous cuts had no real effect‚ the drop in the MTR to 40c/minute allowed smaller operators to significantly undercut the prices of the dominant operators.

Ambrose expected the regulator to push through a further reduction in the MTR by year-end.