South Africa’s cellphone giants have fired their own shots in the price war triggered by Virgin Mobile, but despite price reductions and simplified packages, the incumbents have still to go a long way to catch Virgin, which leads by far in the money-for-value stakes.
The fight for the hearts, minds and wallets of South African cellphone users centres on per-second billing and monthly contracts.
Virgin last month shook up the market by basing all its offerings on per-second billing, meaning you only pay for each second of airtime used.
Most competitor products claim per-second billing, but this only kicks in after the first minute, which is fully charged even if you use less than the full minute.
One analyst estimates that the average over-charge worldwide arising from per-minute billing is between 50% and 70%.
Monthly contracts mean you can leave easily if dissatisfied. Existing contract offerings are typically 12 to 24 months.
Vodacom last week announced it was introducing monthly contracts on 10 of its existing packages, some of which also offer per-second billing.
MTN announced shortly before Virgin’s entry into the South African market that all new accounts on one of its packages will be billed on a per-second basis. It said all existing subscribers could choose to move to per-second billing. But even after the new deals have been announced, it is clear that Virgin is more than a nose ahead in this race. For example, Virgin’s post-paid V100 package has a per second rate of 3,3c for the first five minutes of the day and 2,6c from then on. This is for a call to any network.
Vodacom’s most popular post-paid package, which is the Talk 100s, is much more expensive at a per-second rate of 4,5c.
Not unlike the banking industry, South African cellphone users still have to navigate a fog of complexity to ascertain what they are being charged for.
Web page descriptions of product offerings are often incomplete or misleading while spokespeople for some of the incumbents continue to insist, for instance, that they offer per-second billing when in fact this kicks in only after the first minute.
James Hodge of Genesis Analytics described Virgin Mobile’s entry into the market as “disruptive”.
“One gets the idea that there is a lot of fat here and only when under pressure do the operators give us something,” said Hodge. “Government pressure and competition makes the difference.”
Where the incumbents are offering per-second billing, an analysis of popular local offerings shows that rates can be between 15% and 30% higher than the equivalent per-minute call rates for the same package.
For example, Cell C’s prepaid package Easy Chat Standard has a per-minute rate of R2,50 for a call to a Cell C number and R2,85 for a call to a Vodacom or MTN number.
Cell C charges R3,20 a minute to a Cell C number and R3,50 per-minute to call an MTN or Vodacom number on its per-second billing packages.
Vodacom’s Talk 120 package charges R2,35 for a call to another network and R1,79 for a call to a Vodacom number. The equivalent per-second package, Talk 100s, offers the equivalent rate of R2,70 for a call to another network and R2,10 for a call to a Vodacom number.
Hodge urged the Independent Communications Authority of South Africa (Icasa) to make a tariff comparison tool available on the Internet to facilitate competition. One telecoms analyst said Vodacom’s latest announcement appeared to be a direct response to Virgin’s entrance into the market. He wondered just how much profit Vodacom had been making by bundling “free” phones with its contracts.
The analyst said that when Vodacom subscribers switched to a per- second billing package, they were being charged at a much higher call rate.
Vodacom’s managing executive of products and services, Chris Roth, said that, for every package that Vodacom offered, there was an equivalent per-second billing option.
Roth said there were discounted call rates for customers who guarantee a certain monthly spend. He admitted that it was important for Vodacom to raise its profile after Virgin launched and “made their song and dance”.
Cell C spokesperson Vanashree Pillay insisted that Cell C was the only mobile operator to offer per second billing on all its packages, but when questioned about its Casual Chat package, confirmed that a subscriber was billed in full for the first minute and per-second thereafter.
Cell C’s head of marketing, Simon Camerer, said he could not understand what the big deal is because Cell C had offered month-to-month contracts and per-second billing since its entry into the market.
“We believe they have all copied us, we launched with per second billing, we launched with month to month contracts and we have just launched Value Chat, which is our no free phone package,” said Camerer.
Jeremy Parsons, principal consultant at The Price Consultancy in the United Kingdom, said cellphone operators use a per-minute billing system because of the super profits they make on the calls that do not last a full minute, but are charged in full.
Parsons said the average call length in developing countries such as South Africa is between 45 and 60 seconds.
Parsons said that if your average call length is 120 seconds then 11% of your calls are less than 15 to 30 seconds and more than 10% of your calls are under 15 seconds.
He said the end result, when per-second billing is not used, is that 11% of your calls are being billed at three times the advertised per-minute rate and 10% of your calls at four times the rate.
Let them eat airtime
Looking for the best value for money? An analysis of across network call rates of some of the most popular packages puts Virgin Mobile at the top of the pack.
In the post-paid market, Virgin’s V100 package has a per-second rate of 3,3c for the first five minutes of the day and 2,6c from then on. The package requires you to spend R100.
Compare this to Vodacom’s most popular post-paid package, which is the Talk 100s, with a per second rate of 4,5c. Vodacom’s minimum monthly spend is R300.
In the pre-paid market Virgin offers a per-second rate of 3,9c for the first five minutes of the day and 2,6c from then on.
Vodacom’s most popular pre-paid package is the 4U package, which offers a per-second rate of 5c, while Cell C’s per-second rate on its Easy Chat package is 5,8c.
MTN had not provided details of its most popular packages and call rates for its packages by the time of going to print. — Lloyd Gedye