Fancy a new quad bike, a laptop with printer, television, hi-fi, DVD player, camera, home theatre system, PlayStation, Xbox 360, skottel braai, pair of sunglasses or Game shopping vouchers?
In the rush to capture new cellphone customers in the saturated South African market, operators and service providers are bundling expensive free gifts with contracts to entice new subscribers.
South Africa’s cellphone market is highly profitable for the operators, but number portability means that consumers can more easily switch operators and the market has been shaken up by new entrant Virgin Mobile, which is offering simpler, easier-to-understand and competitive offerings.
In an attempt to find the most expensive freebie, the Mail & Guardian trawled Johannesburg’s malls to see what was on offer.
The best deal to be found was at Cell Centre in Campus Square, Auckland Park, where for R135 a month over 24 months a customer could get a free Sony Ericsson J210 phone, 120 off-peak minutes on a Vodacom Everyday Weekend package and a free quad bike.
An entry-level quad bike for children between the ages of three and six retails for around R8 000, which makes this the most expensive freebie the M&G could root out.
It is offers like this that seem to defy economic logic, because a consumer who is in the market for a quad bike could purchase one from Cell Centre for less than half the price they could buy it from a bike dealer.
Through Cell Centre the quad bike would cost R3 240 over the 24 months and the consumer would have a free cellphone and a contract, which they need never use to make a call.
BMI TechKnowledge’s telecoms analyst Richard Hurst says the practice of bundling freebies in with contracts and phones is not a new phenomenon, but he expects it will increase.
“The mobile market is nearing saturation so operators and service providers are realising that they need extra bait to win customers over from other networks,” says Hurst.
He says the operators will build the price of the freebie into the contract price or will recoup the cost through its call rates.
Second in line for pricey freebies was Cell C’s festive offer of a free Sahara laptop with a Lexmark printer/copier/scanner, when purchasing two Samsung X650 phones on their Casual Chat 100 package at a cost of R288 a month over 24 months.
An entry-level laptop and printer/copier/scanner would cost a consumer about R5 000 in total.
Not to be outdone, MTN is packaging Playstation and Xbox 360 gaming consoles, 54cm Diamond Television and home theatre systems with numerous free phones for R159 a month over 24 months.
A PlayStation 2 retails for R1 400, the Xbox 360 for about R2 650, while a 54cm Diamond TV would cost about R1 200.
Vodacom wins the battle for the biggest variety of gifts; their gift catalogue includes cameras, DVD players, shopping vouchers, music stereos, an iPod with a speaker system and a number of braais and skottels.
Hurst says another development to watch will be the increased efforts to retain customers when cellphone number portability starts to have an impact. He expects operators to begin offering existing customers incentives to stay with their network.
Anecdotal evidence suggests that operators are already offering existing customers, whose contracts are close to expiring, free airtime bundles. An example is a customer who got an SMS from her network operator to say she had been given 120 free minutes.
Another customer who was about to renew her contract asked what incentives were available and was given a mini hi-fi.
The range and cost of freebies suggest that cellphone operators may in part be operating as general retailers and suppliers of credit, perhaps even making their contribution to the country’s continuing credit binge.
Head of the National Credit Regulator Gabriel Davel says regulation of this bundling practice falls under the jurisdiction of communications authority Icasa.
But, Davel says, if an operator charges a customer a higher price to pay off their cellphone over 24 months than it costs to buy the phone with cash, then that constitutes a credit agreement and it should be subject to the new Credit Act.
Davel says the operator must calculate the difference in the cost and declare it as interest when the credit agreement is signed.
Vodacom spokesperson Dot Field says the products offered with new cellphone contracts are not free and are merely an innovative business model used to attract new customers in a highly competitive industry.
Field says operators rate customers according to how much revenue they expect to receive from the customer over the contracted period.
Field says the customer can choose a more expensive cellphone with a standard subscription charge or a less expensive cellphone with a discounted subscription charge or a less expensive cellphone, a gift and a standard subscription charge or two cellphones and a standard subscription charge.
‘In the case where gifts are offered it should be noted that these are partially funded through special negotiations with major electronic suppliers, whereby the cellular network or service provider receives volume discounts, thus enabling them to make gifts available that are perceived to be of a higher value than those offered in the retail trade,” says Field.
Cell C’s head of corporate communications, Vanashree Pillay, says the primary objective of any value-added offer is to attract customers.
“Once they have joined, we strive to retain these customers through the many services and value-adds we offer,” says Pillay. “It has become a common industry practice.”
Pillay says the laptops were not procured directly by Cell C but rather by the franchise stores who entered into an agreement with the laptop supplier and packaged a product to offer the best value for their customers.
MTN’s media relations manager, Ntombi Mhangwani, says MTN does deals with Hi-Fi Corporation to obtain TVs and stereos at reduced prices, which it then offers to customers signing a 24-month contract.
Mhangwani says that some customers want top-of-the-range phones and others prefer a simpler phone and an additional free gift.
“This results in the one customer receiving a less sophisticated phone and a TV and another customer receiving the latest sophisticated phone with all the special functions that costs more,” says Mhangwani. “The objective is to continue giving value for money and to accom- modate the varied needs that consumers have.”