Price war pays off for Cell C

Cell C CEO Alan Knott-Craig says a company is just “butting its head against the wall” until it gets to at least 20% of the market share.

Cell C CEO Alan Knott-Craig says a company is just “butting its head against the wall” until it gets to at least 20% of the market share.

 

Cell C’s barrage of price cuts has started paying off for the country’s third cellphone operator, which now sees approximately 700 000 new subscribers join its network each month.

The “underdog” operator came under the industry radar again when former Vodacom head Alan Knott-Craig took the helm almost six months ago and started shaking things up – giving rise to what has been termed a mobile “price war”.

From the word go, Knott-Craig said his number one goal with Cell C was to grow market share. In January, when news of his appointment first broke, he said his aim was to gain a 25% share of the market. This means a doubling of Cell C’s current market share of 13% over three years, as per Knott-Craig’s contract term.

Knott Craig recently reiterated his ultimate aim in light of SA’s incumbent duopoly, Vodacom and MTN. “You need to have about 20% of the market share to be in the game. Until you get to that point, you are just butting your head against the wall. At 25%, you are assured of financial sustainability, and that is where you want to be. If you are not aiming for it, you aren’t going to get there.”

Ample churn

World Wide Worx MD Arthur Goldstuck says the notable monthly customer migration to Cell C, to a large degree, represents churn.

“Our understanding is that a large proportion of the 700 000 new subscribers represents churn. Natural churn in the prepaid market is already very high – more than 40% a year – and that would be a lot higher where a network is introducing a dramatically reduced pricing structure.

“Although users can convert the package they are on, the typical prepaid user would simply dump the old number and take up a new prepaid account, purely for the perceived immediacy thereof.”

He says the net effect of these additions is possibly between 100 000 and 200 000 a month.

Goldstuck says, also to be borne in mind, is that Cell C’s growth comes at a time that the industry as a whole is seeing unprecedented growth.

“Cell C is growing faster now than at any time in its history, but it is growth within a market that is growing as a whole, so the gain in market share will not be as fast as the gain in subscribers.”

Nevertheless, he says, SA will see the impact of Cell C’s simplified low-cost approach to prepaid customers. “We saw MTN’s prepaid growth rate slashed in the first half of this year compared to the last six months of 2011. This must to some extent be attributable to Cell C winning market share.”

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