Vodacom returns fire in pre-paid price war

The arrival of Telkom Mobile’s 8ta service promised a price war in South African mobile voice and data services. Although they were not the cheapest on the market, they matched the lowest prices offered by the smallest of the three incumbent networks. 8ta’s entry appears, finally, to have forced the hand of the biggest network. ARTHUR GOLDSTUCK explains why Vodacom is now the cheapest network in the country ‚ at least for the next few hours.

When Telkom Mobile announced their new 8ta service 10 days ago, the most dramatic elements of the launch were the R1.50 per minute rate for pre-paid phone calls to any other mobile network, at any time of day, and their R1 per MB rates for ad hoc, pre-paid data.

While Cell C also offered a R1.50 per minute package, they were always seen as the little guys, and both Vodacom and MTN could apparently ignore their apparent price advantage. If the matter of price was put up loudly enough as an argument against them, they could always point out that their R1.70 per minute tariffs were based on per-second billing, which meant that people probably spent more per minute on a Cell C R1.50 per minute pre-paid call than on a Vodacom or MTN R1.70 per minute call.

The reason? The typical call uses as little as 60% of the full minute for which the customer is being billed, especially past the first minute. This means that slightly more expensive per-second billing is almost always cheaper than apparently cheaper per-minute billing.

However, the public ‚ and especially the media ‚ tend to focus most attention on the upfront price tag. And, with a formidable organisation like Telkom entering the fray, that R1.50 per minute price tag being dangled now by two major telcos could no longer be ignored by the networks who tried to compete with a R1.70 tag ‚ even if they could argue it was a more cost-effective service.

Today, Vodacom announced its new AllDay per minute tariff, offering Vodacom prepaid customers the lowest all day call rates to all South African mobile networks. And it’s no mere marketing talk. The Vodacom announcement is the latest in an ongoing series of earth tremors being felt in South African telecoms:

‚The new per minute rate of R1.40 complements the existing AllDay per second rate of R1.70 per minute. The AllDay per second rate has also been enhanced to give customers the same rate irrespective of the network they are calling,‚ Vodacom declared.

‚Yet again, Vodacom has taken the lead in providing customers the best value offering in the market whilst offering the choice of being billed per minute or per second,‚ said Vodacom South Africa Managing Director Shameel Joosub.

‚Not only is this the lowest per minute rate to mobile networks available to prepaid customers anywhere in SA, we’ve got the added bonus of billing in 30 second increments after the first minute, as opposed to other offers in the market which are billed in 60 second increments after the first minute.‚

For once, it isn’t hype. At the moment of writing ‚ and bear in mind this could change within hours as other networks come to the price-war party ‚ Vodacom now has both the cheapest (in price tag terms) and most cost-effective (in billing period terms) rates in the market.

Vodacom adds, for good measure: ‚Another major benefit of this new offering is implied by the name ‚ there’s no peak or off-peak rate. Customers can use their cellphones when they like and always pay the same rate for calls ‚ as well as a flat rate of 50 cents per SMS.‚

We can expect several more salvoes in the price war.

Firstly, when 8ta announce their contract package prices ‚ expected in November ‚ it is highly likely the other networks will respond by bringing down their own contract costs. Will that deter 8ta from competing on price? It would be bad strategy if it did deter them, as they gained massive first price mover advantage in mid-October by announcing what was then the lowest price tag on the full bundle of pre-paid services. Come in at market-matching prices on contracts, and they will be stamped as ‚same-old, same-old‚ .

Secondly, the networks must respond to 8ta’s broadband pricing. Although Cell C works out a lot cheaper, the cost of the data bundle that needs to be purchased upfront makes it appear far more expensive than 8ta.

And it’s the upfront cost that is moving the market right now.

· Vodacom prepaid customers can FreeChange to the AllDay per minute tariff by dialling 1181. FreeChange allows customers to switch between any of the Vodacom prepaid options free, once per month.