Analysts praise 8ta for broadband move

Telkom’s mobile operator, 8ta, on Thursday dropped a bombshell on its rivals, unveiling by far the country’s most aggressively priced mobile broadband specials to date. Analysts have welcomed the move, saying they think Telkom is acting rationally in taking the fight to its bigger rivals.

8ta has launched two time-limited special offers, one offering 10GB of data a month for R199 on a 24-month contract and the second offering an additional 10GB/month of data for use late at night for an additional R100.

BMI-TechKnowledge MD Denis Smit says that he doesn’t know whether 8ta’s aggressive pricing is sustainable because he doesn’t have insight into its underlying cost structure. However, he says he is “pretty confident” Telkom is “applying its mind rationally”.

Smit says considering the poor annual financial results Telkom released earlier this month, the company “has to shake things up”.

He says consumers have become accustomed to a “moribund Telkom” and many people haven’t stopped to think of the implications if Telkom took a conscious decision to compete aggressively on price.

“Telkom has tons of fibre in the ground,” he says. “It has the potential to be a massive player and it seems it’s starting to harness this,” says Smit.

He says the move is great for both Telkom’s market image and for consumers. He warns, however, that the company must manage the hype around its new offerings as it has only a thousand active base stations — far fewer than its rivals, at least for now — and the enormous pent-up demand for data services could result in consumers signing up only to be disappointed.

“It’s also important to look at the language of the offer,” says Smit. “It’s a special offer, which is what Cell C called its original data offering. Cell C’s pricing has now become normal, but that doesn’t mean Telkom’s offering is going to do likewise.”

Smit says 8ta’s competitors will have to react, but their response may not come immediately. “Cell C’s move saw other operators reflecting for a while before trying to compete. Regardless of the response, it’s a great move from 8ta.”

Kaplan Equity Analysts MD Irnest Kaplan says the move is “fantastic” for consumers. He says it will put pressure on other operators to reduce their prices faster than they would otherwise have wanted to.

8ta’s move also poses a real challenge to other operators because they already have a large number of customers. “Operators don’t want their existing customers to feel ripped off, but they can’t suddenly do a massive price reduction” for all their clients. He says 8ta’s rivals will have to come up with “interesting and different offers” to remain competitive.

“Telkom is looking to offer converged fixed and wireless services because that’s its real chance to differentiate,” says Kaplan. He adds that mobile operators aren’t as developed as Telkom in terms of their data offerings and that Telkom clearly wants to play to this strength.

An analyst, who asked not to named because he works closely with industry players, says 8ta is “showing that this is what proper competition in the market looks like”. Considering the cost of 10GB of broadband on fixed lines, the analyst wonders what impact 8ta’s move will have on the cost of fixed-line Internet prices. “Will it force prices down or [bandwidth] caps up?”

He says that when Cell C dropped its data prices, its voice pricing remained unchanged, but he suggests that were 8ta to drop voice rates once it has migrated wholly to its own base stations (rather than roaming on MTN’s network) it could be a market “game changer”.

He says he hopes the public will respond to 8ta’s new offers. “If operators see that aggressive pricing makes people move networks, it’ll encourage them to work much harder to keep their customers. That’s always good for consumers.”

As 8ta’s network is far less congested than its competitors’ the service should perform well, at least at first, the analyst says. “My only concern is the two-year contract. Who knows where things are going to be in two years time? Still, it’s so aggressive it should remain competitive for at least a year.”  — Craig Wilson, TechCentral

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