South African telecommunications operators need to start changing the way they do business now or risk losing out to new entrants over the next couple of years – and these competitors could poach lucrative clients without even having to apply for a licence or set up an expensive network.
Worldwide, the way people consume telecomms services is undergoing a series of radical changes, and the South Africa market is particularly susceptible to the emerging business models.
This is the word from Douglas Dorrat, director of industy services: telecommunications for Middle East & Africa at Microstrategy, who says that as the market for telecomms services becomes saturated, operators are turning to new business models in their quest to attract and keep profitable customers.
The traditional way of doing business has been for operators to build a network, then mass-market it and charge on a per-use basis.
Starting to emerge now is the access-based pricing model, where customers pay a fixed fee and are able to use the network as much as they like. Although it's familiar to data users, this model is only now starting to apply to voice users as well.
In the local market, Dorrat says the mobile operators are most likely to take the lead in implementing this kind of model.
Once the per-use model is scrapped in favour of the access model, he explains that operators need to switch their attention to managing profitability and, importantly, churn.
Because it will take longer for individual customers to become profitable – often as much as 36 months – operators will have to focus on loyalty and customer longevity.
However, while most of the world is still coming to grips with the access-based model, some operators are already eyeing the next step and considering the implications of application, advertising and transaction revenue.
Already a new entract to the UK market, Blyk, is offering users free access and calls if they agree to be advertised to – and the more they accept advertising, the more free calls they get.
For the company's target market of young adults, the incentive of free calls (young adults in Europe spend up to 50% of their earnings on mobile communications) could well see them parting with personal information and opting in to an advertising stream.
Blyk, and companies like it, stand to make a lot of money out of the model – with little or no up-front or infrastructure costs to themselves.
"This is really going to shake up the market," says Dorrat. "It is a business model that takes one source of revenue and substitutes it for services. The actual resource becomes a commodity."
Other revenue streams in the future will include applications and transaction revenues.
Not only will users be able to access applications that allow them to browse and order goods, but geo-tagging on their phones means that retailers will know exactly where they are; and the ability to pay for goods via a mobile phone account will allow the operator to share in the revenue earned.
Driving this last telecomms revenue model is a need for operators to know a lot more about their customers than they do now – and be able to use that information in a relevant way.
Dorrat points out that there is a very real opportunity for business ingelligence to help operators maximise this model byt identifying profitable customers and learning about their lifestyle choices.
He adds that this model will become mainstream within the next three to four years, and the South African market will probably be on a par with the rest of the world.
Because many of the new entrants into the market will be virtual operators, the incumbent telecomms companies in South Africa won't be able to hide behind legislation and regulation.
In fact, they need to start thinking about where they want to be in a couple of years time and start planning for it now.
"The operators who invest now will be the clear leaders," says Dorrat.
Currently, churn among the South African operators is at about 20%, he says. As the market becomes more saturated, the cost of acquiring and retaining customers is rising and churn is accounting for anything from 7% to 12% of revenues.
"If operators can get the right intelligence and use it manage their customer retention effectively, there is a clear upside that is worth hundreds of millions of rands."