28 March 2014

Zimbabwe: Network Wars - Consumers Win

Retaining customer loyalty is not an easy task especially in industries where customers can easily switch from one service provider to the other.

Few other industries are a bigger testimony to this than the cellular network industry.

Being a capital intensive industry with constant need for technology upgrades, economies of scale usually demand that each market can only have a handful of participants.

This business model, where typically three network providers are fighting for customers, has led to fierce and sometimes downright dirty catfights. It not only makes for an entertaining show for onlookers but translates into benefits for customers.

Economic theory describes markets in which there are a small number of sellers as oligopolies. They often warn that oligopolies can lead to collusion and price fixing amongst these few players, resulting in higher costs for customers with no choice of alternatives. For some reason cell phone network operators in many countries, Zimbabwe included, seem to have chosen to compete rather than collude.

Examples of marketing campaigns directly targeting rival networks abound in many countries.

In the United States of America T-Mobile, AT&T, Sprint and Verizon have been known to resort to name calling and even offering to foot the bill for customers willing to opt out of contract arrangements with rivals.

Recently in South Africa, MTN and Cell C had a spat and exchanged accusations of greed in a series of advertisements. So laced with vitriol were some of the adverts that authorities ordered a couple of them to be withdrawn.

Closer to home, Econet and Telecel and to a lesser extent Net One have had a few run-ins.

After dollarization in 2009 Econet hit the ground running, investing heavily in infrastructure and network expansion. The other two networks lagged behind, perhaps because as non-listed entities they found it harder to raise capital.

The result was that Econet ended up with the lion's share of the market, at one time commanding as much as 75% market share. Telecel and Net One have recently gone on an aggressive drive to win back customers and this fierce competition with Econet has at times turned abrasive.

One of the better known public spats involved Econet switching off interconnection to Telecel. The incident occurred soon after Econet paid US$85 million for license renewal while Telecel reportedly got an exemption or failed to pay on time.

Although the official reason given by Econet was that they were not obligated to connect to an unlicensed player, many saw it as direct retaliation for what looked like partial treatment by the regulator. Telecel had introduced a promotion which resulted in cheaper calls for their customers, while Econet, after paying the fees, were supposedly unable to do the same.

After that spat was resolved through the intervention of the regulator, the two networks seemed to be on a continual warpath to win customers.

Promotions and counter-promotions have been done. New products have been introduced, notable amongst them being mobile money transfer services. Econet was first to draw blood, introducing EcoCash, the country's first such service.

When Telecel followed suit, reports suggested that Econet tried to block them from using the same agents through a requirement for agents to be exclusive. In the end regulators clarified that no network could make distribution agents exclusive. Meanwhile, the cost of transferring money has been gradually falling, most likely partly due to competition.

Telecel's TeleCash allows banks to use its USSD gateway which in turn will allow banks to also offer similar services. Econet has long resisted moves to do the same on its own network but in a bid to compete with EcoCash, Telecel has gone to bed with the banks, a move that will give customers more options and ultimately push transaction costs lower.

A classic case of consumers benefiting from competition between networks.

Another example of competition benefiting customers is the number of promotions by Econet, Telecel and Net One which are in one way or another tariff cuts. Econet has its Buddie Zone, Telecel has Telecel Red and Net One has Weekend Mahala.

All essentially offer cheaper calls. Additionally, each network usually has a promotion running where customers can win cash or other prizes. Already Telecel and Econet are going a step further in offering Facebook and Whatsapp bundles with better terms than before.

In a world where cellphone users are increasingly relying on alternative communication platforms like Whatsapp, network providers have to fight tooth and nail for customers.

Once the customer is secured they have to fight to keep him and also to entice him to call as often as possible. Some observers have argued that if number portability which is the ability to switch network while keeping your old number, were available, competition would be even fiercer.

From a business perspective, survival for cellphone networks lies in their ability to attract customers from each other even though what they offer is essentially a commodity that is difficult to differentiate.

The war will be won through service quality, price wars, promotions and innovation. As the networks lower their prices, profits will become thinner.

For customers however, this is good news. Consumers can look forward to lower prices and a constant flow of promotions. Stiff competition amongst cellphone networks is good for consumers!

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