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PYRAMID QUESTIONS MTN MODELThe Pyramid Research Advisory Service gave the following assessment of South African cellular operator Mobile Telephone Networks: "Last week, South African cellular operator Mobile Telephone Networks announced it had reached an agreement with ABSA, one of the country's major banks, for the offering of mobile banking services on MTN's cellular network. While not new in the South African market (a flurry of e-banking services already exist), the initiative enables e-banking through short message service (SMS), rather than the traditional Wireless Application Protocol (WAP). The operator's SMS-focused strategy received another boost when the local Audit Bureau for Internet Standards (ABIS) declared its site www.mtnsms.co.za South Africa's most popular web site, with more than 50m impressions in the second quarter of this year. As of late July, the site claimed 2.6m unique users, with an average of 10,000 new users added every day. For MTN, the two developments culminate and justify an unconventional evolutionary strategy, which the company believes will unlock additional value from its existing assets and customer base. MTN's use of SMS for e-banking exemplifies an unconventional strategy designed to prop up average revenue and usage and accommodate the Internet boom. As evidenced by the operator's competitor, Vodacom (which controls nearly 60% of South Africa's cellular market), cellular and fixed operators have typically sought to accommodate the Internet boom by becoming Internet services providers themselves. The traditional evolutionary path for cellular operators is in line with the technology migration path, from WAP on GSM to GPRS, EDGE and eventually UMTS. To be sure, MTN and Vodacom are both treading along that evolutionary path. Both operators already offer WAP services and are expected to deploy GPRS networks by the end of the year. There end the similarities. Using its financial and marketing muscles, Vodacom delved into the very competitive ISP market, acquiring the customer bases of smaller ISPs to establish Vodacom Worldonline, now South Africa's second-largest ISP. Leveraging the market presence of Vodacom World Online with next- generation technologies is at the core of Vodacom's Internet strategy. While most operators now offer some form of SMS, few have made it as central to their evolutionary strategy as MTN. The operator aims to deliver new services immediately, by leveraging the existing infrastructure while keeping an eye on technology developments. The linchpin is www.mtnsms.co.za, a web site that allows users to send SMS messages to nearly 60 networks in 40 countries. The objective is to create a wide community of site users that the operator can leverage to generate revenue, notably through advertising. Rather than an ISP, MTN purports to be a "provider of services on the Internet" (PSI), with the service element (rather than the need for connectivity) attracting users. Likewise, www.mtnsms.co.za is dubbed a "port of call" (rather than a portal) - essentially a portal without stickiness - where users come in to send a message and move on. What makes MTN's PSI business model attractive is the relatively low cost of implementing it. The enabling application software, known as RIVR, was developed internally. Operational costs are low, with a team of four and only a few servers needed to keep the site running. To date, MTN has done virtually no advertising for the site, letting users come in through word of mouth. The costs incurred by the users are similarly low: where users would pay the traditional call charge for a WAP call (from $0.22 to $0.40 per minute), they are only charged $0.14 for the few seconds it takes to send the short text message. Moreover, the addressable user base for SMS is large, as virtually anybody with a cell phone can use the service, while WAP remains somewhat of a high-end luxury, having reached less than 1% of the total user base. For all the attractiveness of the model, however, it is still unclear how MTN will generate revenue from the site. In essence, the challenge will be to transform a successful project into a consistent revenue earner. To date, the site has yet to generate revenue, besides the $0.14 charged per message, the operator's strategy being to initially focus on the creation of a community. Over the medium term, advertising and sponsoring are expected to become the site's main sources of revenue, although nobody knows how users would react to ads popping up on their computer and handset screens. Moreover, copycats will emerge. Rival Vodacom already offers a relatively similar web site and has proven to be a marketing juggernaut when necessary. In its present, stripped-down form, www.mtnsms.co.za is unlikely to generate substantial revenue beyond call charges, at least not enough for the site to represent the core of the operator's Internet strategy. For MTN, the key resides in the creation of new, personalised services leveraging the low-cost SMS-based services, which will provide a cheaper alternative to WAP-based mobile commerce. The SMS-based e-banking created with the ABSA deal is a start, and the operator is likely to push further with similar applications, from news to stock-checking and horoscopes." MWEB LOSSES CONTINUEInternet service provider M-Web made an operating loss for the six months to the end of September 2000 of R167.5 million compared to R142.6 million for the same period of 1999. (source: http://www.barney.co.za/reuters/nov00/datatec14b.htm ) DATATEC SELLS UUNET SA TO WORLDCOMDatatec agreed to sell 76 percent of UUNet SA to joint venture partner WorldCom, so it could focus on its core business. (source: http://www.barney.co.za/reuters/nov00/datatec14b.htm
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This page last updated on January 28 2004.
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