SOUTH AFRICA: MOBILE OPERATORS SELLING US$30 HANDSETS AND CONSIDERING LOW PRICE TARIFFS TO SEARCH OUT NEW MARKETS

Telecoms

Cell C, MTN and Vodacom have begun importing "a significant number" of cellphones costing less than R300 to make mobile telephony affordable to poorer citizens.The next batch of cheap handsets should arrive in January in an initiative by the GSM Association to connect the unconnected. The scheme began when the association awarded Motorola a contract to produce 6-million handsets at under $40 each earlier this year. Last month Motorola won a second contract for another 6-million phones -- this time with a maximum price of $30.

Many of those phones are destined for SA, although Stephen Nolan, Motorola's country manager, would not specify the volumes. The operators are now working out strategies for getting the handsets to a segment of consumers they have never previously reached.

One challenge is how to distribute handsets to rural areas without inflating the cost of acquiring each new user. A trickier problem is devising a tariff plan cheap enough for low-income users to actually afford to make a phone call.

Although their high call fees are under fire from consumers and the Independent Communications Authority of SA (Icasa), the operators may try to devise a low-cost model for this new target market without cutting their tariffs across the board.

Cell C imported about 10,000 of the first batch of cut-price phones and has sold 50% so far, says its adviser to the CEO, Jonathan Newman. Selling them was proving reasonably difficult, he says. "The price is about R299 when value added tax and other duties are added. That's still a little expensive for the informal channels, and for the regular retail channels the phones are not feature-rich enough, so they are not flying off the shelves. These phones need to find their niche and we are still working on that."

Newman would not comment on the possibility of special call fees for the discount phones, except to say that Cell C already offered the cheapest off-peak rates.

So far only 100-million of Africa's 905-million people have a cellphone, and the GSM Association aims to push that to 200-million within three years. To achieve those targets, the handsets must be affordable to people with an average annual income of $600.

To help that happen, the GSM Association is lobbying governments to reduce or remove import duties on technology products. "Import duties are a key inhibitor to getting phones into some countries with import duties of around 20%," says Nolan.

"In many of our operations, handset costs have proven to be a barrier to entry for prospective subscribers," MTN CEO Phuthuma Nhleko says. "The introduction of an ultra low-cost handset will significantly contribute to making mobile communications access increasingly affordable." Since Motorola estimates that 700-million handsets will be sold around the world this year, its contract for 6-million cheaper models is an insignificant fraction. However, since 4-billion people have never made a call, the potential for low-cost handsets is enormous -- provided the cost of airtime can be slashed as dramatically.

Motorola is also working to help the operators reach remote areas by selling them cost-effective networking equipment for harsh terrain, and by arranging financial support for their expansion, Nolan says.

The average African operator has only 750000 customers, but needs about 3-million for the economies of scale necessary to cut the cost of calls. To achieve those subscriber numbers they need more capital to erect base stations to increase their network capacity. Some smaller operators could only do that if Motorola helped to arrange the funding, Nolan says. The drive towards economies of scale and lower-cost services will force a dramatic consolidation in the industry.

Of 110 operators in Africa now, Nolan predicts that as few as 10 may survive, with the rest swallowed by larger rivals.A more positive side effect should be the creation of up to 20000 new small businesses in Africa selling airtime to millions of new users.One of Motorola's new handset models can hold a charge for up to 18 days, for areas with erratic electricity. It also features Motorola's patented Lantern technology, with a built-in lantern so the light emitted by the cellphone can take the place of a normal lamp.Nolan said Motorola would probably not profit from the $30 handsets and bid for the contract partly out of altruism, partly to increase goodwill towards the company and partly with an eye to future growth. If 100-million new users are introduced to cellphones, they may migrate to more expensive handsets.

Business Day