On February 28, 2003, Tunisie Telecom announced a restructuring of its mobile GSM (Global System for Mobile Communication) tariffs. The new tariffs indicate a clear focus by the incumbent on enticing new subscriber additions, and even portions of its own contract subscriber base, to its prepaid service, according to IDC global market intelligence and advisory firm.
"As expected, Tunisie Telecom lowered its prepaid activation fees in response to the lower activation fees of the new entrant, Tunisiana. And to continue capitalizing on the growth momentum in the prepaid market, Tunisie Telecom reduced its prepaid per minute fee," explained Mohsen Malaki, senior analyst in IDC CEMA's Telecommunications Group.
But the incumbent's per-12 second billing structure, from the first 12 seconds, is an aggressive move that has not yet been undertaken in the region, particularly this early on in the growth phase of a duopoly market, according to an IDC report.
"Many of the markets that have reached a relatively advanced level of penetration and experienced price competition have moved on to billing by the second after the first minute of use, but none have been so aggressive as to charge by the fraction of the first minute," continued Malaki.
The reasoning for this has been that the majority of outgoing mobile calls are less than a minute in duration, implying a significant revenue loss for any operator charging by the fraction of the first minute. Tunisie Telecom's competitive new prepaid price structure may be a fix for the operator's own internal ailments, as much as it may be a response to competition.
It is well known that Tunisie Telecom's contract GSM customers have long complained of billing problems by the operator. First, its customers receive their bills every six months, creating a sticker-shock each time a customer receives a copy of the bill, while also increasing the likelihood of perceived billing errors by the customer.
This results in customer dissatisfaction and possible churn to the competitor. Second, and equally as important, is the strain that a six-month billing interval places on Tunisie Telecom's cash flow and liquidity. Third, the incumbent suffers from a high frequency of late or unpaid bills. Finally, Tunisie Telecom is notorious for repeated errors in billing, which have infuriated many a customer.
Seen in this light, the new tariff structure is designed to entice new gross subscriber additions towards prepaid rather than contract, while also creating a churn of Tunisie Telecom's own contract subscribers to its prepaid plan. This should preserve Tunisie Telecom's market share and prevent churn of contract subscribers to the competitor, and thereby avoiding the negative impact of its poor billing system and cycle.
The quick fix, in the form of aggressive prepaid tariff reductions implemented by Tunisie Telecom in the face of its poor billing infrastructure, has in effect cannibalized the market for contract subscriptions. This might be a short-term solution for Tunisie Telecom's billing problems, but could be detrimental to the medium-term growth potential for contract subscriptions.
"The cannibalization of the contract market by Tunisie Telecom will have a lingering effect on the balance between prepaid and contract in Tunisia over the next five years, as the new entrant, and eventually the incumbent, struggle to entice high-revenue prepaid customers, including many business customers, to switch to contract subscriptions," asserted Malaki.
Given the aggressive moves to dominate the prepaid market, IDC expects Tunisie Telecom to continue maintaining its market share leadership, even with the freezing of new subscriber additions during several months of 2002.
IDC believes Tunisiana (the commercial name of Orascom Telecom Tunisie) will respond quickly to the new tariffs being offered by its competitor, and attempt to focus on the prepaid market for now, while gradually trying to identify and then entice high-revenue prepaid customers to opt for contracts.
Therefore, IDC's forecasts assume a competitive market focus on service quality on the contract side, and on usage tariffs on the prepaid side. "Both operators realize that the real revenue growth potential from a rapidly expanding subscriber base will not be in usage, but rather in activation fee revenue," said Malaki, "and thus we do not expect a rapid deterioration of activation fees over the next two years."
IDC expects activation fee revenue to be as high as 26 percent of total operator revenue (services plus activation revenue) during 2003, tapering off rapidly, to one percent by 2006. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
