While the announcement by Reunert that it would sell its Nashua Mobile subscriber bases to the two biggest operators and effectively shut down caught the market by surprise, it’s been inevitable for some time. Independent service providers, like Nashua Mobile and Altech Autopage, are stuck in the middle. They cannot pass on costs in any meaningful way to their customers (believe me, they try with all sorts of ‘value added fees’), nor is there any relief from the operators. In fact, operators have been steadily squeezing their margins since mobile termination rates started their decline in 2009.
Service provider and incentive agreements are up for renewal, and there is no doubt that the two larger operators are looking at squeezing margins even further. Incentives for new contract sign-ups are nowhere near the levels they were in the boom-days a decade ago. What perhaps made the decision for Nashua was the rapidly plummeting average revenue per user (ARPU) – important given that service providers earn a margin on sales. If ARPU is dropping and you’re not growing subscribers significantly, your profits are in decline. Add to this a high fixed cost base (people and marketing), and it’s no surprise Reunert and Nashua took the sensible approach. Rather the short, sharp pain that comes with a shutdown, than a decade of decline to zero. Spare a thought for the 600-odd staff at Nashua Mobile.
Some will be able to shift to other Reunert businesses, but it’s unlikely that there’ll be place for all of them. Spare a thought for the franchisees of the 90-odd retail stores around the country. Some will be mopped up by operators but most won’t. These are businesses that printed money for their owners in the past decade. But where does this leave Altech Autopage? Owner Altron is in a closed period and won’t comment, but MD Boyd Chislett confirmed to BusinessTech that it has commenced a Section 189 process to retrench staff. Autopage could very easily try and be the ‘last man standing’.
Taking this approach will probably be successful in the short term. But operators will carry on squeezing. Autopage may even be the buyer of Nashua Mobile’s Cell C subscriber base – another move which will probably pay off in the short term. (That Cell C itself cannot afford to buy its subscriber base from Nashua Mobile itself gives you a strong indication of what a bind it’s in). Autopage has been more successful than Nashua Mobile in cross-selling and upselling converged services to its customers, especially in the small and medium enterprises space. Parent Altech bought internet service provider business Technology Concepts in 2009 and that business was folded into Autopage in 2012. That makes shutting down Autopage a slightly trickier decision for Altron, given that it will need to consider the future of this business. (It doesn’t have a business like Nashua Communication into which it can fold leftover bits and pieces).
And what about the reason for the existence of these independent service providers in the first place? They’re fairly unique to this market. Operators allowed them to flourish because they offered rapid distribution and were signing up customers at pace. But, in the gold rush neither Nashua Mobile nor Altech Autopage actually successfully sold a reason to customers to use them. Only recently did they cotton on to being the best place to get independent advice on contracts and mobile services. Would they give honest, unbiased advice? Do customers even expect this? Even this late realisation of a raison d'être was largely just marketing. Depending on incentives, the two service providers would have strong motivation to funnel customers towards a specific network operator. (And of course, they’ll tell you differently!) (And I won’t even delve into the service frustrations that come with dealing with a middleman…).
Could both the service providers have secured their future better? Of course. They could’ve launched a virtual network (MVNO) on top of one of the operators (like Red Bull Mobile or Virgin Mobile on Cell C). Their distribution would’ve given them a fighting chance. But, they were negotiating with Vodacom and MTN from a position of weakness, especially in recent years. And they were completely addicted to those incentives… Then again, what Altron decides to do with Autopage might not matter. Vodacom and MTN could make it untenable for the current business case to continue to make sense. You’d have to give me very good odds for me to bet on Autopage being around in its current guise in a years’ time. * Hilton Tarrant contributes to 'Broadband', a column on Moneyweb covering the ICT sector in South Africa.
This article first appeared on MoneyWeb: