This is why subscriber numbers may not be the best measure for cellphone operators
SA has 58-million people but the four largest operators have about 100-million ‘subscribers’ among them
At a time when the number of cellphone network connections outweighs the number of people in the country, one has to wonder if subscriber growth is still a good way to measure the performance of telecoms companies.
Andrew Kitson, head of ICT research and telecoms for Fitch Solutions, said operators are very sensitive about the type and breadth of metrics they can share with the investment community and their own shareholders.
For a long time mobile network operators have reported and competed on the number of subscribers that they command at a given point in time.
But a look at the local scene quickly reveals how and why this measure may need to be re-evaluated.
SA’s mobile industry is quite mature. In a country with about 58-million people, the largest four operators — Vodacom, MTN, Cell C and Telkom — have about 100-million “subscribers” between them. These are not actual people but active SIM cards. Many people use multiple SIM cards on their phones, Wi-Fi modems, tablets and other devices.
One of the major criticisms of counting SIM cards is the different treatments of “active” and “inactive” SIMs by different operators, unless they are mandated by a regulator to adhere to a common reporting standard.
A SIM may be declared by one operator to be “inactive” if left unused for 30 days, whereas another operator may have a 60-day inactivity threshold, while the other operator may use a 90-day or 120-day threshold.
Comparing operators’ reported subscriber numbers can therefore produce misleading results, said Kitson.
“We do not expect operators to introduce different or more detailed key performance metrics. If anything, we have observed a growing trend among operators worldwide to make metrics less relatable or meaningful in absolute terms,” he said.
Kitson said some operators choose to report only mass-market consumer subscribers where these consistently provide strong growth that will not alarm investors. Others have chosen to focus on subscriptions to premium services because they can demonstrate high rates of growth in use of or income from such services, even if the actual user base is small relative to their core business, he said.
Peter Takaendesa, a portfolio manager with Mergence Investment Managers, said there is a lot of noise around subscriber numbers for the telcos, especially as the sector matures because of multiple SIMs, and revenue per new user normally declines as operators start to connect late technology adopters who are usually low spenders or have low incomes.
He said subscriber growth is a more useful measure for contract subscribers than prepaid users in markets such as SA, while overall subscriber growth is useful in some countries in the rest of Africa where penetration is still relatively low.
As investors looking at the performance of mobile operators, Takandesa said they had been focusing more on service revenue growth for a while now, “to get a true sense of changes in market share”.
“We combine that with profit margins and capital expenditure growth to get a sense of cashflow generation and return on investment, while also keeping an eye on the balance sheet,” he said.
Kitson adds to this saying, “Other metrics that we look at include average revenues per user (Arpu), which purports to show how much each user spends on mobile services every month.”
However, if operators include machine connections, then the average turns out very low because machine connections — such as automated vehicles and smart building systems — do not transmit and receive data in vast quantities, he said. “In this instance, Arpu is not as useful a metric as it could be, as humans [with] phones account for the bulk of an operator’s profitability.”
Kitson said they also considered data usage per phone as well as minutes of use, but not all operators reported that. “We have seen some operators stop reporting these numbers when it becomes clear that they are underperforming relative to their rivals.”
As mobile operators have started to offer more services, such as video and music streaming as voice revenues continue to decline, one metric that may be worth considering is the mobile money adoption rates.
Safaricom in Kenya and Econet in Zimbabwe publish these numbers for M-Pesa and Ecocash, respectively — a cue that MTN has taken.
Though mobile money has mostly been unique to operators in Africa, it does offer an alternative as a new measure of mobile network performance in the future.