Hanging up on payphones
How Telkom killed the payphone
In the 1990s, community phone booths and public payphones helped poor communities to communicate without owning handsets
Payphones, already few and far between, will soon become the first casualty of the shrinking voice-calls market, says Telkom’s consumer business head, Attila Vitai.
But the parastatal will be glad to see the back of them as it repositions itself as a provider of data-based communication services.
Telkom’s cost-reduction initiatives include the elimination of outdated services such as payphones, which have become far more onerous to maintain than they are worth.
"We were employing people to go out into the Karoo to empty a coin box ... It would cost us something like R2,000 to send someone out to collect the money, and there was like 10c in the coin box — it really is uneconomical," says Vitai.
Less than two decades ago, before cellphones found their way into almost every consumer’s pocket, Telkom had nearly 200,000 payphones in SA.
Other than the Post Office’s endeavours to kill off its own business, these phone booths, usually on the side of the road in the case of Telkom, and Vodacom’s community phone containers, played a big role in finishing off what was left of letter-writing between distant relatives in an economy built on the back of the migrant labour system.
With the consent of government, Telkom halved its payphone footprint by 2013, and within the next six months it will have payphones only in a few key locations.
For this, phone operators need government’s approval, and that of the Independent Communications Authority of SA as it is a regulated entity whose operations must also include a community-service element. Placing pay phones in poorer areas — before mobile phones became widely affordable — was part of this community service. Numbers will be down to "low-single-digit thousands of units".
"Basically these will be in prisons [where inmates are technically not allowed to possess cellphones] and hospitals, and a few government buildings — places where there is demand for payphones," says Vitai.
Telkom is unconcerned that South Africans are making fewer traditional voice calls every year, says Vitai. Until recently this was its bread and butter.
Instead, Telkom is trying to "disrupt the market" by encouraging consumers to move from traditional voice calls to applications like WhatsApp, which allow users to message and make calls using data.
"That’s where the market is going," Vitai says.
"People are using their phones for data communications."
To coax consumers into making the shift, Telkom launched FreeMe plans in 2016, which include free calls and messaging on WhatsApp and similar applications.
"We disrupted the market — FreeMe sales have been superb. In November alone we sold 100,000 FreeMe prepaid packages, that’s the best ever," says Vitai.
Telkom "assumed" its competitors would not follow it down this path very aggressively as they had significant voice revenue streams to protect.
Being the youngest of the four mobile operators, Telkom Mobile "didn’t have that traditional voice [business] to lose in the first place, so I wasn’t cannibalising anything with these plans".
The strategy seems to be bearing fruit. In its mobile business, 70% of Telkom’s revenue comes from data while just 30% stems from traditional voice.
At Vodacom it’s a roughly 50/50 split. MTN still has a heavy bias towards traditional voice, largely because it operates in countries where the voice-calls business is rising off a low base.
MTN CEO Rob Shuter says he is bullish about the traditional voice-calls market across Africa and the Middle East, even though the group is rapidly scaling up its data and digital services offerings.
In the six months to June 2017, MTN’s voice revenues in SA fell 5%. But voice revenues were up in Nigeria and other African markets.
Shuter says population growth across Africa and the Middle
East, rising Sim card and handset penetration, and the potential
for market share gains, means "there is still a real business in voice and SMS".
Vitai argues that Telkom is punching above its weight in the data game, having positioned itself as the carrier for heavy data users.
"Our entry-level package is 1GB and we actually promote, very aggressively, the 2GB, 5GB, 10GB and unlimited data packages," he says.
He reckons Telkom now carries more data traffic on its network than Vodacom, even though it has far fewer subscribers.
"Our average consumer buys 10 times as much data as Vodacom’s average consumer does ... if you look at the Vodacom numbers, in the year ended last March, we carried, according to our calculations, more data traffic on our network than Vodacom did."
But Telkom, which launched its mobile business in 2010, has a long way to go to make a real dent in the mobile operator market, even though the group’s market share "is accelerating".
"I would hope that within the next few years we could get to double digits, more than 10% of the market, then our business would be [sustainable] over the long term."