With more than 30 million South African mobile phone owners in 2007, the most powerful and the most developed country of Africa plays an important role on the international mobile phone market. According to data from the "SA Mobile Market" statistical handbook, the South African market's size is more than the Australian and Canadian markets combined and "close behind the mobile market in Spain". In South Africa, the industry is dominated by three companies: Vodacom, MTN and Cell C which operate persistent high prices. With 58% of market shares (Telkom Annual Report 2007) Vodacom is the leader of the market. MTN has 34% of market shares (MTN Annual Report 2007) and Cell C reaches 8%. According to the Competition Act, both Vodacom and MTN can be classified as "dominant" in the mobile phone industry. It is also relevant to note that the combined market share of the two major companies is more than 90%.
Tags: Oligopoly in South Africa, South Africa Oligopoly firms, Oligopolies in South Africa
[...] In this way, according to the company annual reports (2007) and ICASA, the HHI of the South African mobile phone industry can be calculated as follow: HHI = 10,000 [ (market share of Vodacom)² + (market share of + market share of Cell HHI = 10,000 (58 + + = 10,000 x 0,4584 HHI = 4,584 The South African mobile phone market is highly concentrated, which is typical of an oligopoly. The nature of the competition Using a non-price competition strategy is common among oligopolies. [...]
[...] This non-price strategy in the South African mobile phone industry involves also an increase in marketing research, new product development and brand management costs. According to Ipsos-Markinor Brand Survey (2005), Vodacom is the South Africa's favorite advertiser and the second preferred overall brand. Retaining customers is a one of the main targets of the mobile phone operators. Because the market becomes mature in South Africa and the costs of switching operators are decreasing, customer retention is the crux of the strategy. [...]
[...] According to Theron (2006: recent studies show that in South Africa interconnection rates are excessively high. “While all three of the mobile operators may be charging these high interconnection fees, these fees may significantly reduce the competitiveness of Cell C. Because of its small size relative to Vodacom and MTN, Cell C subscribers are likely to make a large number of calls to Vodacom or MTN subscribers. The high cost of the interconnection may therefore serve as an incentive for potential customers to subscribe to Vodacom or MTN.” These interconnection fees, the costs to acquire base stations and the amount of the license constitute high barriers to entry in the industry. [...]
[...] High interconnection fees between networks can also be a cause of these good financial results (Theron 2006: The barriers to entry in the industry As the theory of oligopoly mentions, the barriers to entry in the South African mobile phone industry are very high. The market is under a regulatory regime where a license has to be purchased to compete. The fees of this license are very expensive. Furthermore, as Cell C has experienced since 2001, high costs for calling within the same network or to another one (high interconnection fees by the other network for terminating a call) and base stations costs discourage most of the potential entrants. [...]
[...] The evidence of abnormal profits Before to analyze the current profits of each company of the South African mobile phone market, it is relevant to note that firms become profitable after 6-8 years, because of “high initial costs” (Theron 2006: 2). According to Theron (2006: “where the average cost curve in a traditional market declines over time and reaches a point where it starts to rise again, in network industries the average cost might be declining over a very long period as network effects are realized”. [...]
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