Who Moved the Telco’s Cheese?🧀

Did you know the journey from the durable Nokia 3310 to sleek smartphones marks more than just technological progress? It signifies a pivotal shift for giants like MTN and Vodacom in an ever-evolving telecom landscape. From battling over network dominance to embracing digital innovations like mobile money and fintech, these industry leaders are at a crossroads. This insightful article from the Finance Ghost talks about how MTN and Vodacom have adapted to changes, their strategic moves towards new growth avenues, and what the telecom future might look like.

Many of you reading this will be too young to remember a world in which people got excited about playing snake on a black and white screen. Somewhere out there, a Nokia 3310 is probably still on a couple of bars of battery life, having last been charged in the early 2000s. In case you’re wondering, the release date for the Nokia 3310 was September 2000.

To make you feel even older, the first iPhone came out in June 2007. The Age of the Smartphone is not even two decades old. It’s amazing how much can change, isn’t it?

A lot has changed for the telecommunications industry as well. In the early days of the cellphone, it was an event when you (or better yet, your parents) upgraded their cellphones every two years. There would be a serious negotiation about who actually needed that new phone.

“After all, mom, you don’t really have any friends!”

I distinctly recall going to Vodaworld as a kid. It was about the closest thing we had to Disney. Yet today, a phone upgrade is more of an annoyance than anything else and contracts are easily lasting three years, with telecoms companies seemingly far more excited about their fibre offerings than special deals on the latest colour screen phone.

Yes, colour screens weren’t always a given.

Someone moved their cheese

Who Moved my Cheese? was first published in 1998, which was around the time that telecoms companies were the Next Big Thing. Indeed, they enjoyed a solid period of growth as everyone either wanted or got a cellphone. By ruining many a teenage life by charging for every SMS at a time when there were no instant messaging alternatives, the likes of Vodacom grew quickly and built a formidable business.

The book deals with change, something that Vodacom, MTN and every other major telecoms player knows all about. The beginning of the end of the good times was when instant messaging became possible over internet platforms, like Mxit in South Africa. BBM then came along and everyone in my class at university wanted a BlackBerry. Only the richest of rich kids had the iPhone as the brand-spanking-new technology at that time.

Today, everything happens on WhatsApp. Nobody sends SMS messages except courier companies giving you a vague idea of when the doorbell might ring. Have you noticed how much less you spend on a cellphone contract these days than 10 years ago? And that’s before adjusting for inflation.

It’s amazing how different your mobile data spend is when you are on Wi-Fi for half the day. The cheese wasn’t just moved for the telecoms groups in South Africa; it was eaten.

What does that look like?

If Vodacom really wants to exact some revenge on Kenneth Nkosana Makate in the Please Call Me sage, they should pay him in shares and insist that he keeps them for five years. After all, the Vodacom share price hasn’t exactly been a route to riches since the Global Financial Crisis:

At least Vodacom has paid a dividend along the way, so the total return chart does look better. Still, this has clearly not been the way to play what has happened in the telecommunications industry. I won’t even upset you by pointing out Apple’s return over the same period.

MTN, on the other hand, is the wild child in the family that is capable of creating princes and paupers with equal aplomb. Trading at around R93 per share, you would be forgiven for thinking that you’ve seen this level before. Indeed, MTN traded at these levels in 2007! If you bought MTN shares when Apple released the smartphone, you would’ve achieved exactly no share price growth. If you were able to swing trade the MTN chart successfully, then you could’ve made excellent profits on the volatility.

In summary: the fact that you’re spending less on your cellphone contract than ever before is a very good indicator of what things have been like in this sector.

Is there any new cheese?

In pursuit of growth, our local giants turned to Africa. After all, the best days in South Africa were when everyone was getting a phone for the first time, so it’s logical to go after frontier markets where smartphone penetration is still a strategic initiative rather than a given.

This comes with a number of other exciting initiatives as well, like mobile money and the broader fintech revolution. The theory is that a smartphone is a bank in your pocket, facilitating the flow of money among consumers. It’s a very good theory, except doing business in the rest of Africa is even harder than in South Africa.

MTN has been on the receiving end of extensive pain from the Nigerian government. Once you add in the difficulties with the depreciation of the naira (a currency that makes the rand look more resilient than the Springbok front row), you have a recipe for trouble. MTN’s foray into Nigeria (and some of the other African countries as well) has been a source of immense volatility in the share price. Strategically, it makes a world of sense. In practice, it’s really hard to get this right.

Vodacom has focused on less risky countries like Kenya, operating in that territory through Safaricom. Parent company Vodafone has been allowing Vodacom to become its platform through which African exposure is held, with Egypt as the recent example of that strategy. Vodafone effectively placed Vodafone Egypt under the care of Vodacom, increasing its stake in Vodacom to 65% in the process.

Encouragingly, Vodacom recently reported solid growth numbers in Egypt. Perhaps the best cheese is to found alongside the Nile?

What haven’t they considered?

Aside from trying to build out fintech and fibre businesses, the telco leaders could give serious thought to streaming. The trend among US-based telecoms businesses has been to combine content and networks, with good examples being Comcast (historically a home telephone business in the US and now a TV and streaming group) and AT&T (the largest wireless carrier in the US and a provider of streaming services as well).

The logic here? If people are streaming, they are using data. They might just be using your data as the network provider. And since the telcos can do things like offer free data for specific apps, they might be able to offer discounted data to stream content on smartphones.

Could we see a world in which a content creator like MultiChoice licenses local content to Vodacom and MTN to be shown alongside global content sourced elsewhere as well? VodaTV, anyone? MTV sadly won’t work for MTN – that’s another relic of a platform that was cool once upon a time.

Only time will tell. But in the meantime, I use my monthly cellphone bill as an excellent barometer of whether I should have exposure to either MTN or Vodacom.

As you might have guessed, I don’t own either one.

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