Mind the gap: The space between profit and connectivity has widened
If connectivity is now only a fraction of a viable ISP’s revenue, where does the business go from here, and what should companies be changing to ensure they remain relevant to South Africans? asks Jacques du Toit, Chief Executive Officer, Vox.
Over the past few years, mobile and fixed connectivity have delivered low to moderate growth for most ISPs. The Independent Communications Authority of South Africa (ICASA) estimates that in South Africa, connectivity is still 70-90% of revenue across the market, with fixed internet and data revenue growing at 14.62% year-on-year. However, this is not the full picture. This is a snapshot of the broader market that doesn’t take the growing tension between revenue and subscriber momentum into account. Intense competition, lower data costs and a low-margin, commoditised baseline are having a long-term impact on business momentum.
And yet, according to the GSMA, the services that move beyond the core telecoms space are still only at 27% of total revenue. Connectivity has left the innovative building and become a commoditised necessity that anyone can sell and companies leaning on it for growth are battling higher churn, lower lifetime value and significantly reduced stickiness. The gap between profit and connectivity is widening exponentially and companies need to move and change now to avoid living on borrowed time.
The question is, where do they move? How do ISPs reinvent their capabilities at a time when every capability and service offering is being challenged by AI, geopolitical tension and economic recession? Fortunately for South African companies, there is a time delay lag compared with other countries, giving companies the space they need to readjust their strategies. And this doesn’t mean bundling more products together because that just increases risk – if you lose your base, you lose revenue in just one product. Most companies have stepped into cloud, security and VoIP, but unless price and service are exceptional, the offerings remain relatively the same. Customers are choosing based on cost while companies are trying to fill the gap that cutting costs has left behind.
Many of these solutions have also been outmoded by infrastructure and changing customer behaviours. WhatsApp has replaced VoIP, Amazon has entered South Africa with an exceptionally low-cost offering of just R59 for unlimited deliveries, Prime Video, Amazon Luna cloud gaming and exclusive shopping benefits. Carrying the weight of international clout and a vast footprint, the company can easily undercut the ISP that has built an offering on top of local costs and capabilities.
Reward and loyalty programmes are one way to build customer stickiness and satisfaction, potentially holding them within your ecosystem while you add new services and solutions. For ISP’s, loyalty programmes can help you evolve your retention tactics to become more strategic platforms that they can use to assess, adapt and change what you sell. According to the Accenture Embracing the Loyalty Equation report, trust is a large part of the relationship between customer and company in this market and can be leveraged to deepen experiences and engagement. It’s a sentiment echoed in a study that found how tiered loyalty programmes can open up opportunities for customised billing, cross-selling services, partner promotions and premium service tiers. These take the relationship far beyond connectivity itself because once you have loyalty, the data and trust this generates can justify you offering more to the customer and vice versa.
When you reward customers for being part of your environment, you are holding out a carrot. When you add services within that rewards platform that are unique to just them as subscribers, and that fill real gaps in their lives, businesses and markets, then you are so sticky, you’re holding them there by default.
Finally, ISPs need to stop focusing on the percentage margin and focus on money in the bank. With deflation comes a drop in absolute money as operating costs go up and companies can’t increase their revenue by passing it on to the customers because they’re starting to kick back. Yes, the cost increase comes with a faster line – a 50mb link for R499 instead of the 20mb link for R269 –, but customers don’t want the speed, they want the savings. The extra R200 is a meal, a paid bill, part of the rent and when the cost of living and the earning numbers don’t match, people opt out.
Growth needs to come from innovation, from expanding outwards into new services and solutions that make sense to your business, market and model. Insurance, financial services, education, bundled services – these are routes that can build the ISPs stability while enhancing what you deliver to your customer. And that is a strategy that delivers on the long-term for growth because it isn’t the eggs in one proverbial connectivity basket, it’s meeting the customer at the inflection point of cost and service delivery.
