5 November 2002 Public hearing: Consumer issues relating to cellular

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5 November 2002Public hearing Consumer issues
relating to cellular

• Phuthuma Nhleko
• CEO MTN Group Ltd
• Sifiso Dabengwa
• MD MTN (Pty) Ltd

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Contents

• A. MTN Group Ltd
• B. Focus on customer services
• C. Decreasing trend in cellular tariffs
• D. Network performance
• E. In summary
• F. The way forward - MTN Recommendations

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A. MTN GROUP LTD

• Name change on 14 October 2002
• MTN Group common bond/vision within group
  companies
• MTN Group Ltd - holding company with 3 divisions
• Mobile Telephone Networks (South Africa)
• MTN International
• Strategic investment division
• MTN Group provides a varied basket of
  communications services in 6 countries across
  Africa
• African multinational in tune with the
  communications needs of the 21st century

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MTNs Other Networks(Total Pop 202m, 30 of
the continents population)
23m
120m
8m
16m
40m
1m
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MTNs Impact in Africa (Teledensity)
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Contributions to the SA economy

• MTNs contributions to fiscus and economy 1995 -
  2001
• Licence fee R100m
• Annual NOI licence fee R 883m
• Annual Spectrum fee R42.7m
• Taxes R2bn
• JEDP R22bn
• Corporate Social Investment R80m__
• Total R25.2bn

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B. Focus on customer services

• MTN SA vision
• Measuring customer satisfaction
• Taking complaints seriously
• Customer care facilities

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MTN South Africa

• VISION
• To be the industry leader through customer
  intimacy
• First for customer service
• Deliver above average returns
• South Africas most admired brand
• Employer of choice

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MTN South Africa subscriber numbers
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Measuring customer satisfaction

• Customer Satisfaction Index (CSI)
• Measured by Proactive (independent company)
• Computer Assisted Telephonic Interviewing
• 1 500 randomly picked subscribers interviewed
  quarterly
• Respondents asked to rate services on 10 point
  scale, converted to a percentage
• Continues process to improve customer
  satisfaction
• Independent survey shows MTN customer
  satisfaction performance more than 85

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Complaints are important

• Formal structure for dealing with customer
  complaints
• Complaints Management Process
• Root Cause Analysis Process
• MTN employs more than 1 000 customer service
  agents
• Ongoing assessment of all our customer facing
  process
• Continuous process re-engineering
• Three call centers
• Gauteng
• KZN (recent addition)
• Limpopo (recent addition)

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Customer care facilities

• 24 hour, 7 day available customer care
  facilities
• Problem resolution
• Information provision on handsets, products
  services
• Complaints management
• Billing and account inquiries
• Service activation
• Directory enquiries
• Emergency services

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C. Decreasing trend in cellular tariffs

• MTN tariffs have decreased in real terms over
  time
• Annual tariff increases
• Tariffs in context
• MTN - average prepaid prices
• Internal input costs
• External input costs
• Macro economic conditions influence foreign
  local investor confidence
• Tariffs versus services
• SA mobile market compares favourably

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MTN tariffs decreased in real terms
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Annual tariff increases

• Annual tariff increases approved by ICASA
• Increase in tariff basket no more than year on
  year CPI
• CPI linked to inflation
• Actual increases below CPI

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Tariffs in context

• Tariffs should not be looked at in isolation, but
  should be seen in the context of
• Total customer satisfaction - cost, quality
  coverage area
• Total cost of ownership - handsets, line rental
  airtime
• Basket of services available
• Capital invested
• Tariffs are cost based but also reflect market
  dynamics
• Investor/shareholder expectations
• Competition regulation
• Customer expectations affordability

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Internal input costs (more controllable)

• Network costs
• Service Provider discounts
• Connection incentives
• COS (mobile phones SIM cards)
• Opex
• Salaries staff costs
• Site build leases
• Leased transmission costs (Telkom)
• Maintenance
• Marketing costs
• Sales costs
• Travel
• Training

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External input costs (less controllable)

• Licence fees (up-front annual)
• Spectrum fees (e.g. 1800)
• Interconnect rates
• Rates taxes
• Roaming costs
• Universal service obligations
• Contributions to USF
• Emergency centres free emergency calls
• Devaluation of the Rand against the US
• Cost of handsets
• Compliance with regulatory requirements (not only
  telecommunications)

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Macro economic conditions influence foreign
local investor confidence

• Global down turn in telecoms markets
• Local foreign investor confidence influenced by
• Certainty predictability of policy, legal
  regulatory environment
• Stability of local currency
• Level of inflation interest rates
• Extent of investment required
• Average mobile network investment 4 billion
  (add R700 million 1800 fee investment becomes
  unattractive)
• High level of local foreign investor confidence
  will result in
• Stronger local currency lower inflation
• Increased FDI local investment
• Increased competition - benefiting the consumer
• Increased development of local market labour
  force
• Increased employment
• NEPAD objectives being met

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Tariffs versus services

• Mobile information value added services have
  become numerous and varied
• 50 ICE consumer services eg
• Ringtone logo
• Voice chat
• ICE man menu
• SABC competitions
• 10 MTN branded VAS services eg
• Directions
• Legal assist
• Tax assist
• Wake up call
• Computicket

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Comparison to tariffs with OECD
OECD basket of consumer mobile phone charges -
August 2000
The South African market compares favourably with
those of other equivalent economies, with
significantly lower barriers to entry and tariffs
than most emerging economies.
USD
SA assumes business time package, 25min per
month each on peak and off peak. OECD basket
assumes 50min per month Source OECD Cellular
mobile pricing structures and trends, May 2000
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D. Network performance

• Network coverage
• Network quality
• External influences on network quality
• RF interference problems
• MTN SA subscriber numbers
• Overview - network quality

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MTN Coverage (October 2002)
Country Area - 1 225 020 km2 Total Coverage - 885
666.85 km2 Land Coverage - 794 104.71 km2 (70
of land) Sea Coverage - 91 562.14km2 Total
Population - 44 million Population Covered - 39
724 548 (96 of pop)
70 of land area covered. 96 of the
population. 4000 sites.
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Mobile penetration by country
Merrill Lynch Wireless Matrix - 1Q02 - 7 June 2002
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Network quality
Licence obligation at least 2 grade of service
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Busy hour drop call rate
Drop call rate reduced by 233 over 9 years. (25
per year)
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Busy hour Radio Congestion
Congestion sustained for last 18 months at 0.2.
(90 lower than license requirement)
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External influences impacting on network quality,
no of dropped calls, interference congestion

• Site acquisition is becoming increasingly
  difficult
• Lack of infrastructure
• Electricity - Eskom cant always supply in rural
  areas
• Transmission - obliged to use Telkom fixed links
• Access - access roads in deep rural and
  hilly/mountainous areas prohibitively expensive
• Interconnection - Suitable Points of Interconnect
  not always available from Telkom
• Spectrum costs availability
• 900 MHz allocation inadequate given size of
  subscriber base
• Need for 1800 MHz but prohibitively expensive
  still used by others
• Continuous rise in network equipment costs as R
  depreciates against US
• Handset quality (grey products illegal imports)

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RF Interference Problems

• Various external RF interferers
• Cellular jamming devices
• Cordless phones
• Remote security video cameras
• Mobile pay point systems
• Various still to be identified (in hand with
  ICASA)
• Shielding by large structures e.g. trucks
• Difficult and time consuming to trace
• MTN has no legal right to shut interferers down
• Report interference problems to ICASA
• Lengthy process
• ICASA under staffed in many areas could take up
  to 6 months or more to resolve cases
• ICASA depend on legal system to gain access to
  sites court orders etc.
• Low percentage of reported cases resolved to date
• Control on importation of illegal equipment very
  difficult
• Expensive test equipment required to perform
  interference investigations

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Overview - Network quality
Network quality key performance indicators
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E. In summary

• Tariffs handset costs have decreased in real
  terms while the range of applications solutions
  have increased
• MTN network quality coverage is world class
• Customer satisfaction is of paramount importance
  to MTN
• Operational success despite challenges

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F. The way forward - Recommendations

• Industry standards benchmarking by ICASA
• Consumer protection regulations
• Strengthen ICASA - capacity financial
• Enhance consumer awareness with all
  constituencies eg
• Telecommunications operators
• ICASA
• DoC
• Develop a national legislative framework to
  alleviate excessive site approval constraints
• Accelerate ICT strategy implementation in
  especially local manufacturing

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Mobile the African solution