Jacques du Toit | CEO | Vox Telecom | mail me |
If connectivity is now only a fraction of a viable Internet Service Provider (ISP)’s revenue, where does the business go from here, and what should companies be changing to ensure they remain relevant to South Africans?
Over the past few years, mobile and fixed connectivity have delivered low to moderate growth for most ISPs.
Beyond the connectivity baseline
The Independent Communications Authority of South Africa (ICASA) estimates that connectivity still accounts for 70-90% of revenue across the market. Fixed internet and data revenue is 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.
Companies leaning on connectivity for growth are battling higher churn, lower lifetime value and significantly reduced stickiness. The gap between profit and connectivity is widening exponentially. 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 Artificial Intelligence (AI), geopolitical tension and economic recession?
Fortunately for South African companies, there is a time-delay lag compared with other countries. This gives companies the space they need to readjust their strategies. However, this doesn’t mean bundling more products together. 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. Yet, unless price and service are exceptional, the offerings remain relatively the same. Customers are choosing based on cost. Meanwhile, companies are trying to fill the gap that cutting costs has left behind.
Rethinking the ISP Model
Many of these solutions have also become 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. This places additional pressure on the ISP model and forces providers to rethink how they create and retain value.
Reward and loyalty programmes are one way to build customer stickiness and satisfaction. They can potentially hold customers within your ecosystem while you add new services and solutions.
For ISPs, loyalty programmes can help you evolve your retention tactics. They can become more strategic platforms that you 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. Businesses can leverage that trust 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. Once you have loyalty, the data and trust this generates can justify you offering more to the customer and vice versa.
Building stickiness through loyalty
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, you create additional value.
When those services also fill real gaps in their lives, businesses and markets, you become so sticky that you hold them there by default. This approach can strengthen the ISP model by making the customer relationship about more than connectivity.
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. Companies can’t increase their revenue by passing those costs on to customers because customers are starting to kick back.
Yes, the cost increase comes with a faster line. A 50mb link costs R499 instead of the 20mb link for R269. However, customers don’t want the speed. They want the savings.
The extra R200 is a meal, a paid bill, part of the rent. When the cost of living and the earning numbers don’t match, people opt out.
Expanding beyond connectivity
Growth needs to come from innovation. It needs to come from expanding outwards into new services and solutions that make sense to your business, market and model.
Insurance, financial services, education and bundled services are routes that can build the ISPs’ stability while enhancing what you deliver to your customer. That is a strategy that delivers on the long-term for growth.
It isn’t about putting all the eggs in one proverbial connectivity basket. Instead, it is about meeting the customer at the inflection point of cost and service delivery. The ISP model must therefore evolve alongside changing customer expectations, economic pressures and new forms of competition.
Ultimately, the ISP model cannot depend on connectivity alone. Providers need to build broader ecosystems that deliver measurable value to customers. By doing so, they can strengthen loyalty, diversify revenue and create a more sustainable path for long-term growth.
