Nashua Mobile is hiving off its MTN and Vodacom subscriber bases back to the mobile duopoly in a surprise move that will see it earn R2.26 billion, before eventually shutting down.
That will leave the independent mobile services provider market with only one main contender - Altech Autopage.
Autopage, although operating in the same market, has seemingly fared better than Nashua Mobile over recent months, as its strategy of bundling products and value-adding services along with the traditional voice product aided operating profit.
Nashua Mobile's decision comes less than a year after it vowed to fix its reputation in a bid to win over customers. Nashua Mobile has been battling as competition between mobile operators intensified in the saturated market.
Parent company Reunert notes in its latest annual results that the previous cut in mobile termination rates impacted revenue, and operating profit was dampened by reduced margins, because of a lower discount rate from Vodacom.
The service provider has also been affected by bad debts as consumers continue to face difficult financial conditions, noted Reunert. Its average revenue per user has also been declining, because of lower network tariffs and less out of bundle spending.
Uncertain future
Nashua Mobile, which has around 950 000 customers in total, was formed in 2000 after Nedtel Cellular and Nashua Cellular merged. It currently employs 601 staff and has 94 stores, the bulk of which are owned by franchisees.
The company also has a deal with Orange to create a limited brick-and-mortar presence. Currently, Orange has "Orange Corners" in Nashua Mobile stores in Sandton (Johannesburg), Brooklyn (Pretoria) and Canal Walk (Cape Town).
However, the future of this deal - and the fate of its staff - is now in the balance as Nashua Mobile will, over time, cease to exist. The entity has started negotiations with staff, who were informed of its move this morning.
Orange Horizons MD S'ebastien Crozier says Nashua Mobile's decision to get rid of its entire subscriber base is not material to its business as the company is looking into other ways to expand its presence.
JSE-listed Reunert said the company is also looking at ways to sell its Cell C subscriber base to a third party.
Reunert explains its decision to sell its subscriber base was driven by the expiry of the service agreement between Nashua Mobile and Vodacom, and the expiry of the incentive deal with MTN.
On the back of those two events, Reunert and Nashua Mobile pondered the long-term prospects for Nashua Mobile and "concluded that it is unlikely that this business would generate acceptable returns".
Mark Taylor, Nashua Mobile CEO, says: "This was a strategic decision on our part. Our priority now is to ensure that we maintain our service levels to our customers and that they are migrated seamlessly. We are also working hard to ensure that we minimise the impact of this transaction on our employees and we will make them a key focus of ours over the next while."
Reunert says its income from the sale will go to settling Nashua Mobile's liabilities, supporting the parent company's growth strategy and then into either dividends of share repurchases. Disposing of the two subscriber bases is expected to bolster earnings per share by 151.9%, to 1 480.83c.
No point
Absa Investments analyst Chris Gilmour notes Nashua Mobile has a fraction of the total SIM card market, which is currently around 70 million, and never really gained critical mass. He says the impact of its closure will be limited, due to its small size, although it does reduce competition in the sector.
Crozier adds the move is not good for competition in the market, but this trend has been seen internationally as operators want their own retail network.
Gilmour adds this is yet another symptom of the consolidation in the market, a trend he expects to continue. Recently, Telkom Mobile and MTN said they would set up a venture that would see the companies pool base stations.
The independent market is not a profitable space, says Gilmour. He also questions what value these "small guys" offer.
Ovum analyst Richard Hurst says companies such as Nashua Mobile and Autopage are essentially resellers, and add no real value to consumers' lives. He says Nashua Mobile's demise is "inevitable" and questions whether Autopage will follow the same route.
Neither Altech nor Autopage were this morning able to provide comment around what Nashua Mobile's eventual demise means for Autopage.
Hurst says the providers have been able to build on the fact that, in the early days, they inked a few enterprise deals, but have not been able to sustain this momentum. The bulk of Nashua Mobile's clients are on contracts.
Autopage has hinted that its margins are not that great and, without radical change in the segment, it may head the same way, says Hurst.
Hurst says Nashua Mobile's move shows the viability of the sector, which is dominated by large mobile operators to which the smaller players, that offer no value, are beholden. "They're just reselling SIM cards on behalf of the operators."
The deals are subject to regulatory approvals.
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